New Jersey Supreme Court weighs insurance payouts for COVID closures

New Jersey’s highest court will decide whether to revive an Atlantic City casino’s claim that it should receive compensation for a monthslong closure it said was caused by COVID-19.

New Jersey’s Supreme Court on Wednesday heard oral arguments in a case lodged by the firm that operates the Ocean Casino Resort, whose suit charges its insurers improperly denied it a business interruption payout on its $50 million policy.

Nationwide, courts have routinely dismissed claims seeking compensation because of government-ordered shutdowns. But business interruption claims rooted in different reasons could spur numerous and hefty awards from insurers in what Ocean called a “generational legal dispute” in its filings.

In arguments, Stephen Orlofsky, an attorney representing the casino, charged the casino’s three-and-a-half-month closure, though required under a March 2020 executive order issued by Gov. Phil Murphy, would have happened anyway because of the prevalence of COVID-19.

“The closure required by Gov. Murphy’s executive orders was something we had to comply with as a matter of law, but we’re alleging more than that — that we would have been required to close the facilities even without Gov. Murphy’s executive orders,” Orlofsky told the court.

Ocean’s case reached the high court after an appellate panel dismissed the case, overturning a decision issued by a Superior Court judge.

Justices and attorneys for the insurers — American Guarantee and Liability Insurance Company, AIG Specialty Insurance Company, and Interstate Fire and Casualty Company — noted that Ocean’s closure and reopening coincided exactly with Murphy’s executive orders launching and lifting the shutdown.

The insurers argue the timing is more than coincidental, saying Ocean failed to state a claim linking the presence of the virus in its casino to the establishment’s closure.

“Whatever the virus particle is doing on the property, however you characterize that, there is no allegation that that caused them to close in this complaint,” said David Roth, representing the American Guarantee and Liability Insurance Company. “And if it did cause them to close, they wouldn’t be open from July 3rd and wouldn’t have been open for the last three years.”

Orlofsky said Ocean was not given an opportunity to amend its filings to include a direct link between the virus and its closure that did not touch on Murphy’s orders.

The insurers further claimed Ocean is not eligible for business interruption benefits because provisions of its coverage expressly bar payouts for costs spurred by viruses and some other pathogens.

Orlofsky argued that exclusion is meant to apply only in cases of environmental pollution — like the illegal dumping of medical waste that contains a virus — and noted that the insurance policy’s definition of “contaminant” does not include viruses, unlike its definition of “contamination.”

Including both terms is confusing to policyholders, Orlofsky said, invoking a legal doctrine that calls for unclear contract terms to be read against the interests of the side that drafted them. Ocean is not a sophisticated party that would have understood the terms of its insurance policy, he added.

Justices appeared skeptical, noting only the word “contamination” is used in the exclusion provision.

“Here you have the word that’s used in the exclusion, which is ‘contamination’, with a definition that includes a virus, and you have this entire case premised on a virus. Yes, you have ‘contaminant’ also. Insurance policies certainly include, sometimes, definitions of terms that aren’t the focus of the case,” said Justice Anne Patterson.

The parties also sparred over what constitutes “direct physical loss or damage” to Ocean’s property.

The casino argues the closure and ensuant loss of use of its property meet that bar, but the insurers say only physical damage or loss — like that a housefire might create — would trigger business interruption benefits, and only after the insured seeks to make repairs or other remediations.

The insurers noted Nevada’s Supreme Court, in a similar case, found allowing illnesses to meet the bar for physical loss or damage would allow schools, hospitals, gyms, and others to “convert its property insurance policy into a ‘maintenance contract’ for the ‘inevitable’ risk of illness in public spaces.”

“This ‘cannot be right,’” Nevada Justice Elissa Cadish wrote for a unanimous court.

 It’s not clear when New Jersey’s high court will rule on this case.