By Bill Wichert

Law360 (February 19, 2021, 3:03 PM EST) -- The New Jersey Performing Arts Center has hit a Chubb unit with a state lawsuit alleging the insurer improperly refused to cover the venue's losses stemming from the coronavirus outbreak under a policy that does not include a virus exclusion, a provision that has barred coverage in similar cases.

The Newark center said Chubb Insurance Co. of New Jersey was wrong to reject the nonprofit entity's claim without conducting a "meaningful investigation" after its properties were damaged by the "actual presence" of COVID-19 and its operations were impaired by government restrictions aimed at curbing the spread of the coronavirus.

The coverage denial runs counter to representations on Chubb's website that "'we make things right'" and "'we honor the promises we've made to you,'" among others, according to NJPAC's Tuesday complaint.

"Rather than living up to these commitments, upon information and belief, Chubb made the business decision to deny all business income loss claims under its property insurance policies and denied NJPAC's claim without a meaningful investigation during NJPAC's direst time of need," the complaint said.

The litigation comes as other insurance companies recently have escaped suits over coverage for losses related to the pandemic based on a virus exclusion in their policies.

For example, U.S. District Judge Kevin McNulty in New Jersey on Feb. 8 tossed a proposed class action against Twin City Fire Insurance Co. after concluding it properly denied an eye care practice's claim based on the exclusion barring "coverage for losses 'caused directly or indirectly by' the '[p]resence, growth, proliferation, spread or any activity of ... virus.'"

Two days later, the Garden State's top federal judge similarly found that a virus exclusion barred a group of car dealerships from obtaining coverage from Zurich American Insurance Co. for pandemic-related losses.

That exclusion states the company "'will not pay for loss or damage caused by or resulting from any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness or disease,'" according to U.S. Chief District Judge Freda L. Wolfson's Feb. 10 opinion.

NJPAC noted in its complaint that Chubb commonly sold property insurance policies to other insureds that included exclusions barring coverage for losses that result from viruses and pandemics, but chose not to incorporate such exclusions in the center's policies.

"In view of Chubb's deliberate omission of such an exclusion, the policies do not limit coverage, and under certain circumstances requires Chubb to pay, for losses resulting from viruses, pandemics or communicable diseases," the complaint said.

The center "reasonably believed and expected that Chubb would pay for NJPAC's business income and other losses when it was forced to suspend operations due to property damage or civil authority orders resulting from a pandemic," the complaint said.

In denying coverage to NJPAC, the insurer asserted that the venue had not suffered "'direct physical loss or damage'" to property, according to letters attached as exhibits to the complaint.

NJPAC countered Tuesday that at least eight employees at its facilities tested positive for COVID-19, arguing that "the actual presence of the coronavirus and COVID-19 caused direct physical loss or damage to NJPAC's properties, and rendered NJPAC's properties unsafe, uninhabitable for occupancy or use, and unfit for their intended purpose."

"As a direct result of this direct physical loss or damage to NJPAC's properties, NJPAC's operations were impaired," the complaint said. "NJPAC's continued operations would have resulted in visitors, employees, vendors, contractors and other individuals being exposed to the coronavirus and unquestionably would have resulted in a substantial number of fatalities."

After having curtailed its operations in response to government orders, the center added that its "ability to operate has not been restored and remains restricted, and it is unknown when NJPAC and other performing arts centers or theaters will be permitted to reopen in any capacity let alone at full capacity."

A Chubb representative told Law360 on Friday, "As a matter of policy, we do not comment on legal matters."

Counsel for NJPAC did not immediately respond to a request for comment Friday.

NJPAC is represented by Lynda A. Bennett and Joseph M. Saka of Lowenstein Sandler LLP.

Counsel information for Chubb Insurance Co. of New Jersey was not immediately available.

The case is New Jersey Performing Arts Center v. Chubb Insurance Co. of New Jersey, case number L-1254-21, in the Superior Court of New Jersey, County of Essex.

--Editing by Janice Carter Brown.

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