By Daphne Zhang

Law360 (April 5, 2021, 4:29 PM EDT) -- A New York City art gallery told the Second Circuit that a lower court erred in ruling that a unit of The Hartford isn't obligated to cover its pandemic-related losses, urging the appeals court to interpret what it called a contract ambiguity in the policyholder's favor.

In a brief filed Friday, the Guy Hepner art gallery said its interpretation that an all-risk business interruption policy covers COVID-19-related losses is a reasonable one. It also asked the court to certify the insurance issue to the New York Court of Appeals.

The gallery maintained that its insurer, Sentinel Insurance Co., has a duty to cover its losses resulting from state closure orders. Guy Hepner claimed that the phrase "direct physical loss" — which has been heavily debated in many similar COVID-19 coverage disputes around the country — can be reasonably read to include a policyholder's loss of the ability to use a property for its intended purpose.

"The district court committed reversible error in its interpretation of Guy Hepner's policy because it allowed Sentinel to escape liability even though a reasonable interpretation of the Sentinel-drafted policy requires Sentinel to provide coverage," the gallery said.

Last December, a New York federal judge ruled the carrier isn't obligated to cover the art gallery and dealer's financial losses, finding that the gallery's woes didn't result from a "direct physical loss" of its property as required by its policy.

The Guy Hepner art gallery, which is located in Manhattan's Chelsea neighborhood, has exhibited the work of many prominent artists, including Banksy, Andy Warhol and Jean-Michel Basquiat. The gallery filed suit last June after its insurer denied its claim for pandemic-related business losses.

On Friday, the gallery said its business interruption insurance is different from a typical property damage policy that may require structural damage to trigger coverage. It argued that its policy was designed to cover the kinds of business income losses it incurred from state-mandated COVID-19 closures.

The district court's reading that the policy requires structural damage is overly narrow, and it wrongly held that the terms "damage" and "loss" have identical meanings even though Sentinel never clearly defined the two terms in the policy, the gallery said.

Guy Hepner is also asking the Second Circuit to certify to the New York Court of Appeals the question of whether an all-risk business interruption policy covers pandemic-related revenue loss caused by government shutdown orders.

Since the beginning of the year, some federal courts and policyholders have urged state courts to certify COVID-19-related coverage questions. In January, an Ohio federal judge asked the state's high court to certify whether the presence of COVID-19 or an infected person on property constitutes direct physical loss or damage to covered property.

In February, policyholders of numerous insurers — including Hartford Casualty Co., Lloyd's of London, Berkshire Hathaway Inc. and Cincinnati Insurance Co. — requested that the Third Circuit ask the Pennsylvania Supreme Court to certify whether the pandemic causes "physical loss" covered in insurance policies.

Insurers have so far fielded more than 1,500 suits stemming from the pandemic, with Hartford in particular having battled approximately 225 coverage cases, according to a database maintained by the University of Pennsylvania Carey Law School.

Representatives for the parties could not be immediately reached for comment.

Guy Hepner is represented by John V. Golaszewski of The Casas Law Firm PC.

Sentinel is represented by Jonathan M. Freiman of Wiggin and Dana LLP and Charles Michael of Steptoe & Johnson LLP.

The case is 10012 Holdings Inc. v. Hartford Fire Insurance Co., case number 21-80, in the U.S. Court of Appeals for the Second Circuit.

--Editing by Daniel King.

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