Anderson Kill Lawyers: Case Law, Policy Language May Help Businesses’ Insurance Claim

AM Best

  • March 23, 2020

Case law in New Jersey and other jurisdictions could benefit businesses looking to their insurance policies to cover losses caused by the coronavirus crisis, according to lawyers for a New York firm.

Attorneys Robert Chesler and Nicholas Insua, based in Anderson Kill’s Newark, New Jersey office, said several New Jersey cases suggest courts can interpret physical injury broadly to require coverage for business closures and loss of functionality, even where physical damage does not occur.

In one case, Wakefern Food Corp. sought coverage for losses following a power outage in 2003, they said in an article in the online site Law360. Liberty Mutual Fire Insurance Co. argued no physical damage occurred to its property, so the losses should not be covered. A state court agreed with Liberty Mutual, they said.

But an appellate court reversed, ruling in 2009 under a proper broad interpretation of the term physical loss, a loss of functionality also should be considered, they said.

Comparing that loss of functionality to businesses that were ordered closed in Manhattan after the Sept. 11, 2001 terrorist attacks, Chesler and Insua said businesses may have a legitimate claim for coverage if they were swept up in shutdown orders by a number of governors.

In a second case, a federal judge in New Jersey ruled Travelers Property Casualty Co. had to cover a company’s losses after an ammonia leak caused a business to close, they said. In a similar vein, businesses could have a viable claim if they closed because employees or customers in the building came down with the virus, they said.

A third court ruling in New York and New Jersey upheld a claim by the Port Authority of New York and New Jersey, which a covered loss occurred because a building became uninhabitable from asbestos in the air circulating inside one of its buildings, Chesler said.

By and large, however, insurance industry representatives said exclusions and limitations will greatly reduce exposure in property insurance lines impacted by the COVID-19 pandemic (Best’s News Service, March 17, 2020).

“It’s a jurisdiction-by-jurisdiction test,” Chesler told Best’s News Service. “There are some good jurisdictions out there with good law. There are some bad ones. The debate is whether you need an actual physical alteration to constitute property damage… or whether the loss of functionality is sufficient.”

Policyholders have a good case if a government-ordered shutdown drove their losses or if someone at the facility contracted the virus, he said.

Companies need to file claims if they have suffered a loss to see if it “fits into one of these pigeonholes,” Chesler said.

Losses may be covered even in cases where a policy excludes a virus coverage, Insua added. 

Compared to typical automobile, homeowners or general liability policies, property/casualty policies have “off-the-rack” language that varies widely, he said.

“Even in policies where there is a ‘virus exclusion,’ there’s different wording in the exclusions,” Insua said. “I think that certainly there will be arguments made about what is the actual meaning and scope of the exclusion (and) how it was presented… to insurance regulators to be adopted.”

Insua said Anderson Kill has heard from “droves” of clients asking about their insurance coverage.

“The firm has a lot of interest across a lot of industries and sectors seeking coverage for the coronavirus losses,” he said.

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