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Risk Management Alert: An Update on COVID-19 Insurance Litigation
As insurers continue to issue blanket denials for COVID-19 business interruption losses, courts nationwide are seeing an influx of cases seeking a review from the denials. A Bergen County Judge recently denied a Motion to Dismiss filed by an insurance company and rejected the insurer’s claim that COVID-related losses cannot qualify as covered losses. In Optical Services USA/JCI v. Franklin Mutual Insurance Co., Docket No. BER-L-3681-20, the policyholders, Optical Services USA/JCI (“Plaintiffs”), assert that they had purchased business interruption insurance coverage to protect their businesses from an “unanticipated crisis” such as the COVID-19. Plaintiffs further allege that in order to comply with Governor Murphy’s Executive Orders requiring nonessential businesses to close and ordering residents to stay home, they were forced to close their businesses and they suffered significant financial losses which should be covered by their insurance policies.
In the Motion to Dismiss, Franklin Mutual Insurance Co. (“FMI”) asserted that the policies held by Plaintiffs require “direct physical loss” as a prerequisite to business interruption coverage and the loss of use alone does not constitute “direct physical loss.” Specifically, FMI alleged that while Plaintiffs suffered loss of use, they do not claim to have sustained direct physical loss. As such, they are not entitled to coverage under their respective FMI policies.
In response to the Motion, Plaintiffs asserted that the policies FMI issued to Plaintiffs provide coverage for loss of income resulting from a “necessary interruption” of Plaintiffs’ businesses caused by direct covered losses and temporary closures required by orders of a civil authority. Plaintiffs noted that unlike some other policies which have been subject to similar litigation, there was no exclusion for a pandemic and specific coverage for interruptions associated with exercise of a civil authority.
Even though the denial of the Motion to Dismiss was in Bergen County, this is precedent that will be considered by all New Jersey State Courts. It is likely that other New Jersey Superior Court Judges will come to a similar determination when considering matters with the same facts, circumstances and policy language.
While a number of pending COVID-19 cases are still in their earliest stages, the question that seems to appear in a majority of cases nationwide is whether policyholders can show that they experienced direct physical loss or damage from COVID-19. While not reviewed here, in many cases across the country parties are relying on scattered precedent holding that policyholders may be entitled to coverage when contamination such as from asbestos or lead renders their insured properties uninhabitable and unusable. This coverage may still be available even if the insured properties have not suffered a tangible, physical alteration. Furthermore, Congress and several states are considering legislation to compel payments to small businesses; however, none of these measures have yet passed.
Herold Law, P.A., can assist business owners in reviewing their insurance policies to ensure that the maximum benefits are available to them and pursue claims against insurance carriers and brokers as appropriate. The attorneys at Herold Law, P.A., can be contacted at 908-647-1022.
