Good news for insurer facing business-interruption lawsuit
A U.S. district court judge has ruled that pandemic-related closures served as a single loss event instead of several.
A federal judge in Newark, New Jersey, ruled that the COVID-19 pandemic was a single event for purposes of determining a policyholder’s payout under communicable disease business income insurance coverage.
U.S. District Judge Jamel Semper rejected claims by the policyholder, the nonprofit Count Basie Theater in Red Bank, New Jersey, that a series of executive orders from New Jersey Gov. Phil Murphy shutting down entertainment facilities during the pandemic each counted as a separate event, triggering Zurich American Insurance Co.’s coverage of $100,000 per occurrence.
The judge also rejected the theater’s claim that it was entitled to payments of $100,000 per occurrence at its theater, a music school building, and two parcels used for parking.
Semper’s ruling caps Zurich’s payout to Count Basie at $100,000, while the theater sought the full policy limit of $1.9 million.
The lawyer for Count Basie, Michael Canning of Giordano, Halleran & Ciesla in Red Bank, said his client is considering an appeal.
“We were disappointed in the ruling because we believe that there is coverage under the policy. One of the errors we believe that the court committed was that it said that the cause of the loss is the spread of the virus. But under the specific endorsement in this policy, what triggers the coverage is the issuance of an order by a governmental authority. That order has to result from the threat of the spread of the virus,” Canning said.
“Under the clear language of the policy itself, it’s the order of a governmental authority, which prohibits access to the premises, which triggers the coverage. Because there were several different executive orders which were issued, in our view, each order triggered coverage under the policy. There was not a single occurrence, there were multiple occurrences,” Canning said.
Mound Cotton Wollan & Greengrass represented Zurich American. The firm’s Philip Silverberg declined to comment on the ruling.
Semper, in finding only one occurrence, cited policy language defining that term to include “all losses or damages that are attributable directly or indirectly to one cause or a series of similar causes. All such losses or damages will be treated as one cause.”
“In applying this test, the court finds that the injury sustained by Count Basie stems from a common cause—the spread of COVID-19. The executive orders issued by Governor Murphy would not have been enacted but for the pandemic,” Semper wrote.
Semper also cited a 2021 District of New Jersey ruling, T&L Catering v. Hanover Ins. Grp., which said the governor’s executive orders are “inextricably tied” to COVID-19, such that “the predominant and proximate cause of (the) (p)laintiff’s business-related losses is the COVID-19 virus, not the closure orders that were issued in response to the virus.”
Semper wrote that his finding that the $100,000 communicable disease coverage limit applies per occurrence and not per premises is supported by language from other areas of the insurance policy. The expediting expense coverage and the lock and key replacement coverage list the limit of insurance as “$25,000 per premises,” he said.
Semper cited a 2008 ruling from the U.S. Court of Appeals for the Third Circuit, which said, “The use of different language to address the same or similar issue … strongly implies that a different meaning was intended. … The same language was not used, however; and we must assume that the choice of different words was deliberate.”
Because the policy uses “per premises” for other limits on coverage, Semper found that the Zurich policy intended the communicable disease limit to apply per occurrence.
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