With the exception of one insurer with a virus exclusion, the court denied a motion to dismiss filed by various insurers business interruption claims related to COVID-19. AC Ocean Walk, LLC v. Am. Guar. and Liab. Ins. Co., No. ATL-L0703-21, Order (N.J. Super. Ct. Dec. 22, 2021)
AC Ocean Walk, LLC, ran a casino that suffered business losses when COVID-19 was present on its property, forcing a closure of the business. Ocean sought coverage from its numerous insurers. The insurers denied coverage because there was no actual physical damage to the property. The insurers further argued that contamination exclusions in their policies barred coverage.
Ocean asserted the COVID-19 virus caused a direct physical loss of its property, i.e., the loss of use of the casino, when the risk of damage to the health and property that accompanies the COVID-19 became imminent and the casino was forced to close. Further, the property suffered direct physical loss because of the actual presence of the COVID-19 on the premises, which fundamentally altered and damaged the surfaces and the air space within the casino, preventing Ocean's use of the property.
In considering the insurers' motion to dismiss, the court observed that the complaint asserted that the respiratory droplets expelled from individuals landed on, attached, and adhered to surfaces and objects which rendered physical changes to the property and its surface by becoming part of its surface. As a result of that physical alteration, contact with these surfaces was unsafe. Numerous scientific studies documented that COVID-19 could physically remain on and alter property for extended periods of time.
The court found that the allegations met the requirements for coverage pursuant to the insuring agreements and would not be dismissed. Further, the term "direct physical damage" in the carriers' policies was ambiguous because it could reflect different meanings.
Most of the policies contained a pollution exclusion which the insurers argued barred coverage. The policies excluded damage caused by contaminants, which meant materials that could be harmful to human health. But the contaminants listed were associated with traditional environmental pollution damages, not reasonably related to the damages in this case, which were derived from a communicable disease.
The only possible applicable exclusion was the Biological or Chemical Substance Exclusion in the National Fire Insurance policy. Its policy did not provide coverage for "the actual or suspected presence or threat of any pathogenic or poisonous chemical substance, . . . including, but not limited to, any malicious use of such substance." COVID-19 fell within the category of pathogens covered by the endorsement. Consequently, the endorsement precluded coverage under the National Fire policy.