Business Interruption, COVID-19 & Vital Relief for Small Business in Need.
Insurance Claims for Business Interruption in NJ: An Early 'Victory' for Policyholders.
In the field of insurance law, the State of New Jersey is generally considered "policyholder friendly," at least in the Court system. See generally Morton International, Inc. v. General Acc. Ins. Co., 134 N.J. 1 (1993). Indeed, a frequent citation in NJ caselaw calls out the "unholy mantra" of the insurance industry, as: "we collect premiums, we do not pay claims." Owens-Illinois, Inc., v United Ins. Co., 264 N.J. Super. 460, 491 (App. Div. 1993).
This favorable judicial orientation for policyholders is getting a fresh test in respect of "disaster relief" clauses in business insurance policies. These clauses are designed to compensate for lost income resulting from interruption to business. Typical cases include fire, flood, and similar physical destruction. However, "Virus" or "Pandemic" cases ("COVID Cases") are increasingly the new normal, after virtually all businesses were ordered shut last Spring.
Most policyholders have not fared well in these COVID Cases, with Courts around the Country dismissing claims due to the lack of "physical damage" to property within applicable Policy language. See The National Law Review, Update on Business Interruption Insurance Claims for COVID-19 Losses (Oct. 29, 2020)
Bucking that early trend, however, is a recent decision in New Jersey, Optical Services USA/JCI v. Franklin Mutual Insurance Co., Case No. BER-L-3681-20 (N.J. Sup. Ct. Law Div. Aug 13, 2020).
In Optical, the Court declined to dismiss an insured's COVID claim, even though the clause at issue used the term "physical" damage. The Court reasoned, in part, that "the term 'physical' can mean more than material alteration or damage." Id. at 29 (citing Wakefern Food Corp. v. Liberty Mutual Fire Ins. Co., 406 N.J. Super. 524 (App. Div. 2009).
Therefore, the Court declined to dismiss outright the crux of plaintiff's claim: that "physical damage occurs where a policyholder loses functionality of their property." Id. See also Gregory Packaging v. Travelers Property Casualty Co. of America, 2014 U.S. Dist. LEXIS 165232 (D.N.J. Nov. 25, 2014) (business deemed temporarily unfit for occupancy due to gas is "physical" loss within Policy).
While every COVID insurance case will present unique facts and complexities beyond this fundamental issue, the decision in Optical signals that small businesses, at least in New Jersey, will get their day in Court.
This Legal Alert does not establish an attorney-client relationship and is not intended to be a complete representation of applicable federal, state and local law. Nothing herein should be construed as legal advice. 2020 All Rights Reserved.
