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New Jersey state court rules insurers can’t escape COVID-19

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Another state court has ruled in favor of policyholders in a COVID-19 business disruption litigation. This decision further confirms the tendency of state courts to recognize the potential for coverage where many federal courts have not.

More recently, a New Jersey judge gave an early Christmas giveaway to an Atlantic City casino by denying three dismissal motions from insurance companies seeking to evade their obligations to cover for interruption losses. COVID-19 related activity. For more than a year, a central question has been at the heart of the COVID-19 litigation: is it appropriate for judges to draw factual conclusions on whether COVID-19 constitutes “direct physical loss or damage,” based only on pleadings and without any evidence or expert testimony? While national case law dictates that the answer must be “no”, many courts have nonetheless addressed this unprecedented scientific problem. But on December 22, 2021, Judge Winkelstein of the Atlantic County Superior Court resisted the temptation and found that Ocean Walk had sufficiently alleged “direct physical loss or damage” caused by the presence of the SARS-virus. CoV-2. Judge Winkelstein also refused to extend traditional pollution exclusions to the insured’s COVID-19 claim.

Policyholders argued that it was inappropriate for the courts to dismiss ‘presence’ cases – those lawsuits based on loss and damage caused by the actual presence of COVID-19 and its causative virus, SARS-CoV -2. Ocean Walk is one such case, where the complaint alleged that COVID-19 caused physical changes to its property and, among other things, made the casino unsafe. As required at the motion to dismiss, the court accepted the factual allegations as true and recognized that the “facts may be disputed, but that is a problem for another day.” Here, “the pleadings suffice to show that COVID-19 has damaged the premises of the Ocean; this meets the coverage requirements under the insurance agreements and, therefore, the complaint satisfies [New Jersey law] to survive a motion R.4: 6-2 (e).

Many insurers have obtained the dismissal of similar lawsuits arguing that “physical loss or damage” each requires physical alteration of the insured property, even when contradicted by analogous precedent in other contexts. Here, however, Judge Winklestein relied on a New Jersey precedent in Wakefern Food Corp. vs. Liberty Mutual Fire Ins. Co., 406 NJ Super 524 (App. Div. 2009), Customized distribution services c. Zurich Ins. Co., 373 NJ Super. 480 (App. Div. 2004), Port Authority v. Affiliated FM Ins. Co., 311 Fed. 3d 226 (3d Cir. 2002), and Gregory Packaging Co., Inc. v. Traveler’s Property Cas. Company of Am., 2014 Dist. Lexis 165232 (Dist. Of NJ November 25, 2014), which clarify that a physical modification is not necessary to trigger the coverage and that the expression “direct physical damage” is ambiguous in any event, because the expression is reasonably susceptible to multiple meanings. As Justice Winklestein explained, “[t]The carriers could have defined the term physical damage but refused to do so. Thus, the court interpreted the language against the insurers and ruled that Ocean Walk had sufficiently made a claim for its losses related to COVID-19.

The court also rejected the insurers’ argument that the exclusion of pollution or contamination prevented coverage of the claim.

Zurich and AIG’s policy included an exclusion of contamination that included “virus” in the definition of contamination. The court ruled that the declared contaminants “are associated with traditional environmental pollution damage, unreasonably related to the damage in this case.” Likewise, the exclusion of pollution from Interstate Fire and National Fire “largely refers to environmental and industrial pollution contaminants.” As Winkelstein J. concluded, interpreting these exclusions more broadly to apply to a communicable disease would be contrary to the reasonable expectations of the insured. And the insertion of “virus” “does not change the substance of the exemption”. The court also noted that insurers failed to provide convincing evidence that the pollution exclusion was meant to be interpreted as broadly as insurance companies claimed. Thus, the traditional exclusions of pollution did not apply.

The court stopped before a total victory for the insured and granted a second motion to dismiss the insurer on the basis of the exclusion of biological or chemical substances from this policy, which focused more narrowly on the type loss alleged in the complaint.

the AC Ocean Walk The ruling highlights many ingredients that have been lacking in COVID-19 opinions across the country. Here, the court correctly accepted the factual allegations as true, read the provisions of the insurance policies broadly in favor of coverage, interpreted the exclusions narrowly, and resolved all doubts in favor of the insured who was not moving. This led to the conclusion that the policyholder alleged a covered business interruption claim and that the factual dispute over whether COVID-19 causes physical loss or damage is “another’s problem. day”. This result appropriately subjects the central investigation to discovery and expert testimony rather than judgment appeals at the motion to dismiss before an insured has a chance to prove. his allegations.

The full notice in AC Ocean Walk LLC v. American Guarantee and Liability Ins. Co. et al., Case No. ATL-L-0703-21, can be found here.

Copyright © 2022, Hunton Andrews Kurth LLP. All rights reserved.National Law Review, Volume XII, Number 10