X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

The following papers numbered 1 to 10 were read on Defendants’ motion pursuant to CPLR §3211 to dismiss Plaintiffs’ Complaint: Notice of Motion — Affirmation / Exhibits — Memorandum           1-3 Affirmation in Opposition / Exhibits — Memorandum  4-5 Reply Affirmation / Exhibits — Reply Memorandum     6-7 Letter / Supplemental Authorities                 8 Letter / Supplemental Authorities                 9 Letter / Supplemental Authorities                 10 Upon the foregoing papers, it is ORDERED that the motion is disposed of as follows: I FACTUAL AND PROCEDURAL BACKGROUND This is an action for breach of contract arising out of the denial by the defendant insurers (“Utica”) of a claim by Plaintiffs (“Visconti”) for insurance coverage for losses sustained in connection with the Covid-19 pandemic. Utica moves for dismissal on the ground that the commercial property insurance policy in question provides no coverage for the claimed losses. A. Pertinent Allegations of Visconti’s Complaint Visconti’s Complaint alleges in pertinent part as follows: 1. This action for breach of contract arises out of Utica’s denial of Visconti’s claim for insurance coverage under their “all risk” policy for its significant business interruption losses and extra expenses suffered as a direct result of the nationwide and statewide government shutdown orders designed to mitigate the Covid-19 pandemic by, in part, restricting all or part of the insured’s business at the insured premises in order to save lives and protect property. 2. The losses, including the loss of use of the insured premises and loss of business income therefrom, were caused by these Executive Orders designed to mitigate the imminent threat to person and property posed by Covid-19, which is an unexcluded covered cause of loss under the subject “all risk” policy, which defines “covered cause of loss” as risk of direct physical loss unless the loss is excluded or otherwise limited. ….. 5. Visconti is a bus contractor that owns a fleet of transportation vehicles, including buses. Visconti’s headquarters are located in Newburgh, New York. Their mechanics services their vehicles, including buses, at headquarters. Buses must be scheduled and dispatched at headquarters. Buses cannot be dispatched remotely due to internal safety protocols. ….. 47. Actions, such as those taken by Visconti and the incidental loss of business income, including compliance with a reasonable and necessary Executive Order to limit the use of their premises in order to prevent or mitigate an imminent risk of direct physical loss or damage to people and property, in the face of a widespread pandemic, are the cause of Plaintiff’s loss of utility of its property and attendant business income loss. ….. 68. According to a study published in The New England Journal of Medicine, Covid-19 is widely accepted as a cause of real physical loss and damage. It remains stable and transmittable in aerosols for at least three hours, up to four hours on copper, up to 24 hours on cardboard and up to two to three days on plastic and stainless steel…. ….. 73. [Executive Orders required reduction of "in-person workforce" for non-essential businesses and severely impact essential businesses.] 74. [Executive Orders closed schools.] As a result, the operation of Visconti’s bus fleet ceased, with the exception of two buses that operated to deliver meals to students of a closed local school district. B. Pertinent Provisions of the Utica Insurance Policy By reason of the foregoing, Visconti seeks coverage for loss of business income under its commercial property “all risk” Utica insurance policy, which covered the Visconti headquarters referenced in the Complaint (but not the Visconti buses). The policy provisions pertinent to the issues before the Court are as follows: COVERAGE We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss. COVERED CAUSES OF LOSS Covered Causes of Loss means Risks of Direct Physical Loss unless the loss is Excluded in Section B, Exclusions…. BUSINESS INCOME (and Extra Expense) COVERAGE We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration.”1 The “suspension” must be caused by direct physical loss of or damage to property at premises which are described in the Declarations…. The loss or damage must be caused by or result from a Covered Cause of Loss…. Extra Expense means necessary expenses you incur during the “period of restoration” that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss. CIVIL AUTHORITY COVERAGE We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss. EXCLUSIONS Exclusion of Loss Due to Virus or Bacteria A. The exclusion set forth in Paragraph B. applies to all coverage under all forms and endorsements that comprise this Coverage Part, including but not limited to forms or endorsements that cover property damage to buildings or personal property and forms or endorsements that cover business income, extra expense or action of civil authority. B. We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease. Other Exclusions 1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. a. Ordinance or Law The enforcement of any ordinance or law (1) regulating the construction, use or repair of any property… 2. We will not pay for loss or damage caused by or resulting from any of the following:… b. Delay, loss of use or loss of market. 3. We will not pay for loss or damage caused by or resulting from…[3.b. Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.] But if an excluded cause of loss that is listed in [3.b.] results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss. C. Utica’s Disclaimer Utica disclaimed coverage on the grounds that “the premises described in the Declarations did not sustain any direct physical loss or damage from a Covered Cause of Loss.” Utica also cited exclusions from coverage, including (1) the “virus” exclusion, and (2) the exclusion for “delay, loss of use or loss of market.” II LEGAL ANALYSIS A. Burden of Proof The policyholder bears the initial burden of showing that the insurance contract covers the loss. Roundabout Theatre Co., Inc. v. Continental Cas. Co., 302 AD2d 1, 6 (1st Dept. 2002); Morgan Stanley Group, Inc. v. New England Ins. Co., 225 F.3d 270, 276 (2d Cir. 2000). “Labeling the policy as ‘all-risk’ does not relieve the insured of its initial burden of demonstrating a covered loss under the terms of the policy.” Roundabout Theatre Co., Inc., supra. B. Visconti’s Argument Re Business Income / Extra Expense Coverage While the Complaint does not specifically so state, Visconti has affirmatively maintained both in its motion papers (Memo., p. 2) and at oral argument that its premises have not been infected with the Covid virus. The substance of Visconti’s argument regarding business income / extra expense coverage is succinctly stated in its Memorandum as follows: The Business Income (and Extra Expense) Coverage Form…provides for payment: for the actual loss of Business Income [sustained] due to the necessary “suspension” of your “operations” during the “period of restoration.” The “suspension” must be caused by direct physical loss of or damage to property at premises…. The loss or damage must be caused by or result from a Covered Cause of Loss. Because the Policy does not contain any exclusion or limitation for Government Orders, such as those that caused Plaintiffs’ loss, the Policy provides coverage on a showing of (1) direct physical loss of property, (2) caused by or resulting from a covered cause of loss. Here, the direct physical loss is the loss of use or functionality of the property and the covered cause of loss is Government Action to mitigate the proliferation of a pandemic. (Memo., p. 6 [emphasis added]) C. Under New York Law, There Is No “Business Income / Extra Expense” Coverage in the Absence of “Direct Physical Loss Or Damage” to the Insured Premises; Mere Loss of Use / Functionality Is Insufficient to Trigger Coverage Construing policy language substantially identical to that contained in the Utica policy at issue here, New York courts pre-Covid held that (1) business income / extra expense coverage is triggered only by direct physical loss or damage to the covered property itself, and (2) contrary to Visconti’s argument, a mere loss of use or functionality does not constitute a “direct physical loss” within the meaning of a policy providing coverage for “direct physical loss or damage” to covered property. See, Roundabout Theatre Co., Inc. v. Continental Cas. Co., supra; Newman Myers Kreines Gross Harris, PC v. Great Northern Ins. Co., 17 F.Supp.3d 323 (S.D.N.Y. 2014). In the face of the Covid pandemic, federal courts in New York have uniformly followed this authority in rejecting claims akin to those raised by Visconti here. See, Michael Cetta, Inc. v. Admiral Indemnity Co., 2020 WL 7321405 (S.D.N.Y. Dec. 11, 2020); 10012 Holdings, Inc. v. Sentinel Ins. Co., Ltd., 2020 WL 7360252 (S.D.N.Y. Dec. 15, 2020); Tappo of Buffalo, LLC v. Erie Ins. Co., 2020 WL 7867553 (W.D.N.Y. Dec. 29, 2020). 1. Roundabout Theatre Co., Inc. v. Continental Cas. Co. In Roundabout, the seminal New York state authority, a theater company sought business interruption coverage for losses occasioned by order of the City of New York closing the street and denying access to the theater due to a construction accident in the area. The First Department wrote: [T]he language in the instant policy clearly and unambiguously provides coverage only where the insured’s property suffers direct physical damage. The Insuring Agreement provides coverage for “loss of, damage to, or destruction of property or facilities…contracted by the insured for use in connection with such Production, caused by the perils insured against.” The Perils Insured clause covers “all risks of direct physical loss or damage to the [insured's] property,” not otherwise excluded. Reading these provisions together, the only conclusion that can be drawn is that the business interruption coverage is limited to losses involving physical damage to the insured’s property [cit.om.]. The IAS court’s interpretation that the phrase “loss of” must include “loss of use of.” because otherwise “loss of” would be redundant to “destruction of,” is flawed…. …[T]he court’s interpretation completely ignores the fact that the above-quoted Insuring Agreement is limited by the phrase “caused by the perils insured against,” which, as noted, requires “direct physical loss or damage to the [insured's] property.” The plain meaning of the words “direct” and “physical” narrow the scope of coverage and mandate the conclusion that losses resulting from off-site property damage do not constitute covered perils under the policy [cit.om.]. Other provisions in the policy support the conclusion that coverage is limited to instances where the insured’s property suffered direct physical damage. In the “Definition of Loss” section of the policy, the measure of recovery is limited to “such length of time as would be required with exercise of due diligence and dispatch to rebuild, repair or replace such part of the property herein described as has been lost, damaged or destroyed…” If, as Roundabout argues, the policy covers losses resulting from off-site property damage, this provision would be meaningless since the insured obviously has no duty to repair a third party’s property. …. An insurance policy should not be read so that some provisions are rendered meaningless (see County of Columbia v. Continental Ins. Co., 83 NY2d 618, 628…), and such would be the result if Roundabout’s position were upheld here. Roundabout, supra, 302 AD2d at 6-8. The reasoning of the Roundabout Court is fully applicable to the case at bar: (1) Here, much as in Roundabout, the insured sought business interruption coverage for a loss resulting not from damage to its property, but from a loss of use resulting from a governmental order. (2) The Utica policy, like the policy in Roundabout, explicitly limits coverage to direct physical loss or damage to the insured’s covered property. (3) The words “direct” and “physical” narrow the scope of coverage to physical damage to the property itself and foreclose Visconti’s argument that the phrase “loss of” includes mere “loss of use of” the property. (4) As in Roundabout, this is confirmed by other provisions of the Utica policy. The measure of recovery in the Utica policy is limited, much as in Roundabout, to the period within which the property should be “repaired, rebuilt or replaced” or the business is “resumed at a new permanent location.” (See, Definition of “Period of Restoration”) To recognize coverage for a mere “loss of use” when it is affirmatively maintained that Visconti’s premises is not even infected with the Covid virus, would render this provision meaningless. 