Court of Appeal rules that coronavirus disease is not eligible for business interruption compensation
In July 2023, we wrote about the state of COVID-19 business interruption claims across the United States and previewed upcoming cases in the New York Court of Appeals. Consolidated Restaurant Operations, Inc. v. Westport Insurance Corporationcase number 2022-00160.
On February 15, 2024, the Court of Appeals issued the following judgment: Consolidated restaurant business. Consistent with the decisions of most courts nationwide that have previously taken up this issue, the Court of Appeals found that the virus that causes COVID-19, SARS-CoV-2, was present on the insured’s premises. The court held that the existence of V-2 did not matter. “Direct physical loss or damage” as required by most property insurance coverage forms. The court interpreted the phrase “direct physical loss or damage” to require “material alteration or complete and permanent deprivation of insured property.” The court upheld earlier orders of the Supreme Court and the First Department dismissing the charges.
Plaintiff argues that the Appellate Division erred in interpreting “direct physical loss or damage” to require “tangible and verifiable damage to, alteration or alteration of, property” and that its formulation was He argued that this is because the word does not have an independent meaning. Plaintiffs asked the Court of Appeals to interpret this language more broadly and to refer to situations in which a physical event occurs to the insured property that impairs its functionality or renders it, in whole or in part, unusable for its intended purpose. He insisted that it be included.
The court rejected the plaintiff’s claim based on the plain meaning of the policy terms. The court explained that “physical damage must be understood as requiring significant physical changes to the property.” And the court compared forgetting a mobile phone password to losing it completely, holding that “direct physical loss” requires actual complete deprivation, not just inability to use it. The judgment was held.
Plaintiffs further argued that even if “direct physical loss or damage” required physical alterations to the property, they had sufficiently asserted such physical alterations, but the court disagreed. Ta. Claims that the virus was physically present on objects and persisted for days or weeks were insufficient. This is because the plaintiff did not allege the need to repair or replace the insured property that came into contact with the virus. Business interruption losses only. “Even if various surfaces in restaurants are generously interpreted as vectors of coronavirus transmission; [Plaintiff] “Unable to identify . . . a single item that had to be replaced, changed, or any of its assets actually damaged.” As the Appellate Division found, “[n]Other things stopped working. And this suspicion itself confirms that the existence of the coronavirus was temporary. ”
The court expressed sympathy for the losses suffered by policyholders, stating: “The severe economic losses suffered by restaurants and other businesses serving the public as a result of the COVID-19 pandemic. However, our job is to faithfully interpret the terms of the insurance contract in front of us, not to “rewrite the words of the police.”[y] To obtain results through “fair appeals.”
In light of the Court of Appeal’s judgment, Consolidated restaurant business and previous rulings in federal court in New York, the door will likely be closed on remaining COVID-19 business interruption claims in New York state.
SDNY finds that insureds do not have the right to refuse to settle claims against co-assureds
On February 8, 2024, Judge Jennifer Rochon of the Southern District of New York granted a motion to dismiss in a case regarding whether one co-insured has the right to prevent an insurance company from resolving a claim against another co-insured. I decided to accept it. Directors and Officers Insurance Policy.
in Model vs. Argonaut Insurance Company, No. 23-cv-01488, 2024 WL 495135 (SDNY February 8, 2024), Former CEO of Modell’s Sporting Goods Resolves Argonaut Insurance Company’s (“Argo”) Provision of Insurance Benefits to the Company’s Former CFO A lawsuit has been filed challenging it. His D&O policy of the company.
Mr. Modell alleged that the former CFO violated the terms of the policy by making fraudulent admissions in the litigation underlying the bankruptcy. Argo continued to defend his CFO and ultimately paid damages on his CFO’s behalf. Mr. Modell argued that he had not consented to the settlement and sought a declaration that Argo could not pay the settlement without his consent.
The insurance policy relied upon by the plaintiff states: “Notwithstanding the rights and obligations of the insurance company to defend claims under this indemnification clause, the insured shall have the option: Masu. . . agree to the settlement, and such consent shall not be unreasonably withheld” (“Consent Clause”).
In granting Argo’s motion to dismiss, the court found that Modell failed to state a claim. In reaching its conclusion, the court concluded that the clear and unambiguous meaning of the consent clause is that it gives each insured the right to agree to the settlement on its own behalf, but it does not give any other insured the right to agree to the settlement on its own behalf. The court held that this does not confer a right to prevent settlement. .
Department of Financial Services issues proposed circular on the use of AI in insurance underwriting
On January 17, 2024, the New York State Department of Financial Services (DFS) issued a proposed circular addressing the use of external consumer data and information sources and artificial intelligence systems (AI) in the underwriting process. DFS recognizes that AI tools have the potential to simplify and speed up the underwriting process, but such processes “may reflect systemic bias” and have negative impacts. It has been pointed out that this could lead to discriminatory results. DFS has established a number of fairness principles in the use of AI in underwriting to help insurers avoid any discriminatory effects and analyze potential unfair or unlawful discrimination.
DFS is seeking feedback on the circular letter. Circular letters are available at https://www.dfs.ny.gov/industry_guidance/circular_letters/cl2024_nn_proused.
Ryan A. Lema is a partner at Phillips Lytle LLP and a member of the firm’s insurance coverage practice team. You can contact him at: [email protected] or (716) 504-5790.
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