Does New Jersey’s Efficient Proximate Cause Doctrine Overcome the Virus Exclusion?

New Jersey Alert

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PUBLISHED ON: May 12, 2020


Immediately following the initial outbreak of COVID-19, several insurance companies publicly declared that policyholders are not entitled to business interruption coverage if their property policies contain a virus exclusion. As a result, many policyholders have been discouraged by a virus exclusion in their property policies. The virus exclusion, however, may not be dispositive. In fact, for purposes of exclusions in property policies, New Jersey has adopted the efficient proximate cause doctrine. This doctrine states that the cause of a loss is either the first precipitating event or the final damage-inducing act. Applying this doctrine, policyholders have argued that while the precipitating cause of their loss may have been the coronavirus, the final act causing loss was the governmental order that closed down their businesses. Since the government order is the efficient proximate cause of the loss, the virus exclusion should not apply.

The New Jersey Supreme Court established the efficient proximate cause doctrine in Auto Lenders Acceptance Corp. v. Gentilini Ford, Inc.1 There, an employee of the defendant had falsified credit information in connection with several automobile sales transactions. The court was tasked with determining whether a direct physical loss had occurred as result of the employee’s dishonest acts. The court noted...