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New York Judge Rules Loss of Property Use Due to COVID-19 Does Not Trigger Business Interruption Coverage

Author: Rachael Marvin, Robert Modica

Guest Editor: Ashley Kaye

February 19, 2021 8:50am

A movie theater is on the hook for business losses due to COVID-19 shutdown orders, after the New York Supreme Court in Nassau County ruled the loss of the use of premises due to COVID-19 does not constitute a direct physical loss triggering business interruption coverage.[1]  Judge Driscoll recognized New York precedent requires a tangible physical alteration to the policyholder’s property, which did not occur in the case of Soundview Cinemas Inc. v. Great American Insurance Group.[2]

Background

In a recent decision, Judge Driscoll dismissed a lawsuit filed by Soundview Cinemas against Great American Insurance Company, finding no indication coverage for COVID-19 related government closures existed before the onset of the pandemic.[3]  Soundview had an insurance policy with Great American covering direct physical losses or damage to their property.[4]  In the Complaint, Soundview sought coverage under the policy for substantial business interruption losses after New York Governor Andrew Cuomo’s stay-at-home orders forced the movie theater to close.[5]  To date, Soundview remains closed because of Governor Cuomo’s executive orders.[6]  However, Great American denied coverage – noting Soundview’s policy language requires a “direct physical loss of or damage to” the insured’s property.[7]  They argued Soundview’s inability to use its movie theater due to COVID-19 related closures did not constitute a direct physical loss.[8]

Judge Driscoll agreed, reasoning:

While the court is sympathetic to the economic consequences resulting from the closure of plaintiff’s movie theater, the court concurs with the majority view that loss of the premises due to COVID-19 related government orders does not constitute ‘direct physical loss of or damage to the property’ that would trigger business interruption coverage under the policy.[9]

Soundview also argued the “civil authority” portion of its policy extended coverage for the inability to access the premises due to government orders issued in response to damage at a nearby property.[10]  In this case, such argument was inapplicable because Governor Cuomo issued the stay-at-home orders in response to the pandemic, not damage to any nearby properties.[11]

Takeaway

While not unanimous throughout the country, more and more courts continue to rule government ordered COVID-19 business closures do not trigger business interruption coverage under most insurance policies.

[1] See Soundview Cinemas Inc. v. Great American Insurance Group, 2021 N.Y. Slip Op. 21025 at *9 (Sup. Ct. Nassau Cnty February 8, 2021).

[2] See id. at *5.

[3] See id. at *9.

[4] See id. at *2.

[5] See id.

[6] See id.

[7] See id. at *5.

[8] See id.

[9] See id. at *9.

[10] See id. at *2, 5.

[11] See id. at *5.

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