2. Newman Myers Kreines Gross Harris, PC v. Great Northern Ins. Co. In Newman Myers, a law firm sought business interruption coverage for losses occasioned by a power outage that occurred when Con Edison preemptively shut off power as Hurricane Sandy approached to preserve the integrity of the electrical system in the event of flooding. The law firm’s policy provided coverage for loss of business income and extra expenses in the event of “direct physical loss or damage by a covered peril to property.” The firm argued that “the preemptive closure of its building in preparation for a coming storm” involved “direct physical loss or damage,” citing, in support of this proposition, a number of out-of-state decisions wherein premises affected by noxious fumes or gases, unpleasant odors, contamination of well water, or threat of rockfall were rendered unusable. Newman Myers, supra, 17 F.Supp.3d at 325, 328-329. The federal district court, first, distinguished these cases from the closure of the plaintiff’s building in anticipation of the storm: Newman Myers’s cases are, however, distinguishable. In each there was some compromise to the physical integrity of the workplace. To be sure, the cases involving odors, noxious fumes, and water contamination did not involve tangible, structural damage to the architecture of the premises. But the critical policy term at issue, requiring “physical loss or damage,” does not require that the physical loss or damage be tangible, structural or even visible. The invasions of noxious or toxic gases in TRAVCO and Essex, rendering the premises unusable or uninhabitable, were held to suffice, because even invisible fumes can represent a form of physical damage. The contamination of well water in Hardinger, similarly involved physical damage, just not structural — there, to the building’s water supply.2 Finally, the rockfall in Murray, although itself not having struck the premises, revealed a palpable future risk of physical damage, from another rockfall. Whether or not these cases were correctly decided, each involved the closure of a building due to either a physical change for the worse in the premises [TRAVCO, Essex, or Hardinger] or a newly discovered risk to its physical integrity [Murray]. Those characteristics are not presented by Con Ed’s preemptive decision to shut off power to several utility service networks in order to safeguard its own system and equipment. Newman Myers, supra, 17 F.Supp.3d at 330. The Court, in any event, held that the meaning of “direct physical loss or damage” had to be determined under New York law: More apposite is New York case authority, and it favors the insurer here. Most germane is Roundabout Theatre Co., supra. [reciting facts and holding of the First Department in Roundabout]. The critical policy language here — “direct physical loss or damage” — similarly, and unambiguously, requires some form of actual, physical damage to the insured premises to trigger loss of business income and extra expense coverage. Newman Myers simply cannot show any such loss or damage to the 40 Wall Street Building as a result of either (1) its inability to access its office from October 29 to November 3, 2012, or (2) Con Ed’s decision to shut off the power to te Bowling Green network. The words “direct” and “physical,” which modify the phrase “loss or damage,” ordinarily connote actual, demonstrable harm of some form to the premises itself, rather than forced closure of the premises for reasons exogenous to the premises themselves, or the adverse business consequences that flow from such closure. See Roundabout Theatre Co., 302 AD2d at 6…(“direct physical loss or damage” language in insurance policy “clearly and unambiguously provides coverage only where the insured’s property suffers direct physical damage”);…[cit.om.]. This authority undermines, and the Court is unaware of authority supporting, Newman Myers’s argument that “direct physical loss or damage” should be read to include to extend to mere loss of use of a premises, where there has been no physical damage to such premises. See United Airlines, Inc. v. Ins. Co. of State of Pa., 385 F.Supp.2d 343, 349 (S.D.N.Y. 2005), aff’d 439 F.3d 128 (2d Cir. 2006) (“The inclusion of the modifier ‘physical’ before ‘damages’…supports [defendant's] position that physical damage is required before business interruption insurance coverage is paid.”); Philadelphia Parking Auth.,385 F.Supp.2d at 287-88 (noting that “‘direct physical’ modifies both loss and damage,” and therefore “the interruption in business must be caused by some physical problem with the covered property…which must be caused by a ‘covered cause of loss’”). Newman Myers, supra, 17 F.Supp.3d at 330-332 (emphasis added).3 Thus, Newman Myers squarely holds that the very policy language at issue in the Utica policy here requires “actual, demonstrable harm of some form to the premises itself, rather than forced closure of the premises for reasons exogenous to the premises,” and squarely rejects the very claim made by Visconti here, i.e., that “‘direct physical loss or damage’ should be read to include…mere loss of use of a premises, where there has been no physical damage to such premises.” Id., 17 F.Supp.3d at 331. Moreover, Newman Myers undermines the primary ground on which Visconti seeks to evade the force of Roundabout, i.e., that the mere risk of “imminent harm” from Covid leading to a loss of use of its premises constitutes “direct physical loss” and therefore triggers coverage under the Utica policy. (See, Memo., pp. 12, 14-17) As the Newman Myers Court observed, (1) all (save one) of the out-of-state cases on which Visconti relies involved a”physical change for the worse” in the insured premises; (2) the only exception (Murray v. State Farm Fire & Cas. Co., 203 W.Va. 477 [1998]), involved a palpable risk to the physical integrity of the premises, rendering them untenantable; and (3) regardless, New York authority requires actual, demonstrable harm to the premises itself. Newman Myers, supra, 17 F.Supp.3d at 330-332. 