About a year after plaintiff Truhaven Enterprises Inc. launched the suit, Indemnity Insurance Co. of North America, or IINA, on Wednesday urged the court to join other federal jurists in the Garden State who have handed victories to insurance companies in similar pandemic-related coverage disputes.
"This court should endorse the unanimous view of its sister courts in the District of New Jersey and hold that the coronavirus does not cause direct physical loss of or damage to property and in any event the virus exclusion unambiguously bars coverage as a matter of law," IINA said in a brief on its motion for judgment on the pleadings.
Truhaven Enterprises, which does business as Fiorino Ristorante in Summit, New Jersey, has sought coverage under its IINA policy for the financial blow it suffered after Gov. Phil Murphy limited restaurants to takeout and delivery orders as part of the state's efforts to combat the spread of COVID-19. The governor has since permitted outdoor and indoor dining with certain restrictions.
The policy provides coverage for business income losses, extra expenses and losses due to actions of civil authorities.
But IINA on Wednesday contended that business income and extra expense coverage — which applies to the "'direct physical loss of or damage to'" property — was not available since the Italian eatery was not physically altered.
"Because 'direct physical' modifies both 'loss' and 'damage,' New Jersey law requires that for there to be a covered loss, any interruption in business must be caused by some physical problem with the covered property," IINA said.
The insurer backed up its argument by citing the Third Circuit's 2002 opinion in Port Auth. of N.Y. & N.J. v. Affiliated FM Ins. Co.
, which found that "the insured had not suffered any physical loss or damage, because it had failed to show 'a distinct, demonstrable, and physical alteration' of its property," according to the company's brief.IINA also stressed that the policy provides the two types of coverage for the restaurant's "operations only during the 'period of restoration,' which ends when property is either 'repaired, rebuilt[,] or replaced' or Truhaven's business resumes at a 'new permanent location.'"
"The policy's use of 'repaired, rebuilt[,] or replaced' is no accident; that language connotes physical harm because coverage is triggered only if an actual, physical alteration in the insured property occurs," IINA said.
The company further took aim at Truhaven Enterprises' assertion in the complaint that the restaurant suffered "a direct physical loss of and damage" to its property since the eatery was "unable to use [its] property for its intended purpose."
Under "the plain language of the policy and black letter New Jersey law, the mere loss of functionality, without any tangible alteration in the property, is insufficient to establish direct physical loss or damage as a matter of law," IINA said.
The absence of physical harm allegations similarly makes the restaurant ineligible for civil authority coverage, according to IINA.
That coverage applies when a civil authority's action "prohibits access to the insured property due to damage to property within one mile thereof," IINA said. Truhaven Enterprises has not alleged that the orders in question "resulted from any damage to property elsewhere," and the orders did not bar access to the restaurant, the company said.
"To the contrary, the civil-authority orders, at most, temporarily restricted Truhaven from serving food on-premises, while allowing the restaurant to provide takeout and delivery services and grant access to employees and staff," IINA said.
Even if the eatery was otherwise entitled to any coverage under the policy, the virus exclusion would prohibit it, IINA said. That provision "expressly states that IINA will not pay for loss or damage caused by or resulting from any 'virus … that induces or is capable of inducing physical distress, illness or disease,'" the company said.
IINA noted "the words 'virus,' 'coronavirus,' and 'COVID-19' appear more than one hundred times in the complaint," and that the suit refers to the government orders "as the 'corresponding response' to the COVID-19 pandemic intended 'to stop the spread of the outbreak.'"
"Truhaven's theory seems to be that the orders, not the virus, caused its losses, but — as several courts have already recognized in the COVID-19 context — that argument is foreclosed by New Jersey law, because the orders themselves resulted from the virus," the insurer said.
Counsel for the parties did not immediately respond to requests for comment Thursday.
Truhaven Enterprises is represented by James E. Cecchi and Lindsey H. Taylor of Carella Byrne Cecchi Olstein Brody & Agnello PC, Christopher A. Seeger and Stephen A. Weiss of Seeger Weiss LLP and Samuel H. Rudman, Paul J. Geller and Stuart A. Davidson of Robbins Geller Rudman & Dowd LLP.
IINA is represented by Daren S. McNally, Barbara M. Almeida and Meghan C. Goodwin of Clyde & Co US LLP and Richard B. Goetz, Daniel M. Petrocelli, Allen W. Burton and Leah Godesky of O'Melveny & Myers LLP.
The case is Truhaven Enterprises Inc. d/b/a Fiorino Ristorante v. Indemnity Insurance Co. of North America, case number 2:20-cv-04586, in the U.S. District Court for the District of New Jersey.
--Editing by Emily Kokoll.
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