In a recent ruling, the Northern District of New York has determined that a business interruption insurance policy does not cover damages caused by the COVID-19 pandemic, despite contractual terms that specifically cover interruptions from communicable diseases and civil authorities. This controversial ruling puts New York in line with a growing number of jurisdictions that have refused to give a broad interpretation to business interruption insurance terms. However, the existence of those specific terms in this case may leave ground for further litigation.
What is Business Interruption Insurance?
Business interruption insurance is a type of insurance offered to businesses, which covers losses that result from being unable to operate a business. Typically, business interruption insurance specifically covers losses due to physical damage to a business’ property, such as from a fire, flood, or storm. However, some versions of business interruption insurance also cover interruptions caused by other causes, such as those that arise from communicable diseases and those that arise from civil action.
What Was This Case?
In this case, Mohawk Gaming Enterprises, LLC, v. Affiliated FM Insurance Co., the plaintiff was attempting to recover money lost due to being unable to run their casino during the coronavirus pandemic. The casino has business interruption insurance issued by the defendant, which has both a general clause covering interruptions due to physical damage, as well as clauses specifically covering damages caused by “communicable diseases” or by a “civil authority.” Despite this, however, the court granted summary judgment to dismiss the claim, due to exclusions in the contract for damage related to “contamination” or “loss of use,” as well as a lack of “physical loss or damage.”
Why is This Ruling Controversial?
While the courts have been split on issues related to business interruption insurance and COVID-19, typically they have been willing to allow claims to go forward when there were specific provisions dealing with infectious diseases or orders from civil authorities. This is because interruptions caused by COVID arguably fall within the scope of a “communicable disease,” and interruptions caused by quarantine measures instituted during the pandemic almost certainly fall within the “civil authority” provisions. However, this goes against the contractual exclusions in this case for “contamination” or “loss of use,” which may conflict with the “communicable disease” provision.
What Does This Mean?
Far from clarifying these issues, the ruling in Mohawk Gaming Enterprises adds confusion to the issue of whether business interruption insurance should cover losses related to COVID-19. In this case, the dismissal of the claim is particularly noteworthy, because there were specific provisions that arguably addressed the harm caused by the virus and the resulting quarantines. However, that may mean that this case is ripe for appeal to the Second Circuit, should the plaintiff choose to appeal the decision.
The business interruption insurance attorneys at Blodnick, Fazio and Clark are ready to represent you and fight for the compensation you deserve. With offices conveniently located in Garden City, Nassau County, and Babylon, Suffolk County, the firm provides high-quality legal care at reasonable prices. If you require legal assistance concerning business interruption insurance, business startups, formation, corporate acquisitions and mergers, corporate restructuring, dissolutions, or another business matter, call (516) 280-7105 or fill out our contact form for a free consultation.