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Law360 (July 1, 2021, 8:19 PM EDT) -- A children's retailer can't allege that Continental Casualty Co. wrongfully rejected its claims for losses suffered amid the pandemic, a New Jersey federal judge has ruled, echoing a number of recent New Jersey decisions holding that COVID-19 doesn't cause requisite physical loss or damage.
In dismissing the lawsuit on Wednesday, U.S. District Judge Michael A. Shipp said the case differed from the majority of the district's other pandemic-related insurance cases, because the policy in question did not have a virus exclusion. But plaintiff Marilyn's Kids Inc., which does business as Denny's, fails in arguing that COVID-19 caused direct physical loss and damage to its insured property, the judge said.
Judge Shipp cited several cases that did examine the question posed by the Marilyn's Kids suit, and said all found that some form of physical damage is required to trigger coverage.
"Nothing in the complaint suggests that plaintiffs insured property was damaged or physically impacted such that the property needed to be repaired, rebuilt, or replaced," the judge wrote in the order.
Judge Shipp added that the plaintiff's additional argument that government shutdown orders caused covered losses also fails, because the orders themselves did not cause any physical damage.
Marilyn's Kids, which operates retail stores throughout New Jersey, filed the lawsuit in July 2020 claiming that Continental wrongly refused coverage under its business income, extra expense and civil authority provisions for losses caused by COVID-19 during its policy, which ran from October 2019 through October 2020.
The judge said the policy covers a "direct physical loss or damage to property" that is "caused or by resulting from a covered cause of loss."
Continental sought to dismiss the suit, arguing that no direct physical loss of or damage to any covered property occurred. The company also said what constitutes a "direct physical loss" is not defined in the policy, but argued it requires some form of tangible loss or damage.
Marilyn's Kids argued, among other things, that physical loss or damage if suffered is a question of fact that cannot be decided on a motion to dismiss, and also that a physical loss occurs when property is "uninhabitable or unusable for its intended purposes[.]"
With other rulings in the District of New Jersey finding that a virus exclusion barred coverage, Judge Shipp said the question of "direct physical loss of or damage to" property is a less-examined question, but did cite some rulings that run counter Marilyn's Kids' arguments, including 7th Inning Stretch LLC v. Arch Ins. Co.
The judge said 7th Inning is consistent with other rulings in the district, and that the ruling held "the presence of a virus that harms humans but does not physically alter structures does not constitute coverable property loss or damage,"
Counsel for the parties did not immediately respond to requests for comment.
Marilyn's Kids is represented by Kenneth J. Grunfeld and Richard M. Golomb of Golomb & Honik PC.
Continental Casualty Co. is represented by Kevin F. Buckley, Katharine Anne Lechleitner and Craig R. Rygiel of Mound Cotton Wollan & Greengrass LLP.
The case is Marilyn's Kids Inc., d/b/a Denny's v. Continental Casualty Co., case number 3:20-cv-08641, in the U.S. District Court for the District of New Jersey.
--Editing by Nicole Bleier.
For a reprint of this article, please contact reprints@law360.com.
