Very early on, our company decided not to get involved in the COVID-19 business interruption coverage wars. Our reasons were simple.
First, we knew the insurance industry would treat these allegations as a threat to its very existence (or at least tell it to judges in an effort to avoid coverage). Therefore, it will be very difficult to settle the claims. To succeed, policyholders and their attorneys will need to devote significant resources to the battle, possibly for an extended period of time. Therefore, we advised our clients to make their claims, allow others to fight cover battles, and see how trends evolve.
Second, we learned that many judges, especially at the federal level, tend to be sympathetic to the insurance industry, and will engage in commonsense sports to interpret unspecified terms in insurance policies (such as “direct material loss”) in favor of carriers, no matter which way they Building rules are supposed to work out. (Note: Under the laws of each state, policyholders are supposed to benefit from the doubt.)
Third, many of the calls we received from potential customers were about claims that were in less than six digits. That’s a lot of money for ordinary humans and small businesses, but in the meat grinder known as our legal system, this usually doesn’t justify lengthy and potentially costly litigation.
To be sure, many of the judges who have faced work stoppage claims for COVID-19 (which is most beneficial to the insurance industry) have defined the unspecified terms in the policies in favor of carriers. (For an excellent scorecard listing COVID-19 coverage cases across the country, click over here.) Recently, though, a retired New Jersey Appeals Circuit judge temporarily assigned to the Atlantic County Supreme Court said essentially, “Not so fast.” The Atlantic County decision is remarkable because of the court’s actual commitment to and enforcement of building codes, which many courts have cited and then essentially ignored. (The official citation for the resolution is AC Ocean Walk, LLC v. American Guarantee and Liability Insurance, et al., Docket No. ATL-L-0703-21. You can access a free copy at the Hinton Andrews Kurth Insurance Recovery Blog over here.)
Facts: The policy holder, AC Ocean Walk, LLC, owns a casino in Atlantic City. The casino is closed due to COVID-19. The document holder confirmed that the virus was indeed present on the casino floor, rendering the casino unusable and meeting the amorphous policy requirements of “direct material loss”. The policyholder asserted that as a result, he was entitled to impose business interruption coverage. Of course, the carriers differed.
The main passage of Judge Winkelstein’s opinion, who rejected the carriers’ application for denial, was as follows:
“The plaintiff presents, and for the purposes of this [motion to dismiss] The court accepts that the main source of casino revenue was the casino floor and guest accommodations, which have been wiped out and destroyed due to the presence and imminent threat of COVID-19. [sic]in the airspace and on the surfaces, rendering those parts of the property functionally useless and unsuitable for the intended purpose … The insurers here have not defined the term “physical damage”. The language is ambiguous. It can be used to support the positions of Oceans as well as the carrier regarding the meaning of insurance agreements. If there is more than one possible interpretation of language, courts apply the meaning that supports coverage rather than the interpretation that limits it. ” [Cleaned up; citations omitted; emphasis mine.]
The court also ruled that the so-called pollution exclusion did not apply to deny coverage, because it was designed to apply to conventional industrial pollution. However, with respect to one of the carriers, the court granted the application to refuse, based on the exclusion of a specific biological substance.
Commentators in the insurance industry may say that Judge Winkelstein’s decision is wrong and outcome-oriented. it’s not like that. It simply follows the building rules that the courts are supposed to follow. In fact, the world would be a better place if the insurance company claimed that employees have been trained that “if there is more than one possible interpretation of language,” they must “apply meaning that supports coverage rather than meaning that limits it” to using Judge Winkelstein’s words. But they wouldn’t be trained that way, for the economic reasons cited in Professor Jay Feynman’s excellent book, Delay, Deny, Defense: Why Insurance Companies Deny Claims and What You Can Do About It, available on Amazon.
The AC Ocean Walk case shows that in any disputed claim, policyholders must repeatedly and loudly assert building rules, which are supposed to work in their favour even on the playing field with the insurance industry. (“Playground” is probably the wrong analogy, because for many policyholders insurance is not a game, but the only thing standing between them and financial ruin.)