NJ Superior Court Holds Virus Exclusion Applies And Mandated Business Closure Does Not Constitute Physical Loss
The Superior Court of New Jersey, Appellate Division recently dealt with a plaintiff’s coverage claim for business interruption cause by the COVID-19 pandemic and Governor Philip D. Murphy’s Executive Order 107(EO 107). EO 107 was a mandate which cancelled large gatherings of individuals, required the closure of “the brick-and-mortar premises of all nonessential retail business,” and mandated the closure of “[a]ll recreational and entertainment business.”
In Rockleigh Country Club LLC v. Hartford Insurance Group, the Plaintiff was a country club whose business involved the pre-contracting and pre-planning of social events, such as weddings. Plaintiff was forced to shut down its venue in March 2020 pending further orders from Governor Murphy and later brought suit against its insurer seeking among other things, a declaratory judgment that its insurer was required to provide business interruption coverage for losses sustained while the plaintiff could not operate its business.
The policy’s business interruption provision provided coverage for “the actual loss of business income … due to the necessary interruption of business operations … due to direct physical loss of or direct physical damage to property caused by or resulting from a covered cause of loss[.]” Additionally, the policy also contained “Civil Authority” provision which provided coverage for loss of business income when access to plaintiff’s scheduled premises is “specifically prohibited by order of a civil authority as the direct result of a covered cause of loss to property in the immediate area.” However, the policy also contained a “virus exclusion” which stated that the insured would not pay for losses caused directly or indirectly by the “presence, growth, proliferation, spread or any activity of ‘fungus,’ wet rot, dry rot, bacteria or virus.”
Ruling in favor of the insurer, the court found that (1) plaintiff’s inability to use its premises to host large social gatherings did not constitute physical loss or damage to its property; (2) plaintiff was not entitled to coverage the Civil Authority provision because the provision required that access to plaintiff’s property be prohibited by a civil authority “as the direct result of a covered cause of loss to property in the immediate area.” (3) Lastly, finding that EO 107 was issued in response to the COVID-19 virus and therefore was caused directly or indirectly by the virus, the court held that the virus exclusion bars any claim for coverage under the policy.
Thanks to Steven Kaufman for his contribution to this article. Should you have any questions, please contact Heather Aquino.