507 F.Supp.3d 482
S.D.N.Y.2020Background
- Plaintiff operates an art gallery/dealership in New York City and purchased a business property insurance policy in 2019 containing Business Interruption, Extra Expense, and Civil Authority coverages.
- The Policy covers loss of Business Income and extra expenses only when the suspension or expenses are caused by “direct physical loss of or physical damage to” covered property; Civil Authority coverage applies when access is prohibited by order as the "direct result" of a Covered Cause of Loss to property in the immediate area.
- In March 2020 Plaintiff suspended operations in response to New York State and City COVID-19 closure orders and suffered business losses and expenses.
- Plaintiff submitted claims under the Policy’s Business Interruption, Extra Expense, and Civil Authority provisions; Defendant denied coverage and Plaintiff sued for breach of contract and declaratory relief.
- The court evaluated the complaint on a Rule 12(b)(6) motion, applying New York law and federal pleading standards, and found the complaint failed to allege the required direct physical loss or damage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Business Interruption coverage is triggered | Closure/orders caused a “direct physical loss” to premises triggering coverage | Policy requires direct physical loss or physical damage to insured property; COVID-19 shutdowns don't allege physical damage | Denied—complaint fails to allege direct physical loss or damage; policy unambiguously requires physical harm |
| Whether Extra Expense coverage applies | Expenses incurred during shutdown are extra expenses caused by loss | Extra Expense requires direct physical loss or damage as prerequisite | Denied—no pleaded physical loss, so Extra Expense not triggered |
| Whether Civil Authority coverage applies | Civil Orders prohibiting access were caused by the risk of COVID-19 in the area, triggering Civil Authority coverage | Civil Authority applies only when access is prohibited as the direct result of a Covered Cause of Loss to neighboring property; plaintiff alleges closure from risk at its own premises | Denied—complaint does not plausibly allege access was prohibited as a direct result of physical loss to nearby property; closures resulted from risk at plaintiff’s premises |
| Whether plaintiff should be allowed to amend | Plaintiff sought leave to replead | Defendant opposed | Denied—court concluded amendment could not cure the core coverage deficiency because the Policy does not cover the alleged loss |
Key Cases Cited
- Roundabout Theatre Co. v. Cont’l Cas. Co., 751 N.Y.S.2d 4 (1st Dep’t 2002) (language like “loss of, damage to, or destruction” construed to require physical damage)
- United Airlines, Inc. v. Ins. Co. of State of Pa., 439 F.3d 128 (2d Cir. 2006) (Civil Authority coverage requires prohibition of access to be direct result of physical damage to nearby property)
- R.M. Bacon, LLC v. Saint-Gobain Performance Plastics Corp., 959 F.3d 509 (2d Cir. 2020) (pleading standards applied on motion to dismiss)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility pleading standard)
- Parks Real Estate Purchasing Grp. v. St. Paul Fire & Marine Ins. Co., 472 F.3d 33 (2d Cir. 2006) (all-risk policy principles and coverage interpretation)
- Newman Myers Kreines Gross Harris, P.C. v. Great N. Ins. Co., 17 F. Supp. 3d 323 (S.D.N.Y. 2014) (similar denial where no direct physical loss was alleged)