By Shawn Rice

Law360 (June 25, 2021, 3:26 PM EDT) -- A New Jersey state judge on Friday threw out a business interruption suit brought by the owner of Versace, Jimmy Choo and Michael Kors, saying the fashion giants don't allege any "direct physical loss of or damage to" property caused during the COVID-19 pandemic.

Following a hearing on bids to dismiss, Judge John D. O'Dwyer granted the motions with prejudice to Zurich American Insurance Co. and five other insurers, saying Capri Holdings Ltd. can't show its stores were unusable or uninhabitable under government closure orders or the presence of the coronavirus.

While Capri was prevented from using its stores to some extent, Judge O'Dwyer ruled that the fashion group didn't have access totally cut off. And there aren't any allegations of structural alteration to the property, the judge said, rejecting Capri's suggestion that the coronavirus altered the air to trigger coverage.

Michael L. Anania of Ford Marrin Esposito Witmeyer & Gleser LLP, counsel for Zurich, argued at the hearing that Capri's stores are no different today from when the pandemic started. He said New Jersey law requires property to be structurally altered or uninhabitable, but that wasn't the case with Capri's stores.

Anania referenced fast-food chain Wendy's old slogan, "Where's the beef?" by asking "Where's the direct physical damage?" There simply isn't any, he answered.

Joseph D. Jean of Pillsbury Winthrop Shaw Pittman LLP, counsel for Capri, argued "direct physical loss" in the policy didn't require a structural alteration to property. He then explained the complaint goes into great detail on scientific studies supporting how Capri suffered physical loss from the coronavirus.

When Judge O'Dwyer asked Capri's counsel what the physical loss or damage was to the property, Jean responded that the physical loss is the damage to the surrounding air. Airborne substances like cat urine and gasoline fumes have been found to cause physical loss, he told Judge O'Dwyer at the hearing.

Capri had alleged the coronavirus caused its properties to become unsafe, spoiling the very air and surfaces upon which a virus particle might settle, according to court documents.

Anania of Ford challenged the damage to air argument, saying air is not property insured by the policy.

Anania also argued that it didn't make any sense that a liquor store based out of the same mall as a Capri store didn't suffer any physical loss but that Capri did. Even if the coronavirus was present, Anania said it didn't impact the functionality of the stores as the counter space and clothing racks were still in use.

Next, Judge O'Dwyer raised a question on whether Capri's stores were totally uninhabitable.

Jean of Pillsbury answered that Capri had a loss of functionality during the COVID-19 pandemic. Jean then explained that businesses operate in a damaged condition all the time and that there is no requirement that businesses be completely uninhabitable from any use for coverage to be triggered.

"If you take an asbestos suit, for example, there is no dispute you shouldn't go into the property. But you still enter to clean the asbestos," he said. "The reality is the virus is so deadly that it made the properties completely uninhabitable for a period of time until protective measures could be put in place."

Judge O'Dwyer inquired what the protective measures were that so were different from day one of the pandemic. Jean of Pillsbury said the stores had to be disinfected and fixtures had to be moved.

Anania of Ford argued there wasn't any repair or replacement of property. And the presence of the coronavirus had a limited life cycle and could be addressed with routine cleaning, he said. Capri doesn't show the virus particles were present at its stores despite saying employees tested positive, Anania said.

Carpi had alleged that more than 600 of its employees contracted COVID-19 and that this was direct proof of the virus' presence in its stores, according to court documents.

But Zurich's counsel pushed back, saying "Capri's 100-page complaint is silent on whether any employees that tested positive of COVID-19 were at the stores when they were infected."

Capri filed suit seeking coverage from Zurich, XL Insurance America Inc., Mitsui Sumitomo Insurance Co. of America, Liberty Mutual Fire Insurance Co., Allianz Global Corporate and Specialty SE and AIG Specialty Insurance Co. to pay for more than $1.2 billion in losses resulting from the pandemic.

Capri wanted $500 million in coverage spread out over two policy periods, according to court documents — $250 million for each period, dating back to March 2019.

Representatives for Liberty Mutual and Allianz declined to comment Friday.

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

Capri is represented by Richard H. Epstein and Victor J. Herlinsky of Sills Cummis & Gross PC and Joseph D. Jean, Scott D. Greenspan, Benjamin D. Tievsky and Janine M. Stanisz of Pillsbury Winthrop Shaw Pittman LLP.

Zurich is represented by Charles A. Booth, Michael L. Anania and John A. Mattoon of Ford Marrin Esposito Witmeyer & Gleser LLP.

The other insurers are represented by Shawn L. Kelly of Dentons, Alexander W. Cogbill of Zelle LLP, Timothy A. Carroll of Clyde & Co. LLP, Rachel R. Hager of Finazzo Cossolini O'Leary Meola & Hager LLC and Brian E. O'Donnell of Riker Danzig Scherer Hyland & Perretti LLP.

The case is Capri Holdings Ltd. v. Zurich American Insurance Co. et al., case number BER-L-002322-21, in the Superior Court of the State of New Jersey, County of Bergen.

--Additional reporting by Hailey Konnath and Eli Flesch. Editing by Vincent Sherry. 

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