Wade Clark Mulcahy LLP

<p style="text-align: justify;">It would be near impossible to encounter someone who has not been affected in some way by the COVID-19 pandemic. The same proves true for insurance companies and courts across the nation have begun to address the issue of insurance coverage for pandemic-related losses. In <em><span style="text-decoration: underline;"><a href="https://www.wcmlaw.com/wp-content/uploads/2021/10/Visconti-Bus-Serv.-LLC-v.-Utica-Natl.-Ins.-Group.pdf">Visconti Bus Serv., LLC v. Utica Natl. Ins. Group</a>,</span> 2021 NY Slip Op 21027 (Feb. 12, 2021), </em>the New York Supreme Court, Orange County issued such a decision in an action filed by a bus company against its insurer seeking coverage for losses sustained in connection with the COVID-19 pandemic. Due to New York Executive Orders enforced as part of the State’s response to the COVID-19 pandemic, the company’s commercial bus fleet operation ended, and it allegedly suffered damage in the form of lost business income.</p>
<p style="text-align: justify;">The bus company argued that its insurer should cover the loss under the company’s “all risk” commercial property policy, which provided coverage for “direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” The insurer denied coverage and argued that the premises did not sustain any direct physical loss or damage from a Covered Cause of Loss, and also cited certain policy exclusions, including the “virus” exclusion, and the exclusion for “delay, loss or use or loss of market.”</p>
<p style="text-align: justify;">The court agreed with the insurer and dismissed the Complaint, finding that there was no coverage for business income/extra expense in the absence of “direct physical loss or damage to the insured’s premises,” and that mere loss of use or functionality was insufficient to trigger coverage. The court noted that the bus company admitted that the premises had not been infected with the COVID-19 virus and the company was unable to show any loss of use due to damage to the actual premises as a result of the pandemic. Accordingly, the “all-risk” coverage of the policy was not triggered by the loss of business income stemming from enforcement of the New York State Executive Orders.</p>
<p style="text-align: justify;">The Court also ruled, as New York state and federal courts applying New York law have consistently held, that the language of the policy as it related to “direct physical loss or damage to property” was not ambiguous. It found to the contrary – that the policy unambiguously excluded coverage for the mere loss of use or functionality of the covered premises in the absence of actual, demonstrable physical harm.</p>
<p style="text-align: justify;">The bus company appealed the decision, and the case is currently pending in the Appellate Division, Second Department. The court recently permitted several amicus parties to file briefs in the case.</p>
<p style="text-align: justify;">Caselaw regarding coverage for COVID-related losses continues to develop but the <em>Visconti Bus Serv</em>. decision is favorable to insurers in respect of coverage for business losses where no physical damage or loss can be shown. The appeal should further clarify New York law on this issue as well as coverage for COVID losses.</p>
<p style="text-align: justify;">Thank you to Tristan Montaque for his contribution to this post. Please email <a href="mailto:agibbs@wcmlaw.com">Andrew Gibbs</a> with any questions.</p>