3. Michael Cetta, Inc. v. Admiral Indemnity Company Michael Cetta, Inc. parallels the case at bar: (1) it involved a claim for breach of contract arising out of the defendant insurance company’s declining to provide business income / extra expense coverage for losses resulting from governmental orders to close restaurants due to the Covid-19 outbreak; (2) the policy at issue provided coverage in the event of a suspension of business operations “caused by direct physical loss of or damage to property” at the insured premises; (3) the plaintiff made it clear that Covid-19 was never found at its premises, and did not allege that its property was physically lost or damaged; (4) instead, like Visconti, it claimed that it “suffered a direct physical loss of and damage to its property because it has been unable to use its property for its intended purpose due to the closure orders.” Michael Cetta, Inc., supra, 2020 WL 7321405 at *1, 5. Rejecting the plaintiff’s argument that the alleged “loss of use” was sufficient to trigger coverage under a policy requiring “direct physical loss of or damage to property”, the Court first analyzed the language of the insurance contract, writing: Because Sparks’s “loss of use” theory centers on the word “loss,” the Court must hone in on that word’s meaning in the Policy. In the relevant portion of the Policy, the term “loss” is modified by the word “physical”.4…”Physical” means “of, relating to, or involving material things; pertaining to real, tangible objects.” Physical, Black’s Law Dictionary (11th ed. 2019). While Black’s Law Dictionary provides several definitions of the word “loss,” only one could apply to physical objects: “the failure to maintain possession of a thing.” Loss, Black’s Law Dictionary (11th ed. 2019). Putting these definitions together demonstrates that the “requirement that the loss be ‘physical,’ given the ordinary definition of that term, is widely held to exclude [from property insurance] alleged losses that are intangible or incorporeal.” 10A Couch on Ins. §148:46 (3d ed. 2005). The plain meaning of the phrase “direct physical loss of or damage to” therefore connotes a negative alteration in the tangible condition of property. See, e.g., Newman Myers Kreines Gross Harris, PC v. Great N. Ins. Co., 17 F.Supp.3d 323, 331 (S.D.N.Y. 2014) (holding that the phrase “direct physical loss or damage” “unambiguously[] requires some form of actual, physical damage to the insured premises”); Phila. Parking Auth. v. Fed. Ins. Co., 385 F.Supp.2d 280, 288 (S.D.N.Y. 2005) (holding that the phrase “physical loss or damage” requires that “the interruption in business must be caused by some physical problem with the covered property”); see also Mark’s Engine Co. No. 28 Rest., LLC v. Travelers Indem. Co. of Conn.,…2020 WL 5938689, at *4 (C.D. Cal. Oct. 2, 2020) (noting that an interpretation of the phrase “direct physical loss of” to include “deprivation of property without physical change in the condition of the property” would lack “manageable bounds”)…Losing the ability to use otherwise unaltered or existing property simply does not change the physical condition or presence of that property and therefore cannot be classified as a form of “direct physical loss” or “damage.” See 10A Couch on Ins. §148:46 (3d ed. 2005) (explaining that property insurance claims are precluded “when the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstration physical alteration of the property”). Michael Cetta, Inc., supra, at *6. The Michael Cetta Court proceeded to cite the analysis and holdings of both Roundabout and Newman Myers in support of its own conclusion (Id., at *6-7), and then observed: As a result of Covid-19 closure orders throughout the country, many businesses have brought lawsuits claiming entitlement to coverage under provisions materially similar to those at issue in Roundabout Theater, Newman Myers, and here. And nearly every court to address this issue has concluded that loss of use of a premises due to a govern-mental closure order does not trigger business income coverage premised on physical loss to property. Id., at *8 (citing fourteen cases). Addressing a claim, much like Visconti’s here, that all of this authority should be disregarded because the use of the disjunctive (“or”) in the phrase “direct loss of or damage to property” indicates that “one can have a ‘loss’ without ‘damage’” (Memo., pp. 6-7), the Court wrote: …[T]he Appellate Division rejected a similar argument in Roundabout Theatre: The [lower] court’s interpretation that the phrase “loss of” must include “loss of use of,” because otherwise “loss of” would be redundant to “destruction of,” is flawed. Initially, as [defendant] points out, “loss of” could refer to the theft or misplacement of theatre property that is neither damaged nor destroyed, yet still requires the cancellation of performances. 