542 F.Supp.3d 227
S.D.N.Y.2021Background
- Plaintiff 100 Orchard Street, LLC owns and operates the Blue Moon Hotel in NYC and alleges COVID-19 was present at the Hotel and made the premises unsafe and unprofitable.
- Orchard Street submitted a claim under a Travelers commercial policy invoking Business Income, Extra Expense, and Civil Authority coverages for pandemic-related losses.
- Travelers denied the claim, invoking (a) that the policy’s coverage provisions do not apply to the asserted losses and (b) a Virus Exclusion that bars losses caused by viruses.
- Travelers moved to dismiss under Rule 12(b)(6); New York law governs the Policy’s interpretation.
- The Court held that the Policy’s Virus Exclusion unambiguously bars Orchard Street’s claimed losses and dismissed the amended complaint with prejudice.
- The Court also denied leave to amend, finding amendment would be futile and noting the plaintiff had already been granted one opportunity to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID-19 presence constitutes "direct physical loss or damage" to trigger Business Income/Extra Expense coverage | Orchard Street: virus on premises and resulting conditions caused physical loss/damage | Travelers: COVID-19 does not cause property damage; courts hold it affects people, not property | Court: did not decide definitively but noted prevailing authority that virus presence typically is not property damage; resolved case on exclusion grounds |
| Whether Civil Authority coverage applies because access was "prohibited" by government orders | Orchard Street: government shutdowns prohibited access and thus triggered Civil Authority coverage | Travelers: orders did not prohibit hotel access and, in any event, losses result from virus, not order | Court: questioned whether access was prohibited (guidance classified hotels essential) and relied on exclusion to deny coverage |
| Whether the Policy's Virus Exclusion bars coverage for losses caused by COVID-19 and related government orders | Orchard Street: proximate legal cause was government orders, not the virus; clause does not expressly reference pandemics | Travelers: exclusion precludes any loss "caused by or resulting from any virus" including COVID-19; virus was the efficient proximate cause of government action | Court: Virus Exclusion unambiguously applies; COVID-19 is a virus causing the losses, so coverage is excluded |
| Whether leave to amend should be granted | Orchard Street: did not request further amendment or identify facts that would cure defects | Travelers: amendment would be futile; plaintiff already had leave once | Court: denied leave to amend as futile and because plaintiff had prior opportunity |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must be plausible to survive Rule 12(b)(6))
- Parks Real Est. Purchasing Grp. v. St. Paul Fire & Marine Ins. Co., 472 F.3d 33 (efficient proximate cause analysis)
- Album Realty Corp. v. Am. Home Assur. Co., 607 N.E.2d 804 (N.Y.) (reasonable expectations in exclusion interpretation)
- Bird v. St. Paul Fire & Marine Ins. Co., 120 N.E. 86 (N.Y.) (historical proximate-cause principles)
- Vizza Wash, LP v. Nationwide Mut. Ins. Co., 496 F. Supp. 3d 1029 (policy language not rendered ambiguous by omission of more specific terms)
- Boxed Foods Co. v. Cal. Cap. Ins. Co., 497 F. Supp. 3d 516 (pandemic is large-scale outbreak of a virus; exclusion applies)
- Urogynecology Specialist of Fla. LLC v. Sentinel Ins. Co., 489 F. Supp. 3d 1297 (discussed as an outlier on application of virus endorsement)
- Broidy Cap. Mgmt. LLC v. Benomar, 944 F.3d 436 (2d Cir.) (district court discretion on leave to amend)
- TechnoMarine SA v. Giftports, Inc., 758 F.3d 493 (2d Cir.) (standards for denying leave to amend)