Wade Clark Mulcahy LLP

<p style="text-align: justify;">Two recent SDNY decisions highlight the national consensus among courts across the country to rejects insureds’ claims for coverage of pandemic business losses. According to Law360’s COVID-19 Insurance Case Tracker, these two cases are among nearly 1,400 federal cases across the country since the pandemic began. About half of all such federal cases have been dismissed. Of Interest previously covered developments at the state level, the New Jersey Appellate Division, that continued the national trend upholding insurers’ denial of coverage for business losses during the pandemic.</p>
<p style="text-align: justify;"><em><a href="https://www.wcmlaw.com/wp-content/uploads/2022/08/JRLDDS.pdf">JRLDDS</a> LLC d/b/a Jeffrey R. Lemler, DDS v. The Hartford Financial Services Group and Trumbull Insurance Company</em>, 21-CV-9487 (JMF), (S.D.N.Y. Jul. 29, 2022)</p>
<p style="text-align: justify;">In JRLDDS v. The Hartford Financial Services Group and Trumbull Insurance Company, the Court began its discussion referring to the “more than six dozen decisions applying New York law (…) to claims of the sort made by” the insured in this case.  Plaintiff, a dentist, held an all-risk insurance policy that covered business interruption losses and “direct physical loss of or damage to” his business property. When the insurer denied coverage, plaintiff sued for breach of contract, breach of the implied covenant of good faith and fair dealing, violation of the NYGBL, and unjust enrichment. The Court granted defendants’ motion to dismiss for failure to state a claim and relied on the rationale of the dozens of cases that had already decided similar issues:</p>
<p style="text-align: justify;">1) Direct physical loss of or damage to property does not encompass “loss of use” of business facilities;
2) The “presence of the COVID-19 virus in the air and on the surfaces” of an insured premise does not “constitute[] ‘direct physical loss or damage to’” property;
3) COVID-19 shut-down orders did not trigger coverage because they “were the result of the COVID-19 pandemic and the harm it posed to human beings, not … risk of physical damage to property.”</p>
<p style="text-align: justify;"><em><a href="https://www.wcmlaw.com/wp-content/uploads/2022/08/BROADWALL.pdf">BROADWALL</a> Management Corp. et al, v. Affiliated FM Insurance Co</em>., 21-CV-10247 (PAE), (S.D.N.Y. Aug. 1, 2022)</p>
<p style="text-align: justify;">In dismissing this plaintiff’s amended complaint, the <em>Broadwall</em> Court similarly referred to the “avalanche of authority” in New York courts that has determined that “while the presence of COVID-19 may render property potentially harmful to people, it does not constitute harm to the property itself.”</p>
<p style="text-align: justify;">Both SDNY cases above relied on the Second Circuit’s 2021 decision in<em> 10012 Holdings, Inc. d/b/a Guy Hepner v. Sentinel Insurance Company, Ltd</em> which held that an art gallery was not entitled to coverage for business losses it suffered during the pandemic and related government restrictions because a loss of use of its premises did not constitute actual physical loss or damage to the property.</p>
<p style="text-align: justify;">Thanks to Abed Bhuyan for his contribution to this post.  Please contact <a href="mailto:Haquino@wcmlaw.com">Heather Aquino</a> with any questions</p>