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Law360 (May 13, 2021, 9:53 PM EDT) -- A New Jersey state judge pushed back Thursday on a restaurant's stance that its insurance policy's virus exclusion did not bar coverage from a Liberty Mutual unit with respect to the COVID-19 outbreak since the eatery's losses were caused by a government order, saying the directive was in response to the pandemic.
During a remote hearing on Ohio Security Insurance Co.'s bid to escape Grand Cru LLC's suit, Superior Court Judge Owen C. McCarthy expressed skepticism over the eatery's claim that its losses stemmed from an executive order by Gov. Phil Murphy limiting restaurants to takeout and delivery orders to fight the spread of COVID-19 and not from the virus itself.
Grand Cru attorney Michael M. DiCicco of Maggs McDermott & DiCicco LLC told the judge that "the coverage provides that the covered cause of loss is not the virus here," but instead the cause is the executive order.
"Wasn't the executive order in direct response to the virus and the pandemic that — not only New Jersey, it extends beyond New Jersey — the whole world's been dealing with for roughly 15 months?" Judge McCarthy asked DiCicco.
DiCicco indicated that the pandemic is "one of the points of causation," but "that executive order stands on its own" in the absence of an anti-concurrent clause, saying it was "the last event in the chain of causation that caused the loss." Virus exclusions with such clauses have said losses caused directly or indirectly by a virus are not covered, court documents state.
The judge later pointed out that when the terms of an insurance policy are clear, "I have to use their plain and ordinary meaning, and it's not my role to rewrite a better policy or engage in a strained construction to support the imposition of liability or ... create a better policy for the insured than the one that was purchased."
DiCicco acknowledged that was the law for interpreting insurance policies and said, "That's what I'm asking you to do."
Under insurance law, exclusions are to be interpreted "narrowly, and you can't exclude things that aren't part of the exclusion and nowhere ... in the virus exclusion does it indicate that it would cover civil authority orders predicated on the exclusion," DiCicco said.
But Ohio Security attorney Rachel R. Hager of Finazzo Cossolini O'Leary Meola & Hager LLC countered Thursday that several other Garden State courts have evaluated virus exclusion language identical to that in Grand Cru's policy and determined that it barred coverage for losses related to the pandemic.
The lawsuit from Grand Cru — which had done business in Red Bank, New Jersey, as Restaurant Nicholas and is now known as Barrel & Roost — is one of numerous pandemic-related coverage disputes playing out in New Jersey's state and federal courts. In several cases in recent months, courts have said a virus exclusion prohibited coverage.
Ohio Security cited the virus exclusion in Grand Cru's policy in its motion to dismiss the first count of the restaurant's three-count second amended complaint. That count seeks a declaratory judgment that the restaurant is entitled to coverage. The other two counts relate to the alleged misconduct of Grand Cru's insurance broker, Jacobson Goldfarb & Scott Inc.
The virus exclusion in the policy bars coverage for any "'loss or damage caused by or resulting from any virus ... that induces or is capable of inducing physical distress, illness or disease,'" according to Ohio Security's motion.
The insurer also asserted in the brief that Grand Cru was not entitled to coverage since it did not sustain "'direct physical loss or damage,'" as required under the policy.
"The simple, undeniable fact is that Governor Philip Murphy's executive orders seeking to prevent people from congregating in groups, both in buildings and outside, did not cause any direct physical loss or damage to plaintiff's property," according to the brief.
During Thursday's hearing, DiCicco contended that the restaurant suffered a physical loss since it wasn't able to use its property.
"I don't know what other kind of loss this would be if not a physical loss," he added.
Grand Cru is represented by Michael M. DiCicco, James A. Maggs and Stephanie L. DeLuca of Maggs McDermott & DiCicco LLC.
Ohio Security is represented by Rachel R. Hager of Finazzo Cossolini O'Leary Meola & Hager LLC.
The case is Grand Cru LLC v. Liberty Mutual Insurance Co. et al., case number L-1122-20, in the Superior Court of New Jersey, County of Monmouth.
--Editing by Daniel King.
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