307 A.3d 1174
N.J.2024Background
- AC Ocean Walk, LLC ("Ocean Walk"), operator of Ocean Casino Resort, sought commercial property insurance coverage for business losses sustained due to the SARS-CoV-2 (COVID-19) pandemic, claiming both direct virus presence and government-mandated closure.
- Ocean Walk held insurance policies with American Guarantee and Liability Insurance Company, AIG Specialty Insurance Company, and Interstate Fire & Casualty Company ("defendants"), each containing provisions for "direct physical loss" or "direct physical damage" and a "contamination exclusion."
- After submitting a claim, the insurers denied coverage except for a $1,000,000 sublimit for business interruption by communicable disease; Ocean Walk sought up to $50 million in coverage, leading to litigation after denial.
- The trial court denied the insurers’ motion to dismiss, holding that Ocean Walk’s alleged loss of operations sufficiently pled "direct physical loss" or "damage" and that the contamination exclusion did not bar coverage.
- The Appellate Division reversed, finding no physical alteration or destruction of property, and held that even if there was such loss, coverage was barred by the contamination exclusion.
- The New Jersey Supreme Court affirmed the Appellate Division, holding Ocean Walk did not allege facts supporting a covered loss or damage, and the contamination exclusion would bar coverage regardless.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Definition of "Direct Physical Loss" | The presence/threat of COVID-19 and mandated closure resulted in direct physical loss or damage | No damage; property remained usable but for executive orders | Must be destruction or physical alteration; not merely loss of use |
| Applicability of the Contamination Excl. | Virus/pathogens are not included in the definition of "contaminant"; exclusion doesn’t apply | Contamination exclusion encompasses viruses, including COVID-19 | Exclusion applies; policy’s definition of contamination includes viruses |
| Ambiguity of Policy Terms | Policy language is ambiguous, coverage should be construed in favor of insured | Language is clear, multiple courts have upheld similar exclusions | Terms are clear; policy doesn’t cover government shutdown without physical loss |
| Relevance of Nav-Its (Pollution Excl.) | Contamination exclusion is akin to pollution exclusion, limited to environmental damage | Not so, exclusion is broader and specifically includes viruses | Nav-Its not controlling; exclusion text governs, bars these claims |
Key Cases Cited
- Nav-Its, Inc. v. Selective Insurance Co. of America, 183 N.J. 110 (N.J. 2005) (addressed scope of pollution exclusion; distinguished by the court as not controlling for virus-related claims under contamination exclusions)
- Weedo v. Stone-E-Brick, Inc., 81 N.J. 233 (N.J. 1979) (discussed insurance coverage is only for damage provided in policy terms)
- Chubb Custom Insurance Co. v. Prudential Insurance Co. of America, 195 N.J. 231 (N.J. 2008) (insurance policy language governs; no coverage be read beyond clear terms)