Virus Exclusion Sinks NJ Clothier's COVID-19 Coverage Suit

By Jeannie O'Sullivan
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Law360 (March 18, 2021, 3:04 PM EDT) -- An upscale New Jersey clothing retailer lost its bid for insurance coverage for COVID-19-related business losses Thursday when a federal judge ruled that coverage was precluded by the virus exclusion in its policy with Harleysville Insurance Co.

U.S. District Judge Freda L. Wolfson granted the dismissal motion by Harleysville and its parent Nationwide Mutual Insurance Co. after rejecting Garmany of Red Bank Inc.'s theory that the store's losses resulted not from the coronavirus but rather from New Jersey Gov. Phil Murphy's order to shut down nonessential retail stores when the pandemic hit last March. Garmany sued after the insurer rejected its claim for business interruption coverage.

"While plaintiff contends that the executive orders were the proximate cause of its losses because the orders required the closure of its retail business, plaintiff fails to acknowledge that the policy provides that loss caused 'directly or indirectly' by a virus is excluded," Judge Wolfson wrote, adding that the language is known as an "anti-concurrent clause."

"Moreover, even if the policy did not contain an anti-concurrent clause, plaintiff cannot show that the executive orders, and not the COVID-19 virus, were the proximate cause of its losses," the decision said.

Judge Wolfson went on to reject Garmany's argument that public policy weighed against the virus exclusion. To that end, Garmany had pointed to legislation introduced last year in Congress and by the New Jersey Assembly that would require commercial insurers to cover losses caused by the coronavirus pandemic.

But the jurist wasn't persuaded that the virus exclusion was contrary to public policy.

"The bills relied on by plaintiff were never voted on by either the House of Representatives or the New Jersey Assembly," the decision said.

Garmany's argument that the virus exclusion was void under regulatory estoppel fared no better. The retailer alleged that the insurer made misleading "omissions and representations" to the New Jersey Department of Banking and Insurance when advising it of the virus exclusion.

However, "the court is unable to discern any misrepresentation made by Harleysville to the department," the decision said.

The insurance policy at the heart of the lawsuit requires Harleysville to cover "'actual loss of net income and continuing operating expenses sustained during an interruption of business operations which interruption is caused by direct physical loss of or damage at the insured premises as a result of a covered peril,'" according to the decision.

Also covered are losses incurred "'while access to the insured premises is denied by an order of civil authority as a result of direct physical loss of or damage to property other than to the insured premises that is caused by a covered peril,'" the decision said.

Garmany alleged it submitted an April 21 claim to Harleysville seeking business interruption coverage in the wake of Murphy's March 9, 2020, executive order declaring a state of emergency due to the pandemic and ordering nonessential businesses to limit or shutter operations.

Harleysville denied the claim on April 29, the decision said. The insurer's stated reasons were that there was no direct physical loss or damage to covered property, that the suspension of operations was not caused by direct physical property loss or damage and that the coronavirus fell within the virus exclusion.

Garmany filed its complaint on May 27 in Monmouth County Superior Court, seeking a declaration that the governor's executive orders triggered coverage because it prohibited access to the insured premises. The defendants later had the case removed to federal court.

In a dismissal motion filed in August, the insurer pointed to the virus exclusion and also said Garmany failed to launch any "plausible allegations of 'direct physical loss of or damage to property' at Garmany's clothing store or to other qualifying property."

Counsel for the parties didn't immediately respond to requests for comment Thursday.

Garmany is represented by James A. Maggs and Michael M. DiCicco of Maggs McDermott & DiCicco LLC.

The defendants are represented by Patrick J. Mulqueen of Goldberg Segalla LLP.

The case is Garmany of Red Bank Inc. v. Harleysville Insurance Co. et al., case number 3:20-cv-08676, in U.S. District Court for the District of New Jersey.

--Editing by Stephen Berg.

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Case Title


Case Number



New Jersey

Nature of Suit



Freda L. Wolfson

Date Filed

July 11, 2020

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