By Daphne Zhang

Law360 (September 15, 2020, 9:10 PM EDT) -- Factory Mutual Insurance Co. urged a New York federal court to rule that its policy's contamination and "loss of use" exclusions bar coverage for lapsed rent payments Thor Equities LLC says was caused by COVID-19 closing down its malls and hotels in Manhattan, San Francisco and other major cities.

FM said Monday that the contamination and "loss of use" exclusions in its policy are "broadly phrased" and clearly preclude coverage, and Thor is asking the court to rewrite the exclusions to try to get "more than twenty times" the policy's $1 million sub-limit for communicable disease.

The insurer argued that COVID-19 constitutes contamination under the policy, and "since the onset of the COVID-19 pandemic, a number of courts have held contamination exclusions preclude recovery of losses related to the pandemic and government shut down orders."

FM added that since Thor has claimed losses from its inability to use its properties due to government closure orders, the policy's "loss of market or loss of use" exclusion also applies.

The insurer also contended that the policy's communicable disease coverage will only apply as a "narrow" exception to the exclusions when an insured can show the "actual not suspected presence of communicable disease," and that its access is limited by government orders. Yet Thor argued in July that most of its losses were caused by government closure orders instead of the presence of COVID-19 on its property, FM said.

FM said it issued the policy on March 15, and Thor filed its claim of loss within two weeks. FM replied in mid-April that the policy's $1 million communicable disease coverage could apply, but Thor maintained that its loss should be covered under the policy's general limit of $750 million instead of the communicable disease sub-limit.

In late April, Thor sued the insurer for anticipatory breach of contract, seeking a declaration that rent payments that its tenants skipped because of the pandemic should be covered. Thor has said that it expected to lose at least $20 million since companies renting space at its properties have said they will not be able to make rent payments and have asked for abatements and other accommodations.

Among the commercial properties Thor owns are the Albee Square mall in Brooklyn, the Palmer House Hilton hotel in Chicago, and retail properties in Tribeca, Chelsea and the Upper East Side of Manhattan.

"The idea that the policy could have been intentionally 'designed' many years ago to account for an unprecedented and unexpected global pandemic strains credulity," FM said in the motion on Monday. "Thor has asked this court to effectively read out of the policy the explicit exclusions on coverage for contamination and 'loss of use.'"

The carrier contended that the policy exclusion precludes coverage for "any cost due to contamination," which includes Thor's alleged loss of rental income.

FM said Thor is trying to "inject ambiguity" into the policy exclusions that expressly bar coverage, and that the company has failed to demonstrate any exceptions to the "loss of use" and contamination exclusions.

Representatives for parties could not be immediately reached for comment.

Thor is represented by Robin L. Cohen, Kenneth H. Frenchman, Cynthia M Jordano and Alexander M. Sugzda of McKool Smith PC.

FM is represented by Harvey Kurzweil, Kelly A. Librera, George E. Mastoris and Matthew A. Stark of Winston & Strawn LLP, and Robert F. Cossolini of Finazzo Cossolini O'Leary Meola & Hager LLC.

The case is Thor Equities LLC v. Factory Mutual Insurance Co., case number 1:20-cv-03380, in the U.S. District Court for the Southern District of New York.

--Editing by Adam LoBelia.

For a reprint of this article, please contact reprints@law360.com.