544 F.Supp.3d 405
S.D.N.Y.2021Background
- Office Solution Group bought a commercial insurance Policy (June 27, 2019–June 27, 2020) covering losses for "direct physical loss of or damage to" property and providing Civil Authority coverage for losses when civil authorities "prohibit access" due to physical loss/damage nearby. The Policy expressly defines "microbe" to include "any... virus" and contains a broad Microbe Exclusion.
- Plaintiff operated an office in Midtown Manhattan that relied on in-person project management and customer interactions.
- In March 2020 Governor Cuomo issued executive orders (occupancy limits and a stay-at-home directive) in response to COVID-19; Plaintiff closed its office on March 16, 2020 and later laid off employees, claiming substantial business income losses.
- Plaintiff sought coverage under the Policy (Business Property Coverage and Civil Authority Coverage); Defendant denied coverage and moved to dismiss under Rule 12(b)(6).
- Plaintiff contended loss of use qualified as "physical loss," that the Executive Orders prohibited access, and that the Microbe Exclusion was ambiguous or inapplicable to a pandemic.
- The court considered the Policy and Executive Orders, applied New York contract/insurance law, and concluded the Policy unambiguously does not cover Plaintiff's losses; it granted Defendant's motion to dismiss and denied leave to replead.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Business Property Coverage extends to loss of use where premises had no physical alteration | Loss of use caused by COVID-19 rendered the property "substantially unusable and uninhabitable," constituting "direct physical loss" | Policy requires actual, physical damage; loss of use without physical alteration is not covered | Court: "direct physical loss or damage" unambiguously requires actual physical harm; loss of use alone fails to trigger coverage |
| Whether Civil Authority Coverage applies where Executive Orders closed businesses for public-health reasons | Executive Orders prohibited access and triggered civil authority coverage | Civil Authority coverage requires that access be "prohibited" and that orders result from direct physical loss/damage to nearby property | Court: Orders did not prohibit all access and were not issued in response to physical damage to neighboring properties; coverage not triggered |
| Whether the Microbe Exclusion bars coverage for COVID-19–related losses | Exclusion ambiguous or limited to structural/wood/fungal damage; absence of the word "pandemic" means it shouldn't apply | Exclusion expressly defines "microbe" to include "any... virus," and excludes losses caused directly or indirectly by microbes/viruses | Court: Exclusion unambiguous and covers "any virus," including COVID-19; it would bar coverage even if coverage otherwise existed |
| Whether Plaintiff should be granted leave to amend the complaint | (Not requested/argued to cure deficiencies) | Dismissal should be with prejudice because Plaintiff already amended once and did not allege facts to cure defects | Court: Denied leave to replead as futile and because Plaintiff did not seek further amendment |
Key Cases Cited
- Newman Myers Kreines Gross Harris, P.C. v. Great N. Ins. Co., 17 F. Supp. 3d 323 (S.D.N.Y. 2014) ("direct physical loss or damage" requires actual physical damage)
- Roundabout Theatre Co. v. Cont'l Cas. Co., 751 N.Y.S.2d 4 (N.Y. App. Div. 2002) (loss of use without physical damage does not trigger policy coverage)
- City of Burlington v. Indem. Ins. Co. of N. Am., 332 F.3d 38 (2d Cir. 2003) (all-risk policies cover perils except those specifically excluded)
- Morgan Stanley Group Inc. v. New England Ins. Co., 225 F.3d 270 (2d Cir. 2000) (insured bears burden of showing coverage; ambiguity standards)
- Olin Corp. v. Am. Home Assur. Co., 704 F.3d 89 (2d Cir. 2012) (rules for resolving ambiguities in insurance contracts)
- Visconti Bus. Serv., LLC v. Utica Nat'l Ins. Grp., 142 N.Y.S.3d 903 (N.Y. Sup. Ct. 2021) (COVID-19 closures do not constitute direct physical loss or damage)