01.29.2021 | Articles

Southern District of NY Issues Fourth Decision Dismissing Insured’s Claim for BI Coverage

By Kelly E. Petter

The United States District Court for the Southern District of New York issued the fourth decision related to an insured’s claim for insurance coverage due to the COVID-19 pandemic. See Redenburg v. Midvale Indemnity Company, 20 Civ. 5818 (PAE) (S.D.N.Y. Jan. 27, 2021). The insured law firm claimed to have “suffered business losses as a result of New York State’s stay-at-home orders issued in response to the pandemic, which, it claims, have prevented clients from visiting the firm’s offices and thus cost it business.” Id., at *11. The carrier presented several basis for its motion to dismiss, but the Court considered only one – the Virus Exclusion – that it found dispositive of the entire case. Id, at *13. The Virus Exclusion excluded from coverage loss or damage caused directly or indirectly by “[a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or diseases,” and, pursuant to the policy terms, the exclusion applied “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” Id. The insured attempted to avoid the exclusion by arguing that its losses were not caused by the COVID-19 virus, but by the state stay-at-home and social-distancing orders, which contention the Court rejected. Id. Relying on the allegations in the Complaint, the Court concluded that the emergency orders were prompted by the virus, which satisfied the efficient proximate cause standard, and the Court further noted that the Virus Exclusion applied to loss or damage “directly or indirectly” caused by a virus, which standard was satisfied in the instant case. Id., at *13-14. In so holding, the Court noted that “the state’s stay-at-home orders were, in the sequence of causation, one step more proximate to Redenburg’s losses than the virus thus does not bring Redenburg’s claims outside the exclusion.” Id., at *14.

The Court also reasoned that its ruling was consistent with decisions from Courts across the nation, which held that claims, such as the insured’s, were excluded under similarly worded exclusions. Id., at *15, citing, LJ New Haven LLC v. AmGUARD Ins. Co., No. 20 Civ. 00751 (MPS), 2020 WL 7495622, at *1 (D. Conn. Dec. 21, 2020) (dismissing claim for coverage under “business interruption” policy based on state executive orders closing indoor dining in restaurants because the “policy’s virus exclusion forecloses coverage for Plaintiff’s losses”); Founder Inst. Inc. v. Hartford Fire Ins. Co., No. 20 Civ. 4466, 2020 WL 6268539, at *1 (N.D. Cal. Oct. 22, 2020) (dismissing claim because, even assuming plaintiff’s “claim for loss of business income due to the shelter-in-place orders would otherwise be covered by [plaintiff’s] insurance policy, the claim clearly falls within the [policy’s] virus exclusion”); Brian Handel D.M.D., P.C. v. Allstate Ins. Co., No. 20 Civ. 3198, 2020 WL 6545893, at *1 (E.D. Pa. Nov. 6, 2020) (same).

The Court also addressed the insured’s attempt to differentiate between a virus and a pandemic by way of footnote in which it described the attempt at distinction as “meritless.” Id., at *n. 5. “[T]he COVID-19 pandemic is simply a large-scale outbreak of a virus,” and the policy’s virus exclusion explicitly applies “whether or not [the virus] results in widespread damage or affects a substantial area.” Id.

If you have any questions or would like further information about this decision or Business Interruption claims, please contact Attorney Kelly Petter at: 860-247-0644 or kpetter@hassettanddonnelly.com

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