Another Business Interruption Insurance Claim Denied

Deer Mountain Inn, LLC operated a country inn and restaurant in Tannersville, NY (picture below is of a different place of public accommodation).  Under Governor Cuomo’s closure order, Deer Mountain’s inn qualified as an “essential business” and could remain open, but it’s restaurant could not offer in-person dining.  Deer Mountain sought recovery for loss of business income under a policy issued to it by Union Insurance, which denied the claim.  Deer Mountain sued, an, in an opinion issued last week, the Federal District Court for the Northern District of New York sided with the insurer and dismissed Deer Mountain’s action.

The key provision of the insurance contract reads as follows:

We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations during the period of restoration. [sic] The suspension must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from of a Covered Cause of Loss.

Other potentially relevant provisions also require property damage or loss.  In addition, the policy includes a virus or bacterium exclusion that provides that the insurer.  . .  “will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease . . . “

Citing extensive case law, the court concluded that the business income and extra expense provisions track the language at issue in previously decided cases and do no cover mere loss of use unconnected to physical damage.  While plaintiff was able to cite to case law from other jurisdictions that was more favorable, but New York has uniformly rejected arguments that language such as that at issue in this policy is ambiguous.

The court also found that the policy’s civil authority provision was inapplicable because the Governor Cuomo’s closure order did not prohibit access to the insured facility, and no other provisions of the policy were met.  The court was unmoved by perfectly reasonable arguments that advice from civil authorities that people “shelter in place” had an impact on the plaintiff’s business barely distinguishable from an order prohibiting access to the plaintiff’s inn and restaurant.  Because the court found no covered losses, there was no reason to consider the virus or bacterium exclusion.

The court dismissed all of plaintiff’s claims, including its class claims, with prejudice.

H/T @NY_Contracts.