New Jersey federal and state courts have proven to be troublesome for policyholders in coverage fights with insurers over losses during the coronavirus pandemic, as seen in a Wednesday federal court ruling that threw out a Garden State catering company's putative class suit under the policy's virus exclusion.
U.S. District Judge Freda L. Wolfson said she didn't need to address the heavily litigated "physical loss or damage" issue, since the virus exclusion in T&L Catering Inc.'s policy eliminated any coverage owed by Citizens Insurance Co. of America for the company's pandemic-related losses.
"Even though the closure orders were an immediate cause of plaintiff's losses, they were not the predominant cause," the judge said. "Rather, the predominant cause of plaintiff's losses was the COVID-19 virus because, but for the virus, the state of New Jersey would not have issued the closure orders."
Judge Wolfson held the caterer made the same mistake as a group of car dealerships by focusing on the sequence of events that led to the orders and not the predominant cause. And the judge said her conclusion wasn't affected by the virus exclusion's lack of an anti-concurrent causation clause. Such clauses bar coverage when a policyholder's loss is caused by two or more perils and at least one is subject to a policy exclusion.
T&L Catering filed the putative class suit in June 2020, alleging all-risk policies issued by Hanover Insurance Group subsidiary Citizens covered losses caused by the pandemic and government-imposed restrictions that were taken as precautionary measures to further prevent the spread of COVID-19.
The dismissal isn't a surprise, according to Ryan Maxwell of Hurwitz & Fine PC, as New Jersey federal and state courts "have overwhelmingly sided with carriers where the policy includes a virus exclusion."
Matthew A. Goldstein of Flaster Greenberg PC, who represents policyholders, told Law360 that the majority of New Jersey cases decided favorably for insurers involved a standard virus exclusion and, as a consequence, the courts have largely not decided the issue of whether policyholders sustained the type of "direct physical loss of or damage to" property required for coverage.
But Goldstein said he's hopeful that appellate courts will issue decisions applying prepandemic case law to the property requirement issue and the purpose and intention of the all-risk insurance policy and conclude that such policies don't require physical alteration to property to trigger coverage as loss of use is sufficient.