751 NYS2d at 8. A close analysis of the text of the provision here confirms that the terms “loss” and “damage” are not superfluous. First, as noted in Roundabout Theatre, the term “loss” would seem to include “theft or misplacement,” which would not constitute damage to the property. Id. Further, “loss” would extend to the complete destruction of property, whereas “damage” contemplates a lesser injury. [cit.om.] Thus, Sparks’s argument that “direct physical loss of” then “must encompass loss of use,”…is an untenable leap in logic. Id., at *8-9. Finally, the Michael Cetta Court addressed out-of-state cases involving situations where structures were rendered uninhabitable or unusable in the absence of physical damage: But these cases involve situations in which a plaintiff claimed that some harmful or unwanted substance entered its premises and made it impossible to use. They are therefore distinguishable because Sparks makes clear that Covid-19 was never found on its premises and that it has no reason to think the virus contaminated or damaged anything at the restaurant, let alone made it uninhabitable…. …. Indeed, the main Covid-19 related case that Sparks cites in its favor is distinguishable along these very lines as well. In Studio 417, Inc., v. Cincinnati Ins. Co.,…2020 WL 4692385, at *9 (W.D. Mo. Aug. 12, 2020), the court denied an insurer’s motion to dismiss because plaintiff beauty salons and restaurants alleged that Covid-19 “attached to and deprived [p]laintiffs of their property, making it unsafe and unusable, resulting in direct physical loss to the premises and property.” Id. at *4…. These plaintiffs thus “expressly allege[d] physical contamination.” Id. at *6. Sparks does not…. Id., at *10. Here, similarly, Visconti has explicitly affirmed that its premises is not infected with the Covid virus. 4. 10012 Holdings, Inc. v. Sentinel Ins. Co., Ltd. 10012 Holdings reached the same conclusion, much more succinctly, in rejecting a claim analogous to Visconti’s here: New York courts interpreting substantially identical language — “loss of, damage to, or destruction of property or facilities” — have found it “limited to losses involving physical damage to the insured’s property) [citing, among other cases, Roundabout Theatre, Newman Myers, Philadelphia Parking Auth., and United Airlines, Inc., supra]. In so holding, courts have declined to interpret such language to include “loss of use” of the property under New York law. Roundabout Theatre, 751 NYS2d at 6. Nothing in the Complaint plausibly supports an inference that Covid-19 and the resulting Civil Orders physically damaged Plaintiff’s property, regardless of how the public health response to the virus may have affected business conditions for Plaintiff. The Complaint does not state a claim for “loss” of the insured property. 10012 Holdings, Inc. v. Sentinel Ins. Co., Ltd., supra, 2020 WL 7360252 at *2. 5. Tappo of Buffalo, LLC v. Erie Ins. Co. Tappo of Buffalo, LLC is much like Michael Cetta, Inc., supra, except that the plaintiffs therein alleged that “their premises, as well as properties immediately surrounding their premises, were exposed to Covid-19, had Covid-19 or persons with Covid-19 present at the premises…” Tappo of Buffalo, LLC v. Erie Ins. Co., supra, 2020 WL 7867553 at *2. The Court held: In New York, as in the vast majority of jurisdictions to consider the issue, policy language providing coverage for “direct physical loss or damage” unambiguously requires some form of actual, physical damage to the insured premises to trigger loss of business income and extra expense coverage…. [citing Roundabout Theatre and Newman Myers, supra]. Recent cases involving businesses seeking coverage for business interruption resulting from Covid-19 and government closure orders have similarly construed the modifiers “direct” and “physical” as requiring that the loss involve a tangible change in insured property…. [cit.om.]. The Tappo Court went on to address the question whether the presence of Covid on the insured’s premises may result in a covered loss: …”an item or structure that merely needs to be cleaned has not suffered a ‘loss’ which is both ‘direct’ and ‘physical.’” Mama Jo’s Inc. [v. Sparta Ins.], 823 Fed. App’x [868] at 879 [11th Cir. 2020]. Therefore, “even assuming that the virus physically attached to covered property,” as plaintiffs allege in the instant case, “it did not constitute the direct, physical loss or damage required to trigger coverage because its presence can be eliminated” by “routine cleaning and disinfecting.” Promotional Headwear [Int'l v. Cincinnati Ins. Co.], 2020 WL 7078735, at *8; See Uncork and Create LLC v. Cincinnati Ins. Co.,…2020 WL 6436948, at *5 (S.D. W.Va. Nov. 2, 2020) (no coverage because “Covid-19 does not threaten the inanimate structures covered by property insurance policies, and its presence on surfaces can be eliminated with disinfectant.”); Pappy’s Barber Shops, Inc. v. Farmers Group, Inc.,…2020 WL 5847570, at *1 (S.D. Ca. Oct. 1, 2020) (even assuming presence of virus at plaintiffs’ business premises, business income losses were caused by precautionary measures taken by the state to prevent the spread of Covid-19 rather than by direct physical loss of or damage to property); but see Studio 417, Inc. v. Cincinnati Ins. Co.,…2020 WL 4692385, at *6 (W.D. Mo. Aug. 12, 2020) (allegations that Covid-19 particles attached to and damaged plaintiff’s property, making it unsafe and unusable, sufficient to plausibly allege direct physical loss). Id., at *4. Accordingly, the Tappo Court held: While there is no doubt that Covid-19 and the New York State Executive Orders relating to Covid-19 have had a devastating impact upon the restaurant industry, this Court agrees with the overwhelming majority of courts to have considered this issue that plaintiffs cannot plausibly allege that this impact is the result of direct physical loss of or damage to covered property as required to establish coverage under their insurance policies. Id. 6. Conclusion In view of the foregoing, the Court finds that: (1) Business income / extra expense coverage under the Utica property insurance policy is triggered only where the suspension of business operations at the covered premises is “caused by direct physical loss or damage to property at [the covered] premises.” (2) The words “direct” and “physical,” which modify the phrase “loss or damage,” require a showing of actual, demonstrable physical harm of some form to