Insurer Says Ralph Lauren Can't Claim $700M Virus Coverage

By Jeff Sistrunk
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Law360 (February 1, 2021, 9:53 PM EST) -- Factory Mutual Insurance Co. on Friday urged a New Jersey federal judge to find that Ralph Lauren Corp. is not entitled to coverage for pandemic-related losses under its $700 million property insurance policy, saying the fashion giant has failed to allege it suffered any covered loss or damage to property.

In a cross-motion for partial judgment on the pleadings, Factory Mutual said Ralph Lauren has not sufficiently pled that its losses are covered under any of seven policy provisions that are dependent on the existence of "direct physical loss of or damage to" the clothing company's properties or, in the case of the "civil authority" provision, another location within five miles of one of Ralph Lauren's.

Ralph Lauren has argued that the direct physical loss or damage requirement was satisfied by its loss of the ability to use its properties due to the presence of the novel coronavirus. According to the company, the virus has presumably been present at its properties at some point because of the global nature of the pandemic.

But Factory Mutual said Ralph Lauren's "conclusory" statement that the virus was present at its properties is insufficient; instead, the insurer argued, the clothing company must provide specific evidence that COVID-19 was detected at the properties.

"Plaintiff concedes — as it must — that it has not adequately alleged the existence of COVID-19 on any of its properties," Factory Mutual contended. "Instead, it boldly asks this court to find — as a matter of law — that COVID-19 was 'present throughout the world' and 'everywhere' and thus extant at each of its properties. There is, of course, no factual basis for such a claim. After all, were COVID-19 literally present everywhere in the world, there would have been no reason to put in place the stay-at-home orders or encourage social distancing, the efficacy of which rests on the premise that the spread of COVID-19 can be limited." 

Moreover, Factory Mutual noted that the same judge who is overseeing its dispute with Ralph Lauren has ruled twice in recent months that other businesses' financial losses due to New Jersey's COVID-19 stay-at-home orders did not fulfill the physical loss or damage requirement.

"Like those plaintiffs, Ralph Lauren is unable to demonstrate that any of its covered properties were physically damaged by the stay-at-home orders or their underlying causes," the insurer said.

In its August complaint, Ralph Lauren said the pandemic has forced its global stores to shut down and caused the complete closure of its U.S. stores. The clothing company said that, despite efforts to sell online, its revenues slid 66% for the first quarter, its North America store sales fell 77%, and its wholesale sales dropped 93% from the previous year.

In response to Ralph Lauren's insurance claim, Factory Mutual asserted that the clothing company's coverage — if any — would be capped at a $1 million sublimit for costs associated with removing a "communicable disease," provided it can show the novel coronavirus was actually present on one or more of its properties. The insurer said Ralph Lauren had failed to demonstrate the direct physical loss or damage required by seven other policy provisions and, even if it had, recovery under those provisions would separately be barred by a number of exclusions, including one for losses attributable to "contamination." 

Ralph Lauren sought partial judgment on the pleadings on Dec. 22, contending it is entitled to coverage under all of the policy provisions it invoked, not just the two communicable disease provisions. 

The clothing company cited two New Jersey cases in support of its position that a loss of use of property can constitute direct physical loss or damage. In one, Wakefern v. Liberty Mutual , a Garden State appeals court found in 2009 that a group of supermarkets was entitled to coverage for losses tied to a four-day blackout caused by problems at a power grid. And in the other, Gregory Packaging v. Travelers , a New Jersey federal judge ruled in 2014 that an ammonia release at a factory constituted direct physical loss or damage to the building.

Ralph Lauren further contended that the policy's contamination exclusion — which includes viruses among its list of contaminants — does not apply in this situation because it would "eviscerate" the coverage provided by the communicable disease provisions.

In its Friday cross-motion, Factory Mutual countered that neither of Ralph Lauren's cited New Jersey decisions help its case. The insurer said the novel coronavirus, if present at a property, is unlike the ammonia release involved in Gregory Packaging because the virus can be eliminated from surfaces with disinfectant wipes and does not render property "unusable" or "uninhabitable."

"After all, businesses deemed 'essential' could and did continue operating throughout the pandemic even in jurisdictions with stay-at-home orders in place," the insurer argued. "Even plaintiff's 'non-essential' retail stores remained open for pickups and deliveries, and certain types of employees were expressly allowed to continue to use the premises."

In Wakefern, meanwhile, Factory Mutual said there was a specific "physical incident or series of incidents" that caused the electrical grid and its components to be "physically incapable of performing their essential function." But Ralph Lauren is "unable to point to a comparable physical incident," the insurer contended.

Factory Mutual also scoffed at Ralph Lauren's suggestion that the contamination exclusion would erase the policy's sublimited communicable disease coverage. According to the insurer, the communicable disease coverage provisions — which involve a different coverage trigger than the other provisions invoked by Ralph Lauren — are not affected by the contamination exclusion.

"The communicable disease provisions, which are triggered by the 'actual not suspected' presence of a disease at a given property, constitute independent grants of coverage that do not require physical loss or damage and are not subject to the contamination exclusion," Factory Mutual said. "And, to the extent the virus and the disease overlap, the communicable disease provisions constitute an exception to the contamination exclusion."

Counsel for Factory Mutual and Ralph Lauren did not immediately respond to requests for comment Monday.

Factory Mutual is represented by Robert F. Cossolini of Finazzo Cossolini O'Leary Meola & Hager LLC and Harvey Kurzweil, Kelly A. Librera, George E. Mastoris and Kerry C. Donovan of Winston & Strawn LLP.

Ralph Lauren is represented by Kevin V. Small, Walter J. Andrews, Michael S. Levine and Matthew J. Revis of Hunton Andrews Kurth LLP.

The case is Ralph Lauren Corp. v. Factory Mutual Insurance Co., case number 2:20-cv-10167, in the U.S. District Court for the District of New Jersey.

--Additional reporting by Daphne Zhang. Editing by Janice Carter Brown.

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