Thor Equities, LLC v. Factory Mutual Insurance Company

Background

Thor Equities, LLC brought an action for anticipatory breach of contract—alleging that Factory Mutual Insurance Company would fail to perform its obligations under a commercial property insurance policy. Thor sought damages and a declaration that Factory Mutual had to pay for losses arising from the COVID-19 pandemic.

Thor alleged that it rented properties to hundreds of tenants, including offices, retail stores, restaurants, and bars. After governments issued stay-at-home orders, many tenants closed and sought rent abatements or other accommodations. Thor also alleged that confirmed COVID-19 cases at multiple properties required it to secure and preserve those locations. At the start of the case, Thor estimated that it had lost more than $20 million in rental income alone.

The policy provided up to $750 million in coverage for property damage and business interruption losses, subject to various limits and exclusions. It included communicable-disease provisions with a $1 million aggregate limit. The policy also included a contamination exclusion and a loss-of-market-or-loss-of-use exclusion.

Motions and Governing Law

The parties filed cross-motions for partial judgment on the pleadings under Federal Rule of Civil Procedure 12(c). A judgment-on-the-pleadings motion asks the court to decide an issue from the pleadings and materials properly considered with them. The court applies the same standard used for a motion to dismiss for failure to state a claim: accepting the complaint’s factual allegations as true, the court asks whether the allegations could support relief.

The parties did not directly address which state’s law should apply, but both used New York law in their briefs. The court therefore applied New York law. Under that law, an insurance policy is interpreted according to its text and the reasonable expectations of an average insured. The policyholder must first show that the policy covers the loss; if that showing is made, the insurer must show that an exclusion applies.

Contamination Exclusion

The policy defined contamination to include a condition caused by the actual or suspected presence of a virus or disease-causing agent. The parties agreed that this definition included COVID-19.

Thor argued that the contamination exclusion did not clearly bar business-interruption losses because it referred to “any cost due to contamination” but did not expressly refer to any “loss due to contamination.” Factory Mutual argued that the exclusion clearly covered losses caused by the inability to use or occupy property because of COVID-19 contamination, including Thor’s lost rental income.

The court found that the exclusion was ambiguous because it could reasonably be interpreted in either party’s favor. The court noted that Thor’s interpretation might make some language in the exclusion meaningless, but also noted that the policy used “cost” and “loss” differently elsewhere and that “cost” could plausibly refer to affirmative expenses rather than lost income. Because the exclusion was ambiguous, the court held that judgment on the pleadings was inappropriate and denied the parties’ motions concerning that exclusion.

Loss-of-Market-or-Loss-of-Use Exclusion

The policy excluded “loss of market or loss of use” but did not define “loss of use.” The court concluded that the lack of a definition did not automatically make the exclusion ambiguous. It also concluded that “loss of use” could mean lack of access or loss of functionality, rather than only a decline in market conditions or business use.

The court nevertheless declined to decide whether this exclusion covered Thor’s alleged losses. The complaint did not discuss the exclusion or precisely explain the losses at issue. Thor had stated in a pre-motion letter that most of its losses resulted from government orders rather than the confirmed presence of coronavirus at its properties, but the court explained that those statements could not properly be considered on a motion for judgment on the pleadings. The court further held that, even if it considered them, they would not provide enough factual information to decide the issue.

The court therefore denied the parties’ motions concerning the loss-of-market-or-loss-of-use exclusion as well.

Disposition

Judge Analisa Torres denied both parties’ motions for partial judgment on the pleadings. The court did not decide generally whether the policy covered Thor’s COVID-19-related losses, and it left the applicability of both exclusions unresolved at that stage. The clerk was directed to terminate the motions at ECF Nos. 32 and 38.