the insured premises — the forced closure of the premises for reasons exogenous to the premises themselves is insufficient to trigger coverage. (3) New York courts, state and federal, applying New York law have uniformly held that this policy language is not ambiguous, and that it unambiguously excludes coverage for the mere loss of use or functionality of the covered premises in the absence of actual, demonstrable physical harm thereto. (4) There is no allegation of any physical harm whatsoever to Visconti’s premises — Visconti has unequivocally asserted that its premises are not infected with the Covid-19 virus. (5) The purported risk of “imminent harm” to the premises by exposure to the Covid-19 virus is insufficient to trigger coverage because (a) actual, demonstrable physical harm is required, and (b) even if Covid-19 were found at Visconti’s premises, it would not constitute the direct, physical loss or damage required to trigger coverage because its presence can be eliminated by routine cleaning and disinfecting. Accordingly, Visconti’s claims with respect to Utica’s denial of business income / extra expense coverage are dismissed. D. The Complaint Does Not Allege a Valid Basis for Civil Authority Coverage Visconti has not made a serious effort to plead or otherwise demonstrate the existence of Civil Authority coverage under the Utica policy. The policy provides: We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss. Thus, to establish the existence of Civil Authority coverage under the language of the policy, Visconti must demonstrate that: (1) its loss was caused by action of civil authority (2) which prohibited access to its covered premises (3) due to direct physical loss of or damage to property elsewhere (4) caused by or resulting from a covered cause of loss. While (1) Visconti’s losses were unquestionably caused by “action of civil authority” (the Executive Orders), the Complaint does not sufficiently allege that (2) the Executive Orders “prohibited access” to Visconti’s premises, or (3) the restrictions, such as they were, which those Orders imposed upon Visconti’s business were due to “direct physical loss of or damage to” property other than its own premises.5 1. The Complaint Does Not Allege that the Action of Civil Authority Prohibited Access to Visconti’s Premises In Michael Cetta, Inc. v. Admiral Indemnity Co., supra, the Court dismissed the plaintiff’s claim for Civil Authority coverage on a number of grounds, including the fact that the plaintiff “has not alleged that access was ever denied completely to the restaurant…” Id., 2020 WL 7321405 at *12. The Court wrote: The fact that Sparks could have continued to operate its business in some capacity is fatal to Sparks’s claim for civil authority coverage. Sparks’s response is that closure orders “make it illegal for Sparks to allow patrons into its restaurant.”…However, Sparks fails to cite any authority to support the idea that this would trigger civil authority coverage. This novel theory is without merit because under the plain meaning of the Policy, if employees (but not patrons) were allowed access to the indoor portions of the restaurant, civil authority did not prohibit access. For example, a court in the Southern District of California dismissed a claim for civil authority coverage because “the complaint does not allege that any Covid-19 civil authority orders prohibited plaintiffs from access to their business premises.” Pappy’s Barber Shops, Inc. v. Farmers Group, Inc.,…2020 WL 5500221, at *6 (S.D. Cal. 2020); see also Sandy Point Dental,…2020 WL 5630465, at *3 (“While coronavirus orders have limited plaintiff’s operations, no order issued in Illinois prohibits access to plaintiff’s premises.”). Id. While the Complaint describes the Executive Orders issued in New York by Governor Cuomo, nowhere does Visconti allege that the Orders prohibited access to its premises. If and to the extent that Visconti is relying on the March 22, 2020 Executive Order whereby the Governor ordered the closure of all “non-essential” businesses, Visconti nowhere alleges that it was a “non-essential” business subject to this closure order. The Court notes that the Guidance issued by the NYS Department of Health in conjunction with this Executive Order included among the businesses defined as “essential” — and therefore not subject to the closure order — “transportation infrastructure” including “buses.” Therefore, Visconti has failed to plead an essential element of Civil Authority coverage, to wit, that action of civil authority “prohibited access” to its insured premises. 2. The Complaint Does Not Allege That Any Restriction Imposed by Civil Authority Upon Visconti’s Premises Was Due to Direct Physical Loss of or Damage to Property Elsewhere Visconti argues: “Clearly buildings throughout New York and nearby were contaminated by Covid-19 and that contamination and its continuing, rapid spread led to Government Action to restrict access to other properties, like Plaintiff’s, to slow the spread of the pandemic.” (Memo., p. 18) For three distinct reasons, however, a claim of this nature is insufficient to trigger Civil Authority coverage. First, ill-defined assertions that other properties have been exposed to Covid-19 are insufficient: “[w]ithout specific allegations that a neighboring property suffered ‘damage to property,’ the Complaint fails to state a claim that is plausible on its fact as to Sparks’s entitlement to civil authority coverage.” Michael Cetta, Inc. v. Admiral Indemnity Co., supra, 2020 WL 7321405 at *11. Second, even if, as Visconti alleges, buildings throughout New York have been contaminated by Covid-19, that would not constitute the “direct physical loss of or damage to” property that is required to trigger coverage. See, Tappo of Buffalo, LLC v. Erie Ins. Co., supra, 2020 WL 7867553 at *4. Finally, even if Covid-19 contamination in other buildings were deemed to constitute direct physical loss of or damage to property, that was not the cause of any restriction imposed by civil