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A federal district court refused Wednesday to issue an anticipatory breach of contract ruling in a COVID 19-related business interruption case filed by a commercial landlord against an FM Global unit, stating it would be premature and inappropriate at this point.
Commercial landlord Thor Equities LLC, based in New York, purchased from FM Global a policy that took effect March 15, 2020, that provides up to $750 million coverage for property damage and business interruption losses, according to the ruling by the U.S. District Court in New York ruling in Thor Equities Inc. v. Factory Mutual Insurance Co.
The coverage included a “communicable disease response” provision and a time element section including an “interruption by communicable disease” provision that together had a $1 million aggregate liability limit, according to the ruling.
After a letter from FM Global’s New York claim manager indicated the insurer would focus solely on this communicable disease provision rather than the coverage provided by the entire policy, Thor filed an anticipatory breach of contract lawsuit against the insurer, seeking a judgment that it must cover its coronavirus-related losses “to the full extent of the policy.”
“At that this juncture,” the litigants are not asking the court “to determine in general whether the Policy covers Thor’s losses,” the ruling said. Rather it is asking it “to determine the applicability and scope” of the contamination and loss of market or loss of use exclusions.
The contamination exclusion, which said it applies to “contamination, and any cost due to contamination, including the inability to use or occupy property,” is “ambiguous and judgment on the pleadings inappropriate,” the ruling said.
“This provision is susceptible to more than one interpretation and potentially compatible with either party’s interpretation,” it said.
On the loss of market or loss of use exclusion, the ruling said, “without a developed factual record…a decision on the parties’ motions is inappropriate at this juncture,” it said, adding the policy does not define the term “loss of use,” the ruling said.
FM Global said in a statement, “FM Global values the long-term relationships we have with our policyholders and we are proud to be leading the industry for claims service. It is unfortunate when legal matters arise because we strongly believe our insurance policies are clear on the coverage provided.”
Thor attorney Robin Cohen, chair of Cohen Ziffer Frenchman & McKenna in New York, said in a statement, “Since the inception of the pandemic, the insurance industry has attempted to systematically short circuit the rights of policyholders to prove coverage for COVID-related business losses through facts and science. This decision blunts that effort, as it allows the coverage case to continue and gives the policyholder the opportunity to demonstrate why the exclusion does not apply.”
More insurance and risk management news on the coronavirus crisis here.
A federal district court has refused to dismiss COVID-19 business interruption litigation filed by an Ann Arbor, Michigan, hair salon, despite its policy’s virus exclusion, because of its communicable disease coverage.