557 F.Supp.3d 556
D.N.J.2021Background
- Plaintiffs (OTG and subsidiaries) operate airport restaurants/retail; Defendant issued an all-risk commercial property policy (6/1/2019–6/1/2020) with Property Damage and Time Element coverages.
- Plaintiffs submitted a business-interruption claim for COVID-19 losses (claim March 16, 2020); Defendant issued a reservation-of-rights and later denied coverage (Sept. 16, 2020), invoking exclusions.
- The Policy contains a broad Contamination Exclusion defining “contaminant” to include viruses and “disease causing or illness causing agent[s],” and states that exclusions in the Property Damage section also apply to Time Element loss.
- Plaintiffs sued (declaratory relief, breach of contract, bad faith, NJCFA) on Jan. 27, 2021; Defendant moved to dismiss under Rule 12(b)(6).
- The Court applied New York law (per the Policy’s choice-of-law clause) and granted the motion to dismiss in full, holding the Contamination Exclusion bars coverage and, alternatively, that Plaintiffs failed to plead physical loss or damage; related tort and consumer claims were dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law for contract claim | New Jersey and New York law are substantively the same; New Jersey law may apply | Policy contains New York choice-of-law clause | New York law governs per the Policy and New Jersey choice-of-law rules |
| Does the Contamination Exclusion bar Time Element coverage for COVID-19 losses? | Exclusion applies only to Property Damage "costs" (not Time Element losses/extra expense); ambiguous as to pandemics | Exclusion unambiguously covers viruses and any condition of property resulting from them, and Property Damage exclusions apply to Time Element loss | Exclusion applies to Time Element coverage and unambiguously bars COVID-19–related claims |
| Is COVID-19 or government closure the efficient proximate cause / is there physical loss or damage? | Government orders or loss of use (or presence of infected persons) are the predominant cause, not the virus; property was not physically harmed | The virus was the efficient proximate cause that set shutdowns in motion; physical loss requires demonstrable compromise to property | Virus was the efficient proximate cause; even absent the exclusion, plaintiffs failed to allege direct physical loss or damage under New York law |
| Bad faith and NJCFA claims | Denial was wrongful and unfair handling supports bad faith and consumer-fraud claims | Denial was reasonable and fairly debatable; NJCFA does not apply to claims handling/denial | Bad faith claim fails (no cause of action under NY; denial was fairly debatable under NJ); NJCFA claim fails because CFA is not a vehicle to challenge claim denials |
Key Cases Cited
- Olin Corp. v. Am. Home Assurance Co., 704 F.3d 89 (2d Cir. 2012) (insurance policies interpreted under general contract rules)
- Parks Real Estate Purchasing Grp. v. St. Paul Fire & Marine Ins. Co., 472 F.3d 33 (2d Cir. 2006) (efficient proximate cause rule in insurance context)
- Roundabout Theatre Co. v. Cont'l Cas. Co., 302 A.D.2d 1 (N.Y. App. Div. 2002) (clear policy language given plain meaning)
- Dean v. Tower Ins. Co. of N.Y., 979 N.E.2d 1143 (N.Y. 2012) (ambiguities construed against insurer)
- Morgan Stanley Grp. Inc. v. New England Ins. Co., 225 F.3d 270 (2d Cir. 2000) (insured bears initial burden to show coverage)
- J.P. Morgan Sec. Inc. v. Vigilant Ins. Co., 126 A.D.3d 76 (N.Y. App. Div. 2015) (exclusions read narrowly but must be clear and unmistakable)
- Newman Myers Kreines Gross Harris, P.C. v. Great N. Ins. Co., 17 F. Supp. 3d 323 (S.D.N.Y. 2014) ("physical loss or damage" requires demonstrable harm to premises)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standards; legal conclusions not accepted)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Collins v. Mary Kay, Inc., 874 F.3d 176 (3d Cir. 2017) (New Jersey choice-of-law rules in diversity cases)
- Gen. Motors Corp. v. New A.C. Chevrolet, 263 F.3d 296 (3d Cir. 2001) (enforcing contractual choice-of-law clauses)