New York High Court Rules for Insurers: Presence of Covid-19 and Government Shutdown Orders Do Not Constitute Direct Physical Loss or Damage Under Property Policies
By Melinda S. Kollross
New York’s Court of Appeals joins state and federal courts nationwide in holding that neither the alleged presence of Covid-19 on premises nor government shutdown orders to prevent the spread of Covid-19 constitute “direct physical loss or damage” under a first party property insurance policy. Consolidated Restaurant Operations, Inc. v. Westport Insurance Corp., No. 2023-332 (Feb. 15, 2024).
The Court recognized “ the severe economic losses incurred by restaurants and other businesses serving the public as a result of the COVID-19 pandemic” but noted that its task was “to faithfully interpret the terms of the insurance policy before us” and not to rewrite the language of the policy at issue to reach a result with “equitable appeal.” The coverage provisions relied upon by the insured only cover economic losses to the extent they are caused by “direct physical loss or damage” to insured property. The Court correctly concluded that the business interruption caused by the alleged actual presence of the coronavirus on the premises of CRO’s insured property and the government orders enacted to slow the spread of Covid-19 is insufficient to trigger such coverage. The Court held that “direct physical loss or damage” requires a material alteration or a complete and persistent dispossession of insured property, which the insured had not alleged.
Melinda S. Kollross