Important points:
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On February 15, the New York State Court of Appeals, along with the majority of federal and state courts across the country, ruled that if COVID-19 caused physical loss or property damage, the New York State Court of Appeals would not be eligible for coverage under a commercial property liability policy. rejected the claim that it had started.
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The court held that “physical damage” must be understood as requiring significant physical changes to property that are “perceivable even if not visible to the naked eye.”
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The decision will have far-reaching implications for pending New York state COVID-19 business interruption claims in favor of insurance companies.
On January 10, 2024, the New York State Court of Appeals (the state’s highest court) heard oral argument regarding an insurance coverage dispute for plaintiff Consolidated Restaurant Operations’ (CRO) business interruption claims resulting from business closures due to the COVID-19 pandemic. was examined. The main issue presented was whether the actual presence, suspicion, or threat of coronavirus constitutes a direct physical loss or damage required under a standard commercial property liability policy to trigger coverage. It was whether or not. On February 15, 2024, the Court of Appeals issued a decision, echoing the majority of federal and state courts across the country, stating that if COVID-19 caused property loss or property damage, the commercial property liability policy rejected the claim to commence compensation based on the
In this matter, the CRO, which owns and franchises multiple restaurant brands, filed a lawsuit in New York County Supreme Court in August 2020 against its insurance company, Westport Insurance Co. We have started a declaratory judgment lawsuit seeking a judgment that the company is obligated to compensate. During the pandemic-related closures, the company maintained that the potential presence of the coronavirus within its facilities constituted a physical loss due to the impairment of its business functions due to the presence of the virus. On August 4, 2021, a trial court judge granted Westport’s motion to dismiss CRO’s claims, stating that Westport’s insurance policy did not cover CRO’s alleged losses. The CRO appealed this decision to the Appellate Division of the First Department, which affirmed the trial court’s decision, stating that “for there to be “direct” “physical” damage or loss to property, The court held that there must be “some physical problem” with the property. It doesn’t just become unusable. ”
On appeal to the Court of Appeals, the CRO argued in detail that under Westport’s policy it suffered “‘direct physical loss or damage'” when the coronavirus “infiltrated and became attached to the body.” He argued that the complaint should not have been dismissed. Insuring a restaurant has resulted in visibly changing the atmosphere and surfaces within the restaurant, severely impacting the restaurant’s functioning. ” In contrast, Westport argues that the phrase “direct physical loss or damage to property” is clear and unambiguous and that the loss or damage to insured property must be direct and physical in nature. It argued that there must be “clear and demonstrable physical damage to or destruction of property.” ”
In its decision, the Court of Appeals held that direct physical loss or damage requires “material alteration or complete and permanent deprivation of insured property,” which the CRO argues There wasn’t.The court said that “physical damage” must be understood to require property damage. physically Alterations to property that are not visible to the naked eye but can be perceived. The court further rejected the CRO’s argument that the phrase “direct physical loss” meant impairment and partial or complete unavailability. The court rejected the CRO’s argument, stating that allowing the CRO’s interpretation to apply would “collapse” coverage for “direct physical loss” into coverage for “loss of use.” Finally, the court found that the CRO’s complaint did not allege how the presence of the coronavirus could affect the physical integrity of the structure or property. In other wordshow virus droplets compromise the physical integrity of an object by damaging its surface or structure rather than harming the person who touches it.
The court’s judgment ended as follows:
We do not discount the severe economic losses suffered by restaurants and other businesses serving the public as a result of the COVID-19 pandemic. However, our job is to faithfully interpret the terms of the insurance contract in front of us, not to “rewrite the words of the police.”[y] Obtaining results through “fair appeal” on “issues” (internal citations omitted). The indemnification provisions relied upon by CROs only cover economic loss to the extent caused by “direct physical loss or damage” to the insured property. We hold that, as alleged in the complaint, business interruption caused by the actual presence of coronavirus on the premises of a CRO’s insured property is insufficient to trigger such coverage. concludes.
The appeals court’s decision will have far-reaching implications for New York’s pending COVID-19 business interruption case in favor of insurance companies. Notably, courts across the country have largely sided with insurance companies, stating that the presence of the coronavirus does not require “direct physical loss or damage” to property to trigger insurance policies. The judgment is that it will not. The decision came just three weeks after the New Jersey Supreme Court’s decision. AC Ocean Walk, LLC v. American Guarantee and Liability Insurance CompanyAdditionally, the insured did not allege facts supporting the conclusion that the business loss was caused by “direct physical loss” or “direct physical damage,” and even if the insured It also argued that the company did not allege facts to support a finding of “loss” or “damage.” ”, the scope is limited by the pollution exclusion in the relevant policy.
