(Article from Insurance Law Alert, April 2022)
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A New York appellate court affirmed the dismissal of a suit seeking property insurance coverage for pandemic-related business losses. Consolidated Restaurant Operations, Inc. v. Westport Ins. Corp., 2022 WL 1040376 (N.Y. App. Div. 1st Dep’t Apr. 7, 2022).
The owner of several restaurants sought coverage for business losses incurred in the wake of government closure orders. The insurer denied coverage, arguing that the actual or suspected presence of COVID-19 particles did not constitute physical loss or damage to property, as required by the policy. In ensuing litigation, a New York trial court dismissed the policyholder’s complaint. The appellate court affirmed.
The appellate court held that the policy was unambiguous and required some “physical” change or damage to property, rather than a mere loss of use. The court concluded that the complaint failed to allege such damage to property, despite references to actual viral particles on insured property, because no property had to be replaced or repaired. In addition, the court emphasized that the restaurants were able to provide limited services during the relevant time frame, thus further supporting the conclusion that the property was not physically damaged. As the court noted, decisions applying New York law have uniformly rejected the argument that COVID-19 causes such physical damage.