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New York Appellate Court Continues Trend of Finding No Coverage For Financial Loss Due To COVID-19 Related Closures

February 23, 2023

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The Appellate Division, First Department recently followed the national trend in rejecting Madison Square Garden’s (“MSG”) 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/2023/02/Madison-Square-Garden-Sports-Corp.-v.-Factory-Mutual-Insurance-Company.pdf">Madison Square Garden Sports Corp. v. Factory Mutual Insurance Company</a>, </em>35 related MSG companies sued four of its insurers, alleging that they failed to provide coverage for losses caused by COVID-19 related closures. MSG alleged that it suffered substantial financial losses due to seats being empty for almost a year. The lower court granted the insurers’ motion for partial dismissal of the complaint, except for MSG’s claims for coverage under the policies communicable disease and claims preparation cost provisions.

The First Department affirmed the lower court’s decision, holding that MSG failed to allege actual physical damage that occurred as a result of the closures and loss of business caused by the COVID-19 pandemic. Citing its prior decision in <em>Consolidated Rest. Operations, Inc v. Westport Insurance Corp.</em>, 205 A.D. 3rd 76, 80-87 (1<sup>st</sup> Dep’t 2022), lv granted in part, dismissed in part, 39 N.Y. 3rd 943 (2022), the Court held that to recover under the terms of policies that ensure against physical loss or damage, plaintiffs must allege actual physical damage. Simply alleging loss based on COVID-19 related closures is insufficient to state a cause of action for breach of contract and insufficient to warrant coverage under the defendants’ policies.

The Court added that the lower court properly declined MSG's request to take judicial notice of the various executive orders, scientific studies and other matters concerning COVID-19 as those documents are not “matters of common and general knowledge well established and authoritatively settled.” In light of it ruling, the Court declined to address the parties’ arguments regarding whether certain exclusions applied to bar recovery.

Although the <em>MSG</em> decision did not completely dispose of the lawsuit and the issue of coverage under the policies communicable disease clauses remain, the decision follows the clear trend of state and federal courts not supporting property coverage claims for COVID-19 business losses in the absence of physical loss or damage. We will continue to monitor and report on these decisions.

Thank you to Arianna Arca for her contribution to this post. Please contact <a href="agibbs@wcmlaw.com">Andrew Gibbs</a> with any questions.

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