535 F.Supp.3d 152
W.D.N.Y.2021Background
- Plaintiffs (Kim-Chee LLC and Yup Chagi Inc.) operate a martial-arts/fitness studio in Buffalo and held a commercial policy (June 5, 2019–June 5, 2020) issued by Philadelphia Indemnity.
- Plaintiffs sought first-party business-interruption coverage for lost income after COVID-19 and New York executive orders forced closure in spring 2020.
- The Policy is an "all-risk" Businessowners Special Property Coverage Form covering "direct physical loss of or damage to" covered property; business-income and civil-authority extensions require such physical loss or damage.
- Complaint alleges the virus was ubiquitous, contaminated the premises and vicinity, and that civil orders barred access; the court accepted CDC-consistent allegations about airborne/surface transmission for the motion to dismiss.
- Defendants moved to dismiss; the court applied New York substantive law and dismissed the complaint, holding the factual allegations did not show direct physical loss or damage to the insured property.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID‑19 contamination or presence constitutes "direct physical loss of or damage to" insured property | Presence of virus on surfaces/air and resulting closure is direct physical loss/damage entitling business-income recovery | Policy limits coverage to tangible physical damage or contamination that renders property unusable; COVID presence is temporary and does not alter the structure | Dismissed — virus presence/closures from pandemic do not, as pleaded, constitute direct physical loss or damage |
| Whether the civil-authority clause covers losses from the state shutdowns | Executive orders prohibiting access due to virus triggered civil-authority coverage | Civil-authority coverage requires prohibitions caused by direct physical loss/damage to other property; plaintiffs did not allege such an event | Dismissed — no alleged direct physical loss/damage to other property that prompted the orders |
| Whether omission of an ISO virus/bacteria exclusion creates ambiguity or expands coverage | Lack of a virus exclusion implies insurer intended to cover virus-related losses | Omission does not create coverage where unambiguous policy language limits coverage to direct physical loss/damage | Dismissed — policy language unambiguous; omission of exclusion does not create coverage |
| Whether plaintiffs stated a claim under N.Y. Gen. Bus. Law § 349 for deceptive practices | Marketing representations and differential processing (no virus exclusion) were deceptive and caused injury | No cognizable injury from deceptive practice because coverage denial rests on policy language (no direct physical loss) not on deceptive processing | Dismissed — § 349 claim fails for lack of plausible misleading act causing injury |
Key Cases Cited
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941) (forum state choice‑of‑law governs diversity contract disputes)
- Auten v. Auten, 308 N.Y. 155 (1954) (center‑of‑gravity test for governing law of contracts)
- Certain Underwriters at Lloyd's, London v. Foster Wheeler Corp., 9 N.Y.3d 928 (2007) (contract governed by law of principal location of insured risk)
- Morgan Stanley Grp. Inc. v. New England Ins. Co., 225 F.3d 270 (2d Cir. 2000) (contract interpretation seeks parties' intent from clear policy language)
- Roundabout Theatre Co. v. Continental Cas. Co., 751 N.Y.S.2d 4 (N.Y. App. Div. 2002) (coverage limited to direct physical damage to insured property)
- Western Fire Ins. Co. v. First Presbyterian Church, 437 P.2d 52 (Colo. 1968) (contamination that renders property unusable can be direct physical loss)
- Port Auth. of N.Y. & N.J. v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2002) (presence of contaminants qualifies only if quantity/form makes building unusable)
- Universal Am. Corp. v. Nat'l Union Fire Ins. Co., 37 N.E.3d 78 (N.Y. 2015) (no application of contra proferentem where policy language unambiguous)