100 Orchard Street, LLC v. The Travelers Indemnity Company of America

Background

100 Orchard Street, LLC, which owns and operates the Blue Moon Hotel, sought coverage under a commercial insurance policy issued by The Travelers Indemnity Insurance Company of America. Orchard Street alleged that COVID-19 was present at and within the hotel, made the premises unsafe, and severely damaged its business. It also attributed losses to state and local restrictions on travel, nonessential businesses, and gatherings.

Orchard Street sought a declaration that the policy covered losses caused by the coronavirus and by government orders issued in response to it. Travelers denied the claim, stating that the policy’s Business Income, Extra Expense, and Civil Authority provisions did not cover the losses and that the policy’s Virus Exclusion Clause barred coverage even if those provisions applied. The parties agreed that New York law governed interpretation of the policy.

Court’s analysis

Travelers moved to dismiss under Rule 12(b)(6), which permits dismissal when a complaint does not adequately allege a legally valid claim. The court noted that it was doubtful whether the alleged presence of COVID-19 constituted “direct physical loss of or damage to property” under the Business Income and Extra Expense provisions, or damage to other property as required by the Civil Authority provision. The court also noted that official guidance treated hotels as essential businesses, meaning access to the hotel was not “prohibited” for purposes of the Civil Authority provision.

The court ultimately did not decide whether COVID-19 caused covered physical loss or damage. Instead, it held that the Virus Exclusion Clause independently and unambiguously barred coverage. That clause stated that Travelers would not pay for loss or damage caused by or resulting from any virus, bacterium, or microorganism capable of causing physical distress, illness, or disease.

The court reasoned that Orchard Street attributed its losses to COVID-19, the presence of the coronavirus at or around the hotel, and government orders issued in response to the virus. Therefore, the alleged losses were caused by, or resulted from, a virus covered by the exclusion. The court also rejected Orchard Street’s argument that the government orders, rather than the virus, were the legal cause of the losses. It concluded that COVID-19 set the restrictions in motion and was the efficient proximate cause of the claimed losses. The court further rejected the argument that the exclusion did not expressly mention pandemics, explaining that a pandemic is a widespread outbreak of a disease caused by a virus.

Disposition

The court granted Travelers’ motion to dismiss and dismissed Orchard Street’s amended complaint in its entirety. The court declined to grant Orchard Street leave to amend, finding that the defects were substantive and that amendment would be futile. It also noted that Orchard Street had already received permission to amend its original complaint and had been warned that it would not receive another opportunity to address the dismissal issues. The Clerk was directed to enter judgment for Travelers and close the case.