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District of New Jersey Grants Insurer’s Motion to Dismiss, Finding Virus Exclusion Precluded Coverage

November 13, 2020

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<p style="text-align: justify;">In <em><a href="">N&amp;S</a> Restaurant LLC v. Cumberland Mutual Fire Insurance Company,</em> the District of New Jersey ruled upon whether coverage under a businessowners policy for Covid-19 closures was precluded by the policy’s virus exclusion.</p>
<p style="text-align: justify;">By way of background, Plaintiff N&amp;S Restaurant had a businessowners policy (“Policy”) with Defendant Cumberland Mutual. Due to the Covid-19 pandemic, an Executive Order was enacted requiring all non-essential businesses to close. N&amp;S sought coverage under the “Business Income” provision, “Extra Expense” provision, and “Civil Authority” provision. The Policy afforded coverage for “direct physical loss of or damage to Covered Property … caused by or result[ing] from any Covered Cause of Loss.” The Policy defines a “Covered Cause of Loss” to be a “[d]irect physical loss unless the loss is excluded or limited.” The Policy included a virus exclusion which stated that Cumberland Mutual “will not pay for loss or damage caused directly or indirectly by” any “Virus or Bacteria” which is any “virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness, or disease.”</p>
<p style="text-align: justify;">Cumberland Mutual denied N&amp;S coverage on the grounds that the virus exclusion precluded coverage and there was no physical loss or damage to the property. N&amp;S then commenced an action seeking a declaration that N&amp;S was afforded coverage under the Policy. Thereafter, Cumberland Mutual moved to dismiss N&amp;S’s action.</p>
<p style="text-align: justify;">The Court centered its analysis around whether the virus exclusion precluded coverage. N&amp;S contended that the virus exclusion is not applicable as it was the Governor’s Executive Order mandating the closure of all non-essential businesses that caused plaintiff’s loss, not the coronavirus. The Court rejected plaintiff’s argument, finding that Executive Order was brought upon by the coronavirus. Additionally, the Court noted that the virus exclusion included an anti-concurrent causation clause, which precluded coverage for any loss caused directly or indirectly by a virus. The Court further rejected Plaintiff’s reliance on New Jersey’s Appleman Rule, which holds that where a policy’s exclusion bars coverage for a specific peril, the exclusion applies only if the excluded peril “was the ‘efficient proximate cause’ of the loss. The Court held that the plain language of the virus exclusion was worded to eliminate the proximate cause doctrine. Accordingly, the Court granted Cumberland Mutual’s Motion to dismiss, holding that N&amp;S was not entitled to coverage under the Policy as coverage is expressly precluded under the virus exclusion.</p>
<p style="text-align: justify;">This case is one of many declaratory judgment actions that have been filed in the wake of the Covid-19 pandemic. Given the novelty of this virus, it remains to be seen how courts in other jurisdictions will interpret popular policy exclusions, such as the virus exclusion, communicable disease exclusions, and pollution exclusions.</p>
Thanks to Rachel Thompson for her contribution to this post.  Please contact <a href="">Heather Aquino</a> with any questions.


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