authority upon the use of Visconti’s own premises. As the Court in 10012 Holdings, Inc. v. Sentinel Ins. Co., Ltd., supra, observed: It is plausible that the risk of Covid-19 being physically present in neighboring properties caused state and local authorities to prohibit access to those properties. But the Complaint does not allege that these closures of neighboring properties “direct[ly] result[ed]” in closure of Plaintiff’s own premises, as the Civil Authority provisions require. Instead, the Complaint alleges that Plaintiff was forced to close for the same reason as its neighbors — the risk of harm to individuals on its own premises due to the pandemic. Put differently, the Complaint does not plausibly allege that the potential presence of Covid-19 in neighboring properties directly resulted in the closure of Plaintiff’s properties; rather, it alleges that closure was the direct result of the risk of Covid-19 at Plaintiff’s property. See United Air Lines, 439 F.3d 128, 134-35 (2d Cir. 2006) (denying recovery because nationwide shutdown of airport facilities due to risk of terrorism did not directly result from physical damage to neighboring properties). Id., 2020 WL 7360252 at *4. In other words, the gist of Civil Authority coverage is that physical harm to someone else’s premises has caused the civil authorities to prohibit access to the insured’s premises. Here, in contrast, both premises are restricted for the same reason: to limit the risk of spreading the Covid-19 virus. This simply does not implicate Civil Authority coverage. See, id. 3. There Is No Free-Floating “Governmental Action” Coverage Under the Utica Policy Visconti argues: “Because the Policy provides Civil Authority coverage under certain circumstances (Policy at A23, A73), then other Government Actions causing property loss are covered.” (Memo., p. 18) The concluding phrase of that sentence is a non sequitur, and is demonstrably incorrect. As was noted at the outset, “[l]abeling the policy as ‘all-risk’ does not relieve the insured of its initial burden of demonstrating a covered loss under the terms of the policy.” Roundabout Theatre Co., Inc., supra, 302 AD2d at 6. There is coverage under the Utica policy for the actions of government as set forth in the Civil Authority provision. For the rest, the policy provides: We will not pay for loss or damage caused by or resulting from…[3.b. Acts or decisions, including the failure to act or decide, of any…governmental body.] But if an excluded cause of loss that is listed in [3.b.] results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss. Covered Causes of Loss means Risks of Direct Physical Loss unless the loss is Excluded in Section B, Exclusions…. Taken together, these provisions establish coverage (in addition to Civil Authority coverage) for government actions which cause “direct physical loss” to the insured’s covered property. Here, of course, there is no allegation that the Executive Orders or any other governmental action caused “direct physical loss” as defined in Point “C” above to Visconti’s property. There is no coverage for government actions which cause other losses — e.g., the loss of use or functionality of property, restriction of business, etc. — which do not rise to the level of “direct physical loss,” unless the claim falls within the scope of Civil Authority coverage. 4. Conclusion Therefore, Visconti’s claims with respect to Utica’s denial of Civil Authority coverage are dismissed. E. Other Issues Visconti’s Complaint is subject to dismissal because there is no coverage under the Utica policy for its claimed losses. Accordingly, the Court need not reach the issue whether coverage would be vitiated by any of the exclusions set forth in the policy. However, even if coverage were somehow found to exist, it appears that there are three policy exclusions which, singly or collectively, would potentially create an insurmountable barrier to Visconti’s recovery. First, the Utica policy explicitly excludes “loss or damage caused by or resulting from…loss of use.” That exclusion undermines Visconti’s primary argument in this case, i.e., that a loss of use or functionality of its property is a covered loss under the policy. Second, the Utica policy explicitly excludes “loss or damage caused by or resulting from…loss of market.” The Complaint ( 74) alleges that upon the Governor’s issuance of Executive Orders closing the schools of this State, “the operation of Visconti’s bus fleet ceased, with the exception of two buses that operated to deliver meals to students of a closed local school district.” Thus, Visconti’s financial loss was caused by the loss of its market (the schools) independent of any loss or damage to its covered property — its headquarters, not its buses. Even if loss of use or functionality of its headquarters were a covered loss, Visconti cannot prove that that was the proximate cause of its financial loss. Third, and finally, the Utica policy explicitly excludes “loss or damage caused by or resulting from any virus.” The parties have argued at great length over the applicability vel non of the virus exclusion to the claims made by Visconti here. In an effort to circumvent this exclusion, Visconti argues, with some plausibility, that (1) its loss was caused not by the coronavirus but by the Executive Orders imposed in response to the virus, and (2) the virus exclusion must be construed narrowly relative to the other policy exclusions, which, unlike the virus exclusion, apply “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” Since the Court has determined that there is no coverage under the Utica policy in the first instance, the interpretation of the virus exclusion may await another day. It is therefore ORDERED, that Defendants’ motion is granted, and it is further ORDERED, that Plaintiffs’ request for leave to replead is denied, and it is further ORDERED, ADJUDGED and DECREED, that the Complaint is dismissed. The foregoing constitutes the decision, order and judgment of the Court. Dated: February __, 2021

