Consolidated Rest. Operations, Inc. v. Westport Ins. Corp.

Consolidated Rest. Operations, Inc. v. Westport Ins. Corp.

Opinion

Gische J.,

This appeal concerns the issue of whether the actual or possible presence of COVID-19 in plaintiff's restaurants caused "direct physical loss or damage" to its property, within the meaning of the insurance policy that plaintiff purchased from defendant. The issue of whether business interruptions due to COVID-19 is caused by direct "physical" damage to property presents an issue of first impression for an appellate court in New York. This Court has, however, previously construed the phrase "direct physical loss or damage" in other contexts involving similar insurance contracts. ] As more fully explained below, we hold that where a policy specifically [*3]  states that coverage is triggered only where there is "direct physical loss or damage" to the insured property, the policy holder's inability to fully use its premises as intended because of COVID-19, without any actual, discernable, quantifiable change constituting "physical" difference to the property from what it was before exposure to the virus, fails to state a cause of action for a covered loss.

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and countries began sealing their borders. Beginning in early February into March 2020, plaintiff, the owner and operator of numerous restaurants both in the  [**2]  United States and abroad, took initial steps to protect its customers by implementing enhanced cleaning procedures, and by installing hand sanitizer stations and physical partitions. By mid-March, however, plaintiff was forced to suspend its indoor dining operations as a result of various executive closure orders in New York and elsewhere. In some states plaintiff was allowed to continue providing its customers with takeout, drive through and/or delivery services. It is unrefuted that plaintiff suffered tens of millions of dollars in revenue loss [*4]  because of sharply curtailed operations.

Before the pandemic, plaintiff purchased a commercial "all-risk" form of general property insurance from defendant, which included business interruption coverage. This policy had a $ 50 million per occurrence limit and was in effect from July 1, 2019 - July 1, 2020. The insurance agreement provides that "this POLICY . . . insures all risks of direct physical loss or damage to INSURED PROPERTY while on INSURED LOCATION(S) provided such physical loss or damages occurs during the term of this POLICY." Beyond covering physical loss or damage itself, the policy also provided coverage for associated time element losses, also known as business interruption loss, during the period of direct physical loss or damage to the property:

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