By Dorothy Atkins

Law360 (November 17, 2020, 7:59 PM EST) -- United Talent Agency has hit two Chubb Group subsidiaries with a breach of contract lawsuit in California state court, alleging the insurers wrongfully rejected claims for over $150 million in COVID-19-related losses, despite acknowledging in financial reports that they could be on the hook for such losses.

In a 28-page Friday complaint, UTA claims that the New Jersey-based Vigilant Insurance Co. and Federal Insurance Co. broke their contracts when they refused to cover UTA's business interruption claims tied to losses that resulted from canceled live events and television and motion picture productions.

UTA argues that its broad, "all risk" commercial property and business interruption policies with Vigilant and Federal cover pandemic-related losses because each policy includes a provision covering financial losses caused by "direct physical loss or damage" to property.

"Vigilant and Federal have known for decades that the phrase 'direct physical loss or damage to property' extends to damage or loss caused by the presence of a hazardous substance in the airspace inside a building or on property, and losses that result when the use or function of property is substantially impaired, even if the property has not been physically altered," the complaint says.

The Beverly Hills, California-based UTA argues that since 1962, California courts have recognized that even if a building has not been physically altered, property can still be covered under such a provision. And although the Chubb units began selling insurance policies that specifically included a "virus or bacteria" exclusion in 2006, UTA's policies do not include such an exclusion, the complaint says.

"Vigilant and Federal did nothing in selling their policies to limit their liability for virus- or pandemic-associated risks," the suit says. "Nor did Vigilant and Federal warn UTA that even though they did not include a virus or pandemic exclusion, they would interpret their policies as if they contained such an exclusion."

UTA also noted that Chubb has even recognized in its annual public financial reports that the insurance company's revenues may be impacted by catastrophes like "a global or other wide-impact pandemic."

"As these disclosures show, instead of warning their insureds, including UTA, that their policies would not cover pandemic-associated losses, Vigilant, Federal, and other members of the Chubb group of insurance companies warned the public and their shareholders that the amounts they might have to pay for such losses could affect their financial condition," the suit says.

The agency's five-count complaint asks the court to declare that it's entitled to insurance coverage for its pandemic-related losses, which UTA estimates is roughly $150 million and growing, and it asserts a breach of contract claim and a tortious breach of the implied covenant of good faith and fair dealing claim.

A Chubb Group spokesperson said Tuesday that the company doesn't comment on pending litigation. Counsel and representatives for UTA didn't immediately respond to requests for comment Tuesday.

The case is one of a bevy of coronavirus-related lawsuits by retailers, restaurants, hotels, museums and other businesses against insurance companies that have sprung up since March in the wake of state-mandated closures that aim to slow the spread of COVID-19.

The businesses generally claim that the insurers wrongfully denied them coverage for their losses, and the disputes have shed new light on the importance of various insurance policy terms and exclusions, including provisions that exclude coverage for losses due to contamination by viruses and bacteria.

Many of the lawsuits playing out in the courts have hinged on whether a virus can cause a "physical loss" to property. So far, federal and state courts across the country have appeared to lean in favor of the insurance companies on the matter.

Last month, a California federal judge ruled in favor of a Berkshire Hathaway insurance unit, finding that government shutdown orders don't constitute a "direct physical loss" that triggers two hotels' insurance policies, and even if it did, the judge said there was a virus exclusion in the policy. Earlier this month, a California state judge reached a similar finding in a suit brought by famed Hollywood restaurant Musso & Frank Grill Co. Inc. against Mitsui Sumitomo Insurance USA Inc.

In another case in October, a California hotel operator asked the state's highest court to bypass an intermediate appellate court and immediately review its appeal of a decision absolving its insurer from having to cover its COVID-19 losses, saying the case involves an issue of "great public importance" that is present in many similar coverage actions. As of Tuesday, a hearing on that request has not yet been set, according to the docket.

At a Judicial Panel on Multidistrict Litigation hearing to determine whether to roll such suits into an MDL, attorneys called "direct physical loss or damage" the "five simple words" that were a common thread throughout the suits.

United Talent Agency is represented by Kirk Pasich and Michael S. Gehrt of Pasich LLP.

Counsel information for the insurance companies wasn't immediately available Tuesday.

The case is United Talent Agency LLC v. Vigilant Insurance Co. et al., case number 20STCV43745, in the Superior Court of the State of California, County of Los Angeles.

--Additional reporting by Jeff Sistrunk. Editing by Daniel King.

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