The Covid-19 pandemic has had far-reaching implications across various sectors, including the insurance industry. Many businesses, including the Ocean Casino Resort in Atlantic City, New Jersey, have faced significant losses due to the state-mandated closures during the pandemic.
To seek compensation for its losses, Ocean filed a lawsuit against three insurers who denied coverage under their business interruption insurance policies. New Jersey Governor Phil Murphy ordered casinos closed on March 16, 2020, and they stayed closed through July 2.
Now, the New Jersey Supreme Court is set to rule on whether the casino is entitled to payouts for its pandemic-related losses. This landmark decision could provide guidance not only to policyholders in New Jersey but also to businesses nationwide regarding the scope of coverage for pandemic-related losses.
Ocean had $50 million in business interruption insurance before the Covid-19 outbreak in 2020. However, three insurers, namely AIG Specialty Insurance Co., American Guarantee & Liability Insurance Co. and Interstate Fire & Casualty Co., largely denied coverage to the casino. These insurers argued that the casino did not suffer direct physical loss or damage as a result of the virus.
The casino, on the other hand, claimed that the presence of coronavirus particles rendered its property damaged, unfit for its intended function, and unsafe.
The initial decision in favor of the casino was later reversed by an appellate court, leading to the case being brought before the New Jersey Supreme Court.
The issue of coverage for pandemic-related losses has emerged in state and federal courts across the country. Various businesses, including movie theaters, real estate firms, hotels and law firms have faced denials of insurance payouts for their losses during the pandemic. The New Jersey Supreme Court’s decision in the Ocean case will provide clarity on the scope of coverage for losses arising from the pandemic.
One key question before the court is whether the claim that the coronavirus physically damaged insured property is sufficient to establish “direct physical loss of or damage to” it. Additionally, the court will consider whether insurers can restrict coverage for pandemic-related losses by invoking pollution or contamination exclusions that mention viruses in general.
United Policyholders, an advocacy group for insurance customers, has filed a friend-of-the-court brief urging the court to rule in favor of the casino. The group argues that a ruling in favor of the insurers would curtail coverage for millions of New Jersey policyholders. It emphasizes that the insurance industry, prior to the pandemic, understood the presence of a virus or any dangerous substance as capable of satisfying the definition of “physical loss or damage” to property.
The New Jersey Supreme Court will examine several legal questions central to the case. These questions include:
Whether the presence of coronavirus particles constitutes physical damage to insured property; whether insurers can restrict coverage for pandemic-related losses by invoking pollution or contamination exclusions; whether a claim of physical damage caused by the virus is sufficient to establish “direct physical loss of or damage to” insured property; and whether the court’s ruling will have retroactive or prospective application to other policyholders and insurers.
