The United States District Court for the Southern District of New York issued four decisions dismissing claims for insurance coverage related to the COVID-19 pandemic. See Social Life Magazine, Inc. v. Sentinel Ins. Co. Limited, 1:20-cv-03311-VEC (S.D.N.Y. May 14, 2020); Michael Cetta, Inc. d/b/a Sparks Steak House v. Admiral Indem. Co., 1:20-cv-04612-JPC, 2020 U.S. Dist. LEXIS 233419, __ F. Supp. 3d __ (S.D.N.Y. Dec. 11, 2020); 10012 Holdings, Inc. d/b/a Guy Hepner v. Sentinal Ins. Co., LTD, 1:20-cv-04471-LGS (Dec. 15, 2020); Redenburg v. Midvale Indem. Co., 1:20-cv-05818-PAE, 2021 U.S. Dist. LEXIS 15434 (S.D.N.Y. Jan. 27, 2021). The Nassau and Orange County Supreme Courts of New York recently joined the Southern District and myriad courts across the country dismissing insureds’ suits against their insurance carriers seeking such coverage. These are the first New York State Court decisions related to COVID-19 insurance claims.
Soundview Cinemas Inc. v Great Am. Ins. Group
The plaintiff in Soundview Cinemas Inc. is a movie theater that sought coverage related to orders issued by the Governor of New York resulting in the complete closure of the theater from March 2020 through the time of the Court’s order on February 8, 2021. Soundview Cinemas Inc. v Great Am. Ins. Group, 605985-20, 2021 N.Y. Misc.LEXIS 527, 2021 NY Slip Op 21025 (Sup Ct, NY Nassau 2021). Relying on the aforementioned Southern District decisions, the Hon. Timothy S. Driscoll held that “the Court concurs with the majority view that loss of use of the Premises due to COVID-19 related government orders does not constitute ‘direct physical loss of or damage to the property’ that would trigger Business Income coverage under the Policy.” The Court also held that Extra Expense coverage did not apply because: 1) the Extra Expense coverage was contingent on an initial finding that Business Income coverage applied; and 2) the plaintiff did not allege facts demonstrating that it incurred expenses “during the period of restoration that the insured would not have incurred ‘if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss.’” The Court also found that the Civil Authority coverage was not triggered because the plaintiff did not allege facts to demonstrate that access to the Premises was prohibited due to direct physical loss of or damage to neighboring property. Accordingly, the claims against the insurer were dismissed.
The Court also dismissed claims against agent and broker entities based upon an alleged failure to secure adequate insurance related to the pandemic and government closures pursuant to New York common law.
Visconti Bus Serv., LLC v Utica Natl. Ins. Group
Similar to Soundview Cinemas, the plaintiff in Visconti Bus Serv., LLC is a bus contractor that claimed its operations at the premises were restricted in total or in part in response to state and national orders designed to mitigate the COVID-19 pandemic and to save lives and protect property. Visconti Bus Serv., LLC v Utica Natl. Ins. Group, EF005750-2020, 2021 N.Y. Misc.LEXIS 546, 2021 NY Slip Op 21027 (Sup Ct, NY Orange 2021). Visconti alleged that Executive Orders required the reduction of in-person workforce for non-essential businesses, and Executive Orders closed schools thus ceasing the operation of Visconti’s bus fleet with the exception of two buses used to deliver meals to students of a closed local school district. Dissimilar to Soudview Cinemas, the plaintiff in Visconti Bus Serv., LLC continued to operate in a limited capacity. In addition to allegations of limited operations due to the Executive Orders, Visconti also alleged in the complaint that COVID-19 is accepted as a cause of real physical loss and damage, because, pursuant to a study published in The New England Journal of Medicine, it remained stable and transmittable in aerosols for “at least three hours, up to four hours on copper, up to 24 hours on cardboard and up to two to three days on plastic and stainless steel.”
Relying on the aforementioned precedent from the Southern District related to COVID-19 insurance coverage claims, as well as New York precedent unrelated to COVID-19, the Court held that coverage is triggered under the policy only by direct physical loss or damage to the covered property itself, and a mere loss of use or functionality does not constitute a “direct physical loss” within the meaning of a policy using the phrase “direct physical loss or damage to covered property.” See Roundabout Theatre Co., Inc. v. Continental Cas. Co., 302 AD2d 1, 751 N.Y.S.2d 4 (1st Dept. 2002); Newman Myers Kreines Gross Harris, PC v. Great Northern Ins. Co., 17 F.Supp. 3d 323 (S.D.NY 2014). In so holding, the Court concluded that the words “direct” and “physical” modify the phrase “loss or damage” thus requiring “a showing of actual, demonstrable physical harm of some form to the insured premises.” The Court further concluded that the forced closure of the premises for reasons unrelated to the premises itself was insufficient to trigger coverage. Significantly, the Court rejected the plaintiff’s argument that the study in The New England Journal of Medicine was sufficient to establish real physical loss and damage related to aerosols containing COVID-19, instead concluding that “even if Covid-19 were found at Visconti’s premises, it would not constitute the direct, physical loss or damage required to trigger coverage because its presence can be eliminated by routine cleaning and disinfecting.” Accordingly, the Court dismissed the plaintiff’s claims for Business Income and Extra Expense coverage.
The Court also dismissed the claim for Civil Authority coverage despite noting that the alleged losses were unquestionably caused by an action of civil authority, because the plaintiff failed to allege in the complaint that the Executive Orders prohibited access to the insured premises, or that the Executive Orders were issued due to “direct physical loss of or damage to” property other than the insured premises.
The Court also noted that, even if coverage were somehow found to exist under the policy, three exclusions seemed to singly or collectively present an insurmountable barrier to coverage: 1) the loss of use exclusion; 2) the loss of market exclusion; and 3) the virus exclusion. However, despite noting the possible applicability of the exclusions, the Court did not base its decision on the applicability of same.
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.
Up Next...