 
Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.

More From ALM

Premium Subscription

With this subscription you will receive unlimited access to high quality, online, on-demand premium content from well-respected faculty in the legal industry. This is perfect for attorneys licensed in multiple jurisdictions or for attorneys that have fulfilled their CLE requirement but need to access resourceful information for their practice areas.
View Now

Team Accounts

Our Team Account subscription service is for legal teams of four or more attorneys. Each attorney is granted unlimited access to high quality, on-demand premium content from well-respected faculty in the legal industry along with administrative access to easily manage CLE for the entire team.
View Now

Bundle Subscriptions

Gain access to some of the most knowledgeable and experienced attorneys with our 2 bundle options! Our Compliance bundles are curated by CLE Counselors and include current legal topics and challenges within the industry. Our second option allows you to build your bundle and strategically select the content that pertains to your needs. Both options are priced the same.
View Now

New York Legal Awards 2021

October 13, 2021
New York, NY

The New York Law Journal honors attorneys and judges who have made a remarkable difference in the legal profession in New York.


Register

General Counsel Conference East 2021

September 22, 2021 - September 23, 2021
New York, NY

GCC East addresses General Counsel trends in regulatory, data protection, tech management, legal operations, and leadership.


Register

New Jersey Legal Awards 2021

September 23, 2021
Virtual, NJ

New Jersey Law Journal honors lawyers leaving a mark on the legal community in New Jersey with their dedication to the profession.


Register

Senior Corporate Counsel

Any City, Illinois, United States

We are a nationwide firm that specializes in structuring, financing and executing ESOP buyout transactions.  We are seeking an attorney...


Apply Now ›

(EXCLUSIVE) COMMERCIAL AGREEMENTS/CORPORATE COUNSEL WANTED FOR GLOBAL COMMUNICATION SOFTWARE COMPANY (Atlanta, GA)

Atlanta, Georgia, United States

Our client, a publicly-traded, communication software company, has engaged us to identify a Corporate Counsel for their North American legal...


Apply Now ›

LITIGATION ATTORNEY

Cheshire, Connecticut, United States

Mid-size law firm focused on Insurance Defense is seeking a highly personable, highly motivated litigation attorney to join the general liti...


Apply Now ›

JAVERBAUM WURGAFT HICKS

09/20/2021
NJLJ Web

JAVERBAUM WURGAFT HICKS mourn the passing of our Co-Founding Partner, collegue, and friend.


View Announcement ›

BARTON GILMAN LLP

09/14/2021
CLT Web

Barton Gilman Expands Into Connecticut


View Announcement ›

BARTON GILMAN LLP

09/14/2021
TLI Web

Barton Gilman LLP is excited to announce that its expansion into Philadelphia


View Announcement ›