Insurers not liable for businesses’ pandemic losses, N.J. appellate panel rules

A New Jersey appeals court panel ruled Monday that six businesses aren’t entitled to insurance coverage for losses they sustained when the governor in 2020 ordered some businesses closed or otherwise restricted their operations to halt the spread of COVID-19.

Language in the business’ insurance policies required them to prove physical damage to covered properties, which didn’t occur, Superior Court Judge Thomas Sumners Jr. wrote on behalf of a three-judge panel.

“We recognize that COVID-19 has caused overwhelming economic losses to untold businesses and individuals dependent on those businesses in our state, nation, and the world,” Sumner wrote. “Nevertheless, plaintiffs’ insurance claims are restricted by the clear and plain meaning of their insurance policies, which we cannot rewrite to cover their unfortunate losses.”

The decision arose from the consolidated appeals of six businesses that reported losses when Gov. Phil Murphy ordered businesses the state deemed non-essential to close or limit operations in the pandemic’s first year: the Cake Boutique and Harrison House restaurant, both in Mullica Hill; Lil’ Big Ones Child Care & Learning Center in South Plainfield; Salted Bar Lime and Kitchen in Somerville; Route 40 Diner in Monroeville; and Pure Focus Sports Club in Brick.

Sumners affirmed lower courts’ rulings that dismissed their complaints, saying their insurance policies required them to show “direct physical loss of or damage” to their properties, which they couldn’t do.

Their policies did contain “civil authority” clauses that provided coverage for losses sustained during governmental actions that forced closure or limited operations under certain circumstances, but the policies had virus exclusions, Sumners noted.

Murphy’s executive order closing some businesses was issued on March 21, 2020.

Sumners cited a long list of cases around the country that echoed such reasoning, leaving insurers off the hook for businesses’ COVID-related losses. He also pointed to similar lawsuits filed in the wake of other disasters that resulted in government-mandated closures, such as 9/11 and Hurricane Katrina.

“Unsurprisingly, given the devasting impact of COVID-19 and state governments’ efforts to curb the pandemic, there have been scores of federal and state appellate-level courts that have addressed the same issues raised in this appeal,” Sumners wrote.