While questions remain as to how Courts will ultimately rule on whether business interruption claims may provide recovery under an insurance policy, a recent decision is an important win to plaintiff-policyholders seeking to clear the initial pleading hurdle in their litigations against insurers who have denied their claims.
Countless businesses nationwide purchased business interruption insurance coverage from insurers to protect their businesses from an unanticipated crisis. Such a crisis struck in March 2020 when the novel coronavirus, known as COVID-19, spread across the globe forcing governments to take dramatic action to “slow the spread” of the virus. In New Jersey, Governor Phil Murphy issued Executive Orders in March 2020 that, among other things, required all non-essential businesses in New Jersey to close, and, ordered New Jersey residents to stay home. These orders caused many businesses to temporarily close and incur substantial losses. To mitigate these losses, businesses looked to their insurance policies to provide coverage for the interruption of their operations. Insurers across the nation have taken a hardline stance in denying such claims and in moving to dismiss litigation initiated by policyholders disputing those denials.
A New Jersey trial court recently denied an insurer’s motion to dismiss a COVID-19 business interruption suit brought by OlenderFeldman LLP on behalf of a group of optometry practices. In Optical Services USA/JC1 v. Franklin Mutual Ins. Co., No. BER-L-3681-20 (N.J. Super. Ct. Bergen Cty. Aug. 13, 2020), the policyholder plaintiffs allege they closed their businesses in compliance with statewide orders and, as a result, suffered significant financial losses. Plaintiffs submitted claims under their insurance policies to their insurer, Defendant Franklin Mutual Insurance Company (“FMI”). FMI denied the insurance claims, forcing the plaintiffs to file suit.
In a manner consistent with the approach maintained by insurance carriers across the nation denying coverage to insureds that diligently paid premiums, FMI moved to dismiss Plaintiffs’ Complaint arguing that because “there is no known instance of COVID-19 transmission or contamination within the premises of plaintiffs’ businesses,” there was no “direct physical loss.” Plaintiffs argued in opposition that a (1) a dangerous condition on the property (such as the potential presence of COVID-19) can constitute “physical loss,” and, (2) the closure orders “not only affected plaintiffs’ businesses, but they affected … all properties around plaintiffs,” triggering civil authority coverage.
The trial court denied FMI’s Motion to Dismiss agreeing with plaintiffs’ position that FMI’s narrow interpretation of “direct physical loss” was unsupported by controlling legal authority in New Jersey, and further, that “the language which forms the basis of the complaint and the filing of a Motion to Dismiss is subject to further analysis and interpretation.” In a potential boon to policyholders, the Court further noted that “since the term ‘physical’ can mean more than material alteration or damage, it is incumbent on the insurer to clearly and specifically rule out coverage in the circumstances where it was not to be provided.” (Emphasis added). A copy of the transcript of the argument and decision can be found here.
For further guidance and counsel on pursuing business interruption coverage for COVID-19 under your insurance policy, or any other litigation-related matter facing your business, please contact Sean Rose () in OlenderFeldman’s Commercial Litigation Group.