523 F.Supp.3d 314
E.D.N.Y.2021Background:
- Plaintiff Alexandre B. deMoura, d/b/a New York Spine Institute, purchased an "all-risk" commercial property insurance policy from Continental on February 11, 2020 that included Business Income, Extra Expense, and Civil Authority coverages.
- In March 2020 New York COVID-19 public-health orders (including suspension of elective procedures) caused DeMoura to cease non-emergency surgeries and suspend most services; he alleges over $150,000 in business-interruption losses and extra expenses.
- The Policy covers losses only when caused by "direct physical loss of or damage to property;" Civil Authority coverage additionally requires that the government action be "due to" such physical loss or damage at locations other than the insured premises and that the action prohibit access.
- DeMoura contended that "physical loss" includes loss of use and contamination from the virus (or risk thereof); Continental moved to dismiss under Rule 12(b)(6), arguing the Policy requires tangible physical harm and that Civil Authority coverage was not triggered.
- The court applied New York substantive law and the Twombly/Iqbal pleading standard and accepted the Complaint’s factual allegations as true for the motion to dismiss.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Business Income/Extra Expense coverage applies absent tangible damage | "Physical loss" includes loss of use and contamination; loss of access qualifies | Coverage requires direct, tangible physical loss or damage to property | Court: "direct physical loss or damage" requires actual, tangible harm; plaintiff failed to plead it; dismissal |
| Whether the alleged presence or risk of SARS-CoV-2 satisfies "physical loss or damage" | Virus contamination (or risk thereof) constitutes physical harm to property | Mere risk or potential presence of a virus is insufficient without tangible harm | Court: Allegations of potential contamination do not allege actual physical harm; insufficient |
| Whether Civil Authority coverage applies (orders were "due to" damage elsewhere and prohibited access) | State orders prohibiting elective procedures and restricting operations trigger Civil Authority coverage | Orders were not issued due to physical loss/damage at other locations and thus do not trigger the clause | Court: Plaintiff failed to allege physical loss/damage at other locations; Civil Authority coverage not shown |
| Whether absence of an explicit virus/pandemic exclusion compels coverage | Policy must expressly exclude virus/pandemic to deny coverage | If policy language does not confer coverage, lack of exclusion is immaterial | Court: Moot — because plaintiff did not plead coverage under the policy provisions, exclusion issue need not be reached |
Key Cases Cited
- Universal Am. Corp. v. Nat’l Fire Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675 (2015) (principles of insurance-contract interpretation)
- Morgan Stanley Grp., Inc. v. New Eng. Ins. Co., 225 F.3d 270 (2d Cir. 2000) (initial contract interpretation is a question of law)
- Vigilant Ins. Co. v. Bear Stearns Cos., Inc., 10 N.Y.3d 170 (2008) (plain and ordinary meaning controls unambiguous policy language)
- Matter of Mostow v. State Farm Ins. Cos., 88 N.Y.2d 321 (1996) (reasonable expectations of the average insured informs ambiguity analysis)
- Roundabout Theatre Co. v. Cont'l Cas. Co., 302 A.D.2d 1 (1st Dep't 2002) (identically worded "direct physical loss or damage" language limits coverage to tangible physical damage)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for pleadings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim for relief)