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In Blue Devil LLC v. Ace Prop. & Cas. Ins. Co., No. 1:20-cv-12480, 2021 U.S. Dist. LEXIS 166886, (D.N.J. Sep. 2, 2021), plaintiffs, comprised of seven related LLCs, brought seven breach of contract claims (one for each LLC policyholder), seven declaratory judgment claims, and a claim for regulatory estoppel, all related to denial of their insurance claims for loss of business income following the COVID-19 related government shutdown orders in New Jersey (and nationwide). The claims were originally denied based on “virus exclusion” language within the policies. The virus exclusion language stated policy “…will not pay for loss or damage caused directly or indirectly by…any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” The court noted that this exact same policy language was already scrutinized in an earlier case, Delaware Valley Plumbing Supply, Inc. v. Merchs. Mut. Ins. Co., 2021 U.S. Dist. LEXIS 28265, at *1 (D.N.J. Feb. 16, 2021) and agreed that the virus exclusion barred coverage for the plaintiff’s claimed losses. Plaintiffs, apparently in recognition of the precedent diametrically opposite to their position, filed a cross-motion seeking a stay of the ruling pending a resolution from the Third Circuit on a consolidated appeal examining very similar claims. The court denied the motion to stay finding no grounds to delay the inevitable.
Under New Jersey law, the interpretation of an insurance policy is a question of law. And where the language is unambiguously written, the court is generally bound to enforce the policy as written. In other words, the court should not be in the business of writing insurance policies better favoring the insured than the one the insured purchased in the first place. This straightforward holding is helpful for New Jersey insurers facing similar loss of business income claims.
Moreover, the court was not swayed by the plaintiff’s other arguments in opposition to the motion. First, the court found that it is appropriate to take judicial notice that COVID- 19 is in fact a virus based on Governor Murphy’s Executive Order 103, which states “Coronavirus disease 2019 (‘COVID-19’) is a contagious…respiratory disease caused by the SARS-CoV-2 virus.” Second, the court ruled that plaintiffs failed to show how the policy was ambiguous with respect to their contention that the exclusion is only to apply when a virus is physically present at the property. Instead, the court found that the policy was not ambiguous and excludes from coverage any losses caused by a virus. Finally, the court found that plaintiffs entirely failed to show a misrepresentation regarding the scope of the virus exclusion or that the interpretation advanced by the insurer was inconsistent with prior representations made by the insurance industry to regulators, such that plaintiffs’ regulatory estoppel claim too failed.
While the Third Circuit is currently considering a consolidated appeal of similarly situated claims, the court’s ruling here represents another success for insurers at an early stage in the litigation process and weakens an insured’s threat of appeal when facing similar factual and legal circumstances.