Court Follows Trend Of Rejecting COVID-19 Business Loss Claims In The Absence Of Physical Loss Or Damage (NY)
A trial court recently continued the trend of New York courts finding no coverage for business loss claims due to the COVID-19 pandemic. In Benny’s Famous Pizza Plus v. Sec. Nat’l Ins. Co., 2021 N.Y. Misc. LEXIS 3843 (Supt. Ct., July 2, 2021), a restaurant sought coverage for property damage, specifically loss of business income and extra expenses, due to government ordered closures caused by the pandemic. The insurer denied the claim on several grounds, including that there was no direct physical loss or damage to the property as required by the policy and that the virus exclusion endorsement precluded coverage for the claims. The insurer moved to dismiss plaintiff’s complaint in the resulting declaratory judgment action.
In opposition, the restaurant argued that it was entitled to coverage under the “Civil Authority” provision of the policy, with the civil authority being the Executive Orders compelling all non-essential New York State businesses to cease in-person operations. Plaintiff further argued that the virus exclusion did not apply because: 1) its business interruption was not caused by a virus per se, but rather by civil authority in the form of the Executive Orders issued by the New York Governor; and 2) the language of the policy did not explicitly state that the exclusion applies under the “Additional Coverages” for “Civil Authority” section of the policy. Lastly, plaintiff asserted that, unlike other exclusions in the policy, the virus exclusion endorsement does not contain an anti-concurrent clause which means that the COVID-19 virus can be considered a concurrent cause of loss, along with civil authority.
The court rejected these arguments, finding that the insurer was entitled to dismissal as a matter of law. The court held that the phrase “direct physical loss or damage” in the policy was unambiguous and requires physical damage to the insured property itself as a condition for coverage. Citing to fourteen New York state and federal cases decided in 2021 alone, the court observed that New York courts have soundly rejected the argument that business closures due to the presence of the COVID-19 virus or New York State Executive Orders constitute physical loss or damage to property. That court also noted that the mere presence of the COVID-19 virus in the air or on surfaces of a covered property does not qualify as damage to the property itself.
Benny’s Famous Pizza is yet another example of a New York court rejecting COVID-19 business loss claims based upon closures caused by the government shut down. New York courts have now made it abundantly clear that such claims are not covered in the absence of direct physical loss or damage to the premises and that the presence of a virus alone is not enough.
Thank you to Tristan Montague for his contribution to this post. Please contact Andrew Gibbs with any questions.