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Insurer wins another COVID BI ruling in appeals court

Posted On: Jan. 3, 2022 1:49 PM CST


The 2nd U.S. Circuit Court of Appeals in New York became the latest federal appeals court last week to hold that a policyholder was not entitled to COVID-related business interruption coverage, in a case filed by a New York art gallery against a Hartford Financial Services Insurance Group Inc. unit.

As in other federal appeals court rulings, the 2nd Circuit held in last Monday’s ruling in 10012 Holdings Inc. DBA Guy Hepner v. Sentinel Insurance Co. that the plaintiff was not entitled to coverage because it had not established the virus had caused physical damage.

The rulings follow earlier decisions by six other federal appeals courts, most recently the 10th U.S. Circuit Court of Appeals in Denver, which issued its ruling Dec. 22.

The ruling, which affirmed a December 2020 ruling by the U.S. District Court in New York, said the plaintiff argued it was entitled to coverage under the business income and extra expense provisions of its policy because its use of the term “direct physical loss,” which is undefined, “plainly includes circumstances where 10012 Holdings is merely deprived of access to its business property. But New York law compels us to reject 10012 Holdings’s proposed reading of the term.”

The ruling cites a 2002 case in which a state court ruled against a theater company that contended it was entitled to business interruption coverage because its theater was rendered inaccessible to the public for several weeks due to its street’s closure following a construction accident.

A state appeals court in that case ruled that the policy “clearly and unambiguously provides coverage only where the insured’s property suffers direct physical damage,” a three-judge appeals court panel said.

“We follow this holding,” the panel said. “We are unaware of any contrary authority in New York that diverges” from the holding in that case.

The panel also refused to ask the state’s highest court, the New York Court of Appeals, to consider the case. “If there were disagreement in the lower New York courts, certification might still be justified, but as we already noted, every New York court interpreting the phrase ‘direct physical loss’ has read it the same way and denied coverage,” the ruling said.

Attorneys in the case did not respond to requests for comment.

In addition to the 10th Circuit, the ruling affirms similar rulings issued by the 6th U.S. Circuit Court of Appeals in Cincinnati, the 7th Circuit in Chicago, the 8th Circuit in St. Louis, the 9th in San Francisco and the 11th in Atlanta.