U.S. District Judge Freda L. Wolfson said she didn't need to address the heavily litigated "physical loss or damage" issue, since the virus exclusion in T&L Catering Inc.'s policy eliminated any coverage owed by Citizens Insurance Co. of America for the company's pandemic-related losses.
"Even though the closure orders were an immediate cause of plaintiff's losses, they were not the predominant cause," the judge said. "Rather, the predominant cause of plaintiff's losses was the COVID-19 virus because, but for the virus, the state of New Jersey would not have issued the closure orders."
Judge Wolfson held the caterer made the same mistake as a group of car dealerships by focusing on the sequence of events that led to the orders and not the predominant cause. And the judge said her conclusion wasn't affected by the virus exclusion's lack of an anti-concurrent causation clause. Such clauses bar coverage when a policyholder's loss is caused by two or more perils and at least one is subject to a policy exclusion.
T&L Catering filed the putative class suit in June 2020, alleging all-risk policies issued by Hanover Insurance Group subsidiary Citizens covered losses caused by the pandemic and government-imposed restrictions that were taken as precautionary measures to further prevent the spread of COVID-19.
The dismissal isn't a surprise, according to Ryan Maxwell of Hurwitz & Fine PC, as New Jersey federal and state courts "have overwhelmingly sided with carriers where the policy includes a virus exclusion."
Matthew A. Goldstein of Flaster Greenberg PC, who represents policyholders, told Law360 that the majority of New Jersey cases decided favorably for insurers involved a standard virus exclusion and, as a consequence, the courts have largely not decided the issue of whether policyholders sustained the type of "direct physical loss of or damage to" property required for coverage.
But Goldstein said he's hopeful that appellate courts will issue decisions applying prepandemic case law to the property requirement issue and the purpose and intention of the all-risk insurance policy and conclude that such policies don't require physical alteration to property to trigger coverage as loss of use is sufficient.
Insurance companies have indeed been issued more favorable rulings by New Jersey federal and state courts in business-interruption suits, according to data from the University of Pennsylvania's COVID Coverage Litigation Tracker, with the vast majority of the policies at issue having a virus exclusion. For example, a tanning salon's proposed class suit was tossed when a New Jersey federal judge in June ruled the virus exclusion barred coverage. In all, 35 of 37 rulings by Garden State courts to date have resulted in the dismissal of policyholders' complaints, and of those, all but four involved policies with a virus exclusion, according to the UPenn data.
Michael S. Levine of Hunton Andrews Kurth LLP told Law360 that the T&L Catering ruling "jumps fast-forward to the virus exclusion" without the "physical loss or damage" issue being addressed. Based on that focus, he said one could infer the policyholder adequately alleged physical loss or damage to property.
"Otherwise, why bother addressing the exclusion?" asked Levine, who represents fashion giant Ralph Lauren in its own COVID-19 coverage suit that was dismissed in May but is being appealed.
In applying that exclusion, Scott D. Greenspan of Pillsbury Winthrop Shaw Pittman LLP said, Judge Wolfson's ruling got it wrong by disregarding Appleman's Rule, under which the policyholder gets coverage if the covered event is either the first or the last event in the causal chain.
"Here, the government orders were the last event in the causal chain and those are covered," he said. "The court simply cast that aside in a rush to insulate the insurer from liability. This is an especially egregious mistake where the policy lacked an anti-concurrent causation clause."
Such rulings mark an "unfortunate trend" in New Jersey, according to Greenspan, who represents the owner of Versace, Jimmy Choo and Michael Kors in its business-interruption suit that was dismissed last month. But the trend should present policyholders with strong arguments on appeal, he said.
With five appeals before the New Jersey Superior Court's Appellate Division, according to UPenn's COVID Tracker, Michael Savett of Clark & Fox told Law360 he's interested to see whether an appellate court will agree with the insurer-friendly decisions.
"I anticipate that these decisions will be upheld," said Savett, who represents insurers. "If they aren't, a reversal represents a sea change across the board and the trial courts will have to revisit their decisions. It will certainly create more litigation."
Representatives for T&L Catering and Citizens didn't respond to requests for comment Thursday.
The catering company 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.
Citizens is represented by Jeremiah L. O'Leary and Jonathan M. Zagha of Finazzo Cossolini O'Leary Meola & Hager LLC.
The case is T&L Catering Inc. v. the Hanover Insurance Group Inc. et al., case number 3:20-cv-07934, in the U.S. District Court for the District of New Jersey.
--Additional reporting by Bill Wichert, Eli Flesch and Hailey Konnath. Editing by Breda Lund.
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