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N.J. court allows COVID-related business-interruption claim to continue

Recently, the Superior Court of New Jersey, Law Division, Bergen County rejected an insurer’s claim that COVID-related losses cannot qualify as covered losses. In Optical Services USA/JCI v. Franklin Mutual Insurance Co. [No. BER-L-3681-20], Optical Services (the plaintiff), had a businessowners policy, which included coverage for business interruption. Optical Services submitted claims to its insurer Franklin Mutual Insurance for loss of business income. The plaintiff argues that the loss of income resulted from Gov. Phil Murphy’s Executive Order 107, which suspended the operations of nonessential retail businesses, including the plaintiff’s business.

FMI denied the claims—citing a lack of a direct physical loss or physical damage to the covered property, which prompted the lawsuit. Subsequently, FMI filed a motion to dismiss the action based in part on the assertion that Optical Services did not sustain a direct physical loss.

The court based its ruling to continue the case on the fact that FMI failed to support its claim that there wasn’t a physical loss to the business; whereas Optical Services provided some legal authority to support its claim of a loss.

What this means to policyholders and agents: While a win for policyholders, this case is far from settled and may have limited value.

First, the court did not issue a final decision in this case. Instead it declined to dismiss the case. The case will be allowed to continue with both sides engaging in discovery and build their case.

Further, the court acknowledged multiple times that case did not have an established record or discovery. Thus, the decision was rendered based on little information.

In addition, FMI acknowledged that while the policy in question did have a contamination exclusion, it did not apply in this situation. It is unclear from the court documents as to why this was the case.

Most standard property policies exclude loss arising from viruses and communicable or infectious diseases. So, this decision may have limited value to policyholders, even if the plaintiff is able to prevail in the end.

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