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Law360 (July 2, 2020, 4:00 PM EDT) -- A New Jersey orthodontic practice launched a lawsuit Thursday accusing Sentinel Insurance Company Ltd. of denying its claim for business interruption coverage after COVID-19 forced the temporary closure of its two offices, despite the fact that its all-risk policy includes the coverage.
In a federal complaint against Sentinel and its parent company The Hartford, Cedar Run Orthodontics PA claimed it faithfully paid the premiums for a policy that expressly includes "business income" coverage in the event of loss to property and loss to access of property due to a government authority's order. New Jersey Gov. Phil Murphy's sweeping mandate in March to shutter all non-essential businesses fits within that scenario, according to Cedar Run.
While the policy does include a coverage exclusion for virus damage, a policyholder would have to conclude that the virus exclusion would have to relate to the transmission of a virus, not how the virus impacted property, the complaint said.
The "denial of coverage runs afoul of the language of the policy and/or the public policy of the State of New Jersey," and now the survival of the business is at stake, the complaint said.
Cedar Run is seeking a declaratory judgment that its losses are covered. The complaint didn't specify a dollar amount with respect to Cedar Run's business income losses.
The complaint traced the history of the shutdown mandate, which started with Gov. Murphy's March 16 order declaring it "necessary to limit the unnecessary movement of individuals in and around their communities and person-to-person interactions." A "stay-at-home" order that required all non-essential businesses to close until further notice followed a few days later, according the complaint.
In addition to the governor's order to suspend elective medical and dental procedures, the New Jersey Office of the Attorney General and the New Jersey State Board of Dentistry issued a March 21 advisory to dentists to cancel or postpone elective, non-essential and routine services until at least April 20 to help contain the spread of the virus, the complaint said.
Cedar Run, which has offices in West Creek and Hammonton, was particularly at risk of contamination because employees, patients and others frequent all areas of the business, the complaint said.
The enclosed nature of the offices makes the business more susceptible to contamination because respiratory droplets are more likely to remain in the air or infect surfaces absent open-air ventilation, the complaint said. Cedar Run went on to explain that dental procedures involve saliva particles which aerosolize, meaning they become airborne.
The insurance policy at the heart of the complaint covers the period between Aug. 29, 2019, and Aug. 29, 2020. The policy provides "property, business personal property, business income and extra expense, civil authority order, and additional coverages," according to the complaint.
The complaint also alleges that insurance industry trade groups made false representations when they lobbied state regulators for approval of the virus exclusion in 2006. The virus exclusion in the Cedar Run policy states: "We will not pay for loss or damage caused directly or indirectly by … [p]resence, growth, proliferation, spread or any activity of … bacteria or virus. ... This exclusion applies whether or not the loss event results in widespread damage or affects a substantial area."
Cedar Run had faithfully paid the policy premiums and reasonably expected that the business interruption, extra expense and/or civil authority coverage in the policy would protect against the losses the business has incurred due to the coronavirus, the complaint said.
Yet on April 27, Sentinel denied the claim, according to the complaint. In the denial letter attached to the complaint, Sentinel reasoned that since the coronavirus did not cause property damage, the business income loss coverage wasn't triggered.
Representatives for the parties didn't immediately respond to requests for comment.
Cedar Run is represented by Ryan D. Hurd of Anapol Weiss.
Counsel information for the defendants is unknown.
The case is Cedar Run Orthodontics PA v. Hartford Financial Services Group Inc. et al., case no. 1:20-cv-08156, in U.S. District Court for the District of New Jersey.
--Editing by Steven Edelstone.
For a reprint of this article, please contact reprints@law360.com.
