{"id":347,"date":"2020-06-15T16:03:59","date_gmt":"2020-06-15T20:03:59","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/insurancelaw\/?p=347"},"modified":"2026-07-13T21:11:46","modified_gmt":"2026-07-14T01:11:46","slug":"business-interruption-insurance-covid-19-and-direct-physical-damage-under-new-york-law","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/insurancelaw\/2020\/06\/15\/business-interruption-insurance-covid-19-and-direct-physical-damage-under-new-york-law\/","title":{"rendered":"Business Interruption Insurance, COVID-19 and Direct Physical Damage under New York Law"},"content":{"rendered":"

By Damon Vocke and David T. McTaggart<\/a><\/em><\/strong><\/p>\n

To date, approximately 150 business-interruption insurance coverage lawsuits have been filed in federal courts arising from COVID-19 and related government-ordered restrictions.\u00a0 In what appears to be the first substantive ruling on the merits in these cases, the Southern District of New York recently ruled against an insured who could not meet its burden to show a likelihood of success in establishing \u201cproperty damage\u201d due to the novel coronavirus to support its claim for injunctive relief.\u00a0 See Social Life Magazine, Inc. v. Sentinel Ins. Co.<\/em>, 1:20-cv-03311-VEC (Dkt. 24-1, S.D.N.Y. May 14, 2020).\u00a0 Judge Caproni expressed sympathy \u201cfor every small business that is having difficulties during this period of time,\u201d but concluded that \u201cNew York law is clear\u201d in requiring actual property damage to trigger business interruption coverage. Because the insured\u2019s coverage theory rested on a government shutdown in the absence of any property damage, the Court denied its preliminary injunction motion, reasoning \u201cthis is just not what\u2019s covered under these insurance policies.\u201d<\/p>\n

<\/p>\n

The insured Social Life Magazine is a Manhattan-based magazine publisher that closed its office on March 17, 2020, out of a concern with the developing novel coronavirus pandemic.\u00a0 Three days later, Governor Mario Cuomo issued Executive Order 202.8, which required all non-essential New York businesses to reduce their in-person workforce by 100% effective March 22, 2020.\u00a0 Because the insured was not an essential business, its employees were unable to return to work leaving the insured unable to meet its publication deadlines.\u00a0 The insured therefore submitted a claim to Sentinel to recover approximately $200,000 in losses that it contended arose from interruptions in its business.<\/p>\n

The insured sought coverage under two provisions, a Business Income provision and a Civil Authority provision.\u00a0 The Business Income provision covered \u201cthe actual loss of Business Income you sustain due to the necessary suspension of your \u2018operations\u2019 . . . [provided the suspension was] caused by direct physical loss of or physical damage to property at the \u2018scheduled premises\u2019.\u201d\u00a0 The Civil Authority provision covered \u201cthe actual loss of Business Income you sustain when access to your \u2018scheduled premises\u2019 is specifically prohibited by order of a civil authority as the direct result of a Covered Cause of Loss to property [i.e<\/em>., risks of direct physical loss] in the immediate area of your \u2018scheduled premises\u2019.\u201d\u00a0 Sentinel denied coverage because the insured had not presented any proof that the novel coronavirus had caused any physical damage to its property nor that it presented the risk of physical damage to adjacent property.<\/p>\n

The insured thereafter filed suit in the Southern District of New York, seeking payment on its policy and alleging a breach of the covenant of good faith and fair dealing.\u00a0 Promptly after filing the lawsuit, the insured moved for a preliminary injunction, contending that it would suffer irreparable harm absent prompt payment under the policy.<\/p>\n

Judge Caproni denied the insured\u2019s motion for injunctive relief at the conclusion of oral argument on the motion.\u00a0 Referencing the state appellate decision of\u00a0Roundabout Theatre Co. v. Continental Casualty Co<\/em>., 302 A.D.2d 1 (1st<\/sup> Dep\u2019t 2002), the Court concluded that \u201cNew York law is clear\u201d that the insured \u201cneeds some damage to the property\u201d to obtain coverage under either provision the insured invoked.\u00a0 The Executive Order was aimed at preventing the spread of the novel coronavirus, but the Court remarked that the insured had not established that either the Executive Order or the insured\u2019s decision to close its business resulted from any property damage.\u00a0 The Court distinguished Legionnaire\u2019s disease \u2013 in which the bacteria can physically affect property \u2013 from the airborne virus which affects lungs.\u00a0 The Court further rejected the insured\u2019s anecdotal evidence that 20% of New Yorkers had tested positive for antibodies\u2014slowing the infection rate may have caused the Governor to issue the Executive Order, but it did not damage the insured\u2019s property, and so it could not support a claim.<\/p>\n

Although the insured filed a notice of appeal after Judge Caproni denied its motion, it withdrew the appeal and dismissed the case several days later.\u00a0 As a result, Judge Caproni never issued a written decision memorializing her bench ruling.\u00a0 Moreover, given the procedural posture, the bench ruling merely found that the insured was unlikely to establish a covered loss so as to support injunctive relief, not that there was no coverage as a matter of law.\u00a0 Still, while not binding as legal precedent in New York or elsewhere, this initial decision is clearly a \u201cwin\u201d for the insurance industry and will, no doubt, be cited to support the proposition that, in the absence of property damage, there should be no coverage for business interruption claims arising out of COVID-19 and Governor Cuomo\u2019s related executive orders.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Damon Vocke and David T. McTaggart To date, approximately 150 business-interruption insurance coverage lawsuits have been filed in federal courts arising from COVID-19 and related government-ordered restrictions.\u00a0 In what appears to be the first substantive ruling on the merits in these cases, the Southern District of New York recently ruled against an insured who … <\/p>\n

Continue reading “Business Interruption Insurance, COVID-19 and Direct Physical Damage under New York Law”<\/span><\/a><\/p>\n","protected":false},"author":466,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[383,382,381,400,19,67,399],"ppma_author":[432],"class_list":["post-347","post","type-post","status-publish","format-standard","hentry","category-general","tag-business-interruption","tag-coronavirus","tag-covid-19","tag-david-t-mctaggart","tag-insurance-coverage","tag-new-york","tag-sdny"],"authors":[{"term_id":432,"user_id":466,"is_guest":0,"slug":"dtmctaggart","display_name":"David T. McTaggart","avatar_url":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-content\/uploads\/sites\/12\/2020\/06\/mctaggartdavid-125x150.jpg","author_category":"","last_name":"McTaggart","first_name":"David","job_title":"","user_url":"https:\/\/www.duanemorris.com\/attorneys\/davidtmctaggart.html","description":"Read David's bio.<\/a>"}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/347","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/users\/466"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/comments?post=347"}],"version-history":[{"count":1,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/347\/revisions"}],"predecessor-version":[{"id":582,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/posts\/347\/revisions\/582"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/media?parent=347"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/categories?post=347"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/tags?post=347"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/insurancelaw\/wp-json\/wp\/v2\/ppma_author?post=347"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}