Merchants said its policyholder, Benamax Ice LLC, failed to show physical damage or that it lost access to its property due to state-mandated closures. Even if it had successfully shown physical damage, all of its claimed losses fall "squarely" within the policy's virus exclusion, the carrier said in a brief.
"Benamax's complaint is devoid of any facts to support its bald assertion that it sustained property damage," Merchants said.
The insurer cited a 2002 Third Circuit ruling that physical damage means "a distinct, demonstrable, and physical alteration" of a property's structure. Benamax's "conclusory" allegation that it suffered direct physical loss because it incurred "loss of use" of its property is insufficient to satisfy the policy requirement, Merchants said.
Benamax, owner of an ice-cream restaurant in Westmont, New Jersey, sued Merchants on May 29, seeking coverage for losses due to COVID-19 and state-mandated closures. The restaurant said it was forced to close due to government orders.
In Thursday's brief, Merchants said that the policy's civil authority coverage will not apply because the ice cream store ignored Gov. Philip Murphy's order that restaurants could stay open by offering take-out and delivery. The ice cream restaurant chose not to provide those services or stay open, so it cannot allege that it lost access to its property due to government orders, Merchants said.
Merchants pointed out in the brief that two courts have specifically held that the COVID-19 pandemic does not cause "physical loss of or damage to property," and the terms of the commercial property policies in the two cases are "strikingly similar" to what it issued to Benamax.
In Gavrilides Management Co. v. Michigan Insurance Co., the Michigan Circuit Court ruled that a business loss due to government orders shutting down the restaurants amid COVID-19 did not satisfy the policy requirement of physical damage to property. Merchants argued that the Michigan Circuit Court also ruled that COVID-19 is subject to virus or bacteria exclusion which bars coverage for the policyholder's business income claims.
Additionally, Merchants said, in Social Life Magazine Inc. v. Sentinel Ins. Co. Ltd., a New York federal court held that "New York law is clear that this kind of business interruption needs some damage to property to prohibit you from going to the property."
"Similar to the policyholder in Social Life Magazine Inc., Benamax's claim falls clearly outside the policy coverage provisions because it does not plead any facts at all, let alone any plausible facts, that its physical property was in fact damaged," the insurer said.
Counsel for parties could not be immediately reached for comment.
Merchants Mutual Insurance is represented by Nicole M. Crowley of Goldberg Segalla LLP.
Benamax is represented by Robert W. Williams of Mattleman Weinroth & Miller PC.
The case is Benamax Ice LLC v. Merchants Mutual Insurance Co. et al., case number 1:20-cv-08069, in the U.S. District Court for the District of New Jersey.
--Editing by Alyssa Miller.
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