Wade Clark Mulcahy LLP

<p style="text-align: justify;">The U.S. District Court for the District of New Jersey recently followed the national trend in rejecting a company’s claim that it was entitled to insurance coverage for losses related to the COVID-19 pandemic. In <em><a href="https://www.wcmlaw.com/wp-content/uploads/2022/07/Tumi-Inc.-et-al.-v.-Factory-Mutual-Insurance-Company.pdf">Tumi, Inc., et al. v. Factory Mutual Insurance Company</a>,</em> the plaintiff luggage retailer sought coverage for business losses caused by the closure of its retail stores as a result of COVID-19 orders. Many of the clauses under which plaintiff sought coverage require a showing of “physical loss or damage” to property, while the policy’s communicable disease coverages do not. The insurer declined coverage, asserting that the COVID-19 pandemic and resulting business losses do not fall within the policy definition of “physical loss or damage.”</p>
<p style="text-align: justify;">In holding that the plaintiff was not entitled to coverage, the court observed that while the issue has not yet been addressed by the Third Circuit, federal appellate courts were overwhelmingly opposed to claims that COVID-related business interruptions constitute physical damage. The court further emphasized that the word “physical” is crucial in determining whether the claims should be covered. It reasoned that plaintiff’s claims are economic consequences and that “lost profits, lost goodwill, or similar types of losses, no matter how significant, are not covered under the policy unless they are caused by physical damage.”  The Judge added that the sole New Jersey state case to find that COVID-related losses were physical damages, <em>AC Ocean Walk, LLC v. American Guarantee and Liability Ins. Co.</em>, has since been reversed.</p>
<p style="text-align: justify;">The court also found that there was no coverage under the “communicable diseases” clauses in the policy, focusing on the fact that each policy clause had the statement “actual not suspected presence of communicable disease.” No parties contested that COVID-19 was a communicable disease and the court held that the plaintiff failed to state any claim that COVID-19 infections were actually present within their retail stores. While plaintiff’s motion brief did make claims that they could prove employees had tested positive for the virus, such claims were not made in the complaint.</p>
<p style="text-align: justify;">The <em>Tumi</em> decision follows the recent trend of courts not supporting claims that business losses from the COVID-19 pandemic qualify in the absence of physical loss or damage. Further, while courts may consider the claim that COVID-19 losses fall under communicable disease clauses, language requiring actual proof will be considered against such claims.</p>
<p style="text-align: justify;">Thank you to Ryan Dame for his contribution to this post. Please contact <a href="mailto:agibbs@wcmlaw.com">Andrew Gibbs</a> with any questions.</p>