Insurance coverage

New York Insurance Coverage Law Update – May 25, 2022 | Rivkin Radler LLP

First Department Says Business Interruption Due to COVID-19 Not Covered

The insured purchased a commercial property insurance policy which included business interruption coverage for its restaurants. Restaurants have been forced to suspend indoor dine-in operations due to COVID-19 and have lost tens of millions of dollars in revenue. The insured filed a claim with his insurance company stating that he had suffered covered “direct physical loss or damage” to his property because the actual or imminent presence of the virus in and on his property (that is i.e. ambient air and internal surfaces) eliminated the functionality of restaurants for their intended purpose. The insurer denied the claim; the insured has taken legal action; and the trial court granted the insurer’s motion to dismiss. On appeal, dealing with this issue of first impression for a New York appellate court, the Appellate Division, First Department, upheld. The court held that where a policy states that cover is triggered only in the event of “direct physical loss or damage” to the covered property, “the inability of the insured to use his premises as intended due of COVID-19, without any real, discernible effect, quantifiable change constituting a “physical” difference between the property and what it was before the exposure”, is not a covered loss. The court found “conclusive” and therefore without merit the insured’s amended complaint proposal alleging that his property had been physically damaged by the coronavirus. [Consolidated Rest. Operations, Inc. v. Westport Ins. Corp., 2022 N.Y. App. Div. LEXIS 2227 (1st Dep’t Apr. 7, 2022).]

The northern district rejects Claim in bad faith

State Farm denied its policyholders’ first party property claim under their policy, and the policyholders sued State Farm for breach of contract, breach of covenant of good faith and fair dealing (“bad faith”) ) and punitive damages. The United States District Court for the Northern District of New York granted State Farm’s motion to dismiss the bad faith allegation, finding that “”New York law … does not recognize a cause of action separate claim for breach of implied covenant of good faith and fair dealing when a claim for breach of contract, based on the same facts, is also pleaded. Although the bad faith claim added allegations regarding the delay in the waiver and the improper basis for the denial, the court found that it was based on the same factual decision to deny coverage. And to the extent that Insureds’ claims regarding State Farm’s handling of their New York State consumer claim were not necessary to the contract claim, the court found that the Insureds had not alleged any harm. dismissed the claim for punitive damages, explaining that the alleged breach did not involve “”fraud demonstrating a “high degree of moral turpitude” and demonstrating “dishonesty so gratuitous as to involve criminal indifference to civil obligations” [that is] ‘aimed at the general public.’ [Converse v. State Farm Fire & Cas. Co., 2022 U.S. Dist. LEXIS 60485 (N.D.N.Y. Mar. 31, 2022).]

The first department argues that the automatic exclusion does not apply

Rodriguez was allegedly injured when he fell down a hole while on site making a delivery for a construction project, and he sued the landlord and construction manager who demanded coverage under a CGL policy. Rodriguez testified that he drove his truck through a plastic curtain at the entrance to the building’s interior loading dock where it was unloaded and reloaded with returns. Rodriguez hadn’t checked to see if anything was loose yet. Instead, he walked from the loading dock to make sure the aisle was clear to get out and raise the curtain. A plaque covering a hole outside the building shifted and he fell. The Appellate Division, First Department held that the automobile exclusion, which excluded coverage for accidents resulting from the “use” of the automobile, did not apply to the excluded coverage. The court noted that “use” includes loading and unloading, but concluded that loading was complete. And while not complete, the court held that the exclusion did not apply because “the injury was caused by a faulty condition of the premises, rather than by any act or omission relating to the use automotive”. [Tishman Constr. Corp. v. Zurich Am. Ins. Co., 2022 N.Y. App. Div. LEXIS 2787 (1st Dep’t Apr. 28, 2022).]