New York Court of Appeals: Covid-19 business losses do not constitute ‘material’ damage to property, and do not trigger commercial property policies

Covid-19 may cause companies to not be able to use their property, but loss of use No “direct physical loss or damage” is necessary to start business property insurance coverage, according to a first-of-its-kind New York Court of Appeals decision issued Thursday.

in Consolidated Restaurant Operations, Inc. (CRO) vs. Westport Ins. a company, index number 450839/21, App. Case No. 2021-02971, 2021-04034, plaintiff CRO, owner of a multinational restaurant, halted indoor dining in March 2020 due to Covid-19 executive closure orders, and lost tens of millions of dollars in revenue as a result. Previously, CRO purchased a commercial property policy from defendant Westport that insured “all risks of direct physical loss or damage” to the insured property. CRO has filed a claim for direct physical loss or damage because the actual or threatened presence of the virus in its restaurants has rendered them functions for their intended purpose. Westport denied coverage because the presence of the virus does not constitute material loss or damage.

CRO sued Westport in state court and Westport moved to dismiss the complaint. The application was granted and the CRO appealed, arguing:

  • “Physical loss or damage to property” is ambiguous because “physical” is not specified.
  • Covid-19 does not inflict physical harm, even if the harm is invisible or intangible, comparable to the presence of harmful substances such as e. coli, asbestos, ammonia and salmonella.
  • Contrary to claims by other policyholders based on government shutdowns, CRO claimed that actual The physical presence of the virus in the form of physical droplets and respiratory particles.
  • Westport’s no virus exclusion policy also indicates coverage is available.

The Court of Appeal did not agree with this, holding that the “material” is not ambiguous. Same Court of Appeal in a pre-Covid-19 case Roundabout Theater Company v. Continental Cass Company. a company, 302 AD2d 1 (1st Dept. 2002), that “loss of use” does not constitute “direct physical damage or loss to property,” which requires that “any claim for coverage must arise from . . . some physical problem with the property covered, not Just losing use.” “Property must be altered, damaged or affected in a tangible way, making it different from what it was before the alleged event occurred.” This is ‘double the function or use [CRO]to his property for its intended purpose, is not sufficient.” The court noted an “immense number of authorities” who had adopted this position, including every New York federal court and a New York level court to handle the case.

The court distinguished between a few cases outside the jurisdiction that held that conditions making property “unusable” could result in coverage for business interruption because under New York law “an adverse change in the concrete condition of the property.” [insured] Necessary for “physical” damage to property.

Ultimately, the court held that because the complaint sought to cover economic losses due to “direct material loss or damage to the insured property,” but failed to claim any “ascertainable tangible damage, alteration or alteration of property,” it was properly dismissed. . The modification will be useless and the modification is properly denied permission.

Finally, the court held that the suggestion that there was no exception for viruses meant that the virus-covered policy was wrong because “exclusion clauses are subtracted from coverage rather than granted.”

Several other companies made similar claims and were met with a similar fate. Across the United States, the vast majority of courts have sided with insurance companies.

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