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Law360 (April 1, 2021, 9:06 PM EDT) -- A New York federal judge said a contamination exclusion under a Factory Mutual Insurance Co. commercial property policy is too ambiguous, holding that she cannot determine whether the exclusion bars coverage of Thor Equities' COVID-19 related business losses.
U.S. District Judge Analisa Nadine Torres said Wednesday FM's contamination exclusion, which bars pollution caused by a virus, is not clear on whether it precludes contamination or decontamination costs. The judge said that it is inappropriate for her to rule that the exclusion bars coverage to Thor's alleged losses as FM wishes.
Thor owns Albee Square mall in Brooklyn, the Palmer House Hilton hotel in Chicago, retail properties in Tribeca, Chelsea and the Upper East Side of Manhattan, and property in other major cities. It sued FM last April, seeking coverage for over $20 million in rent payments that its renters have skipped because of the pandemic.
Last September FM said its policy's "contamination" and "loss of use" exclusions bar coverage for Thor's alleged losses. According to the suit, the policy excludes "contamination and any cost due to contamination" including the inability to use a property or costs incurred to make the property usable. The policy defines contamination as a property condition caused by viruses, bacteria and illness-causing agents among others.
Thor has argued that the contamination exclusion only precludes contamination-induced costs, such as money spent to clean and disinfect a surface but not losses resulting from the contamination.
On Wednesday, Judge Torres said Thor's interpretation is reasonable.
"The policy distinguishes between 'cost' and 'loss' elsewhere, but no such distinction is present here," the judge said, referring to the contamination exclusion.
According to court records, Thor has contended that the contamination exclusion never mentioned "any loss due to contamination" but specifically precludes costs resulting from contamination. The company said the exclusion does not bar coverage for Thor's business interruption losses.
But FM has maintained that the exclusion expressly precluded "inability to use" property, so that Thor's loss of rental income which resulted from virus contamination is not covered. Thor has alleged there have been confirmed cases of COVID-19 at its rental properties, according to the complaint.
In the order, Judge Torres found both parties' interpretations make sense.
On the one hand, the judge said "the exclusion could reasonably be read to encompass more than just 'any costs due to contamination. On the other hand, it similarly cannot be said that the exclusion unambiguously forecloses recovery on Thor's losses due to contamination."
Judge Torres refused to determine whether the policy's loss of use or loss of market exclusion applies to bar coverage, pointing out Thor's complaint never mentioned that exclusion, according to the Wednesday order.
According to court filings, Thor bought the policy on March 13, 2020, and 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.
FM has argued that that the exclusions are "broadly phrased" and that COVID-19 constitutes contamination under the policy. The insurer has said Thor was 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.
Representatives for the 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 Cohen Ziffer Frenchman & McKenna LLP.
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 Gemma Horowitz.
For a reprint of this article, please contact reprints@law360.com.
