Timothy S. Driscoll – Justice of the Supreme Court of the State of New York. Photo: Rick Kopstein
A Nassau County judge ruled Wednesday that insurance brokers are not required to cover economic losses for a New York movie theater forced to shut down operations as a result of state measures aimed at slowing the spread of COVID-19.
The ruling, from Justice Timothy S. Driscoll of the Supreme Court's Commercial Division, was the first written decision by a New York state court to address COVID-19 coverage in an insurance dispute, an attorney for one of the defendants said Wednesday.
In a 14-page opinion, Driscoll sided with a growing number of federal courts, which he said had "almost uniformly" ruled that forced closures due to government orders amid the pandemic did not trigger business income coverage for a loss of property under a commercial insurance policy.
In his decision, Driscoll found that the theater company, Soundview Cinemas Inc. in Port Washington, made no inquiry to the brokers or its insurance company regarding specific insurance coverage that would apply to "these unprecedented times." In fact, Driscoll said, there was no indication that any such coverage for pandemic-related government closures even existed prior to the public health crisis taking hold last March.
The ruling noted that, other than two notable outliers, the bulk of federal courts, "in New York and throughout the country," have held that policy language regarding property loss, damage or destruction was limited only to physical harm.
"While the court is sympathetic to the economic consequences resulting from the closure of plaintiff's movie theater, the court concurs with the majority view that loss of the premises due to COVID-19 related government orders does not constitute 'direct physical loss of or damage to the property' that would trigger business income coverage under the policy," Driscoll wrote.
Soundview sued the brokers and Five Star Coverage Corp. for breach of contract and business interruption under the policy, after Gov. Andrew Cuomo last March ordered the closure of all nonessential businesses as the virus bore down on New York.
Soundview said that it had submitted a notice of loss claim March 16, but the request was rejected. According to the opinion, the theater remains closed.
Kevin Buckley, a partner with Mound Cotton Wollan & Greengrass who represented Great American, touted the ruling as a first of its kind, and said the decision would provide guidance to attorneys in similar disputes.
"I think this is the first of many we're going to see from New York courts," Buckley said. "To date, no [New York] state court has issued any decision that we're aware of."
"Most of these policies borrow language from one another, so much of the language is pretty consistent throughout the industry," he said.
In a statement, Kaufman Dolowich Voluck partner Anthony Proscia, who represented Five Star, also said his client was "extremely pleased" with the court's decision.
"This appears to be one of the first cases in the nation where a company attempted to advance a negligence claim against its insurance agent for purportedly failing to procure insurance that included virus-related pandemic coverage," Proscia said. "Hopefully, the swift dismissal of the action marks the end of any other attempt to impose liability on insurance agents for not securing coverage that simply did not exist in the general marketplace before the pandemic."
An attorney for Soundview did not immediately provide comment last week when asked.
Tom McParland
Tom McParland of New York Law Journal can be contacted at [email protected]. Follow him on Twitter @TMcParlandALM.