Wade Clark Mulcahy LLP

<p style="text-align: justify;">Adding to the quickly growing body of COVID-related insurance case law, a New York federal judge recently held that an art gallery could not recover financial losses due to government-mandated closures, finding that there was no “direct physical loss” as required by the policy.</p>
<p style="text-align: justify;">The Guy Hepner art gallery in Chelsea had a policy with Sentinel Insurance Company which contained a “business income” provision, which covered losses due to a closure of its business caused by the “direct physical loss of or damage to” its property. Mirroring arguments made by other insureds across the country, Guy Hepner argued that the phrase “direct physical loss” should be read to encompass the insured’s inability to use the premises for its intended purpose. Unconvinced, Judge Lorna G. Schofield held that: "Nothing in the complaint plausibly supports an inference that COVID-19 and the resulting civil orders physically damaged plaintiff's property, regardless of how the public health response to the virus may have affected business conditions for plaintiff.” In so holding, Judge Schofield pointed to a 2002 First Department decision in <em>Roundabout Theatre Co. v. Continental Cas. Co</em>., which held that the insured could not recover for business interruption losses when the block where its business was located was shut down due to a construction accident.</p>
<p style="text-align: justify;">Judge Schofield also denied Guy Hepner’s claim for coverage under the policy’s Civil Authority provision, holding that “the complaint does not plausibly allege that the potential presence of COVID-19 in neighboring properties directly resulted in the closure of plaintiff's properties; rather, it alleges that closure was the direct result of the risk of COVID-19 at plaintiff's property."</p>
<p style="text-align: justify;">While there are now over 100 cases across the country addressing insureds’ business interruption losses resulting from COVID shutdowns, this is only the second case in New York to have done so. Like the other decision, a December 11 order dismissing Sparks Steak House’s claim for coverage, <em>Guy Hepner</em> follows the vast majority of courts around the country in holding that such losses are not covered under similarly worded policies.</p>
<p style="text-align: justify;">Thank you to Doug Giombarrese for his contribution to this post. Please contact <a href="mailto:chayes@wcmlaw.com">Colleen Hayes</a> with any questions.</p>