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This is a New Jersey Covid-19 coverage case. The insurer rejected business loss coverage for a law firm’s Covid-19 business interruption claims, arguing (1) there was no direct physical loss and (2) the virus exclusion applied.

The insured brought claims for declaratory relief, breach of contract, and breach of the covenant of good faith and fair dealing. New Jersey Federal Judge Bumb observed that “[a]ll the claims require as a threshold matter that Plaintiff is entitled to coverage under the Policy due to the circumstances outlined above, despite [the insurer’s] denial of Plaintiff’s insurance claim.”

Thus, the insured had to prove both “(1) that Plaintiff suffered “direct physical loss of or physical damage to Covered Property” and (2) that the Virus Exclusion does not apply.” The court assumed arguendo the direct physical loss element went in the insured’s favor, to solely address the virus exclusion. Judge Bumb held the virus exclusion applied to preclude coverage for all of the insured’s claims, including allegedly breaching the duty of good faith and fair dealing.

“In sum, because (1) the Virus Exclusion is unambiguous, (2) the Virus Exclusion excludes from coverage any losses caused by a virus, (3) COVID-19 is a virus, and (4) the but for cause of Plaintiff’s alleged losses and this case is COVID-19, [the insurer’s] denial of Plaintiff’s insurance claim was appropriate. Therefore, Plaintiff’s claims in this action are legally insufficient.”

Date of Decision: April 14, 2021

Stern & Eisenberg, P.C. v. Sentinel Insurance Company, Limited, U.S. District Court District of New Jersey No. 20-CV-11277RMBKMW, 2021 WL 1422860 (D.N.J. Apr. 14, 2021) (Bumb, J.)