How does business income coverage apply across multiple premises?
When a business sustains a loss to multiple locations for the same occurrence, does coverage applied per occurrence or per location?
A New Jersey district court awarded summary judgment to an insurance company in a case involving communicable disease business income disruption coverage and the number of locations involved. The case is Count Basie Theatre Inc. v. Zurich Am. Ins. Co., 2024 U.S. Dist. LEXIS 95978 (D.N.J. 2024). Please note that this case is unpublished and therefore has limited precedential value.
Count Basie’s is a nonprofit arts organization based in New Jersey. The organization had a commercial property policy with Zurich that covered three premises: a theatre, a music conservatory, and two surface parking lots. The policy also included a “Historic Properties Additional Coverages” section that provided coverage for “Communicable Disease Business Income.” This additional coverage would apply to Count Basie’s business income in the event that the three premises were required to shut down due to “an order of an authorized public health official or governmental authority…”
In March 2020, New Jersey Governor Phil Murphy issued an executive order mandating the closure of “entertainment centers, including but not limited to, movie theaters, performing arts centers, other concert venues, and nightclubs” in response to the coronavirus pandemic. Governor Murphy issued an additional executive order each month thereafter, continuing the closure of entertainment venues, until June 2021, which lifted the initial declaration of a public health emergency.
Soon after the first executive order was issued, Count Basie’s made a timely claim for coverage to Zurich for the losses sustained during the period of closure. Zurich made a $100,000 payment to Count Basie’s under the communicable disease coverage. Count Basie’s sent Zurich another letter claiming each of Gov. Murphy’s executive orders had been an individual occurrence under the policy, and that Zurich owed the $100,000 per occurrence communicable disease limit at each of the three insured premises. Zurich said the whole pandemic was a single occurrence, so Count Basie’s was only owed a single payment for all of the covered locations. Count Basie’s subsequently filed suit against Zurich, claiming the insurer owed the policy’s $1.9 million blanket business income limit.
Communicable disease limit
Zurich moved for summary judgment, and Count Basie’s made a cross-motion for summary judgment. The parties argued over the application of the communicable disease limit, whether Zurich had to pay the blanket business income limit or only the communicable disease limit, and whether the loss was caused by the pandemic itself or the governor’s executive orders.
Count Basie’s argued the policy was ambiguous as to whether the blanket business income limit or only the communicable disease limit applied to their claim. They pointed to a statement in the communicable disease coverage that said “This Limit for this Additional Coverage is included in, and not in addition to, any other applicable Limits of Insurance.” (emphasis added). The judges said Count Basie’s argument took the statement out of context. They noted the policy declarations did not reference the communicable disease coverage, and the declarations did not specifically state that the limit for communicable disease coverage was part of the business income blanket limit.
Count Basie’s argued there were several ways Zurich could have resolved the ambiguity by including or excluding certain phrases that would allegedly clarify the issue. The court rejected this notion, stating that adopting Count Blasie’s interpretation of the policy would be a contortion of the policy language that gives the insured better coverage than what was agreed to in the contract.
COVID or executive orders?
Regarding the actual cause of the business income loss, Zurich said Count Basie’s losses had a single cause: the coronavirus pandemic. Therefore, the $100,000 per occurrence limit only had to be paid once. Count Basie’s, on the other hand, argued the losses had resulted from the executive orders issued by Governor Murphy that continued to mandate the closure of entertainment venues in response to the pandemic. Therefore, because the governor had issued multiple executive orders, Count Basie’s was owed the communicable disease limit for each executive order.
The judges disagreed. In Count Basie’s policy, an “occurrence” meant “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.” The judges also pointed to a case from the Third Circuit, Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d 56 (3d Cir. 1982), where the judges had reasoned that what an occurrence was for coverage purposes was generally “determined by the cause or causes of the resulting injury.”
When the court looked to the source of the governor’s executive orders, there was but one common cause: the pandemic. But for the continuing nature of the public health emergency due to COVID, Governor Murphy would not have issued any of the executive orders that mandated the closure of entertainment venues.
Per occurrence or per premises?
When Zurich argued the communicable disease coverage applied as a whole to all of the premises described in Count Basie’s policy, Count Basie’s pointed to a statement in the communicable disease coverage that said “The most [Zurich] will pay under this Additional Coverage at any one ‘premises’ or ‘reported unscheduled premises’ is the Limit of Insurance shown on the Declarations for Communicable Disease Suspension of Operations–Business Income.” (emphasis original). According to Count Basie’s, it meant that the communicable disease coverage applied separately to the theatre, the conservatory, and the parking lots. Therefore, Zurich had to pay the $100,000 communicable disease limit for each premises.
The court disagreed with Count Basie’s. The policy Declarations specifically stated that the communicable disease coverage limit applied per occurrence, not per premises. Other types of coverage in the Zurich policy listed their limits on a “per premises” basis. An earlier case from the Third Circuit, Great Am. Ins. Co v. Norwin Sch. Dist., 544 F.3d 229 (3d Cir. 2008), had found that when a policy uses “different language to address the same or similar issue, … [it] strongly implies that a different meaning was intended,” so it was necessary for other courts to “assume that the choice of different words was deliberate.” Given the policy language and the precedence set by the Third Circuit, the judges ruled that the limits of the communicable disease coverage applied to the premises covered under Count Basie’s policy as a whole, not individually.
The court awarded summary judgment to Zurich.
Editor’s Note: In this case, the question centered on the amount of coverage, not whether the damages were covered at all. Count Basie’s argued it was owed the full limit of the business income coverage for three separate locations because Zurich had allegedly created an ambiguity by not describing the distinction between the blanket limit and the communicable disease business interruption limit. Since that part of the policy was ambiguous, it had to be construed in favor of Count Basie’s. The district court said this interpretation of the policy was an impermissible conflation of the additional coverage for communicable disease business income and the business income coverage as a whole. Furthermore, the communicable disease business income coverage specifically stated that the limit for the additional coverage was “included in, and not in addition to, any other applicable Limits of Insurance.” The three locations were shut down because of one occurrence, the pandemic. Regardless of multiple notices from the governor, the root cause was a single occurrence, the pandemic. Therefore, the limits only applied one time to all locations.