Office Solution Group, LLC v. National Fire Insurance Company of Hartford

Background

Office Solution Group, LLC and National Fire Insurance Company of Hartford entered into an insurance agreement in June 2019. The policy provided several forms of coverage, including business-property coverage and civil-authority coverage. The business-property provisions required “direct physical loss of or damage to” covered property. The civil-authority provision covered certain business-income losses and extra expenses when a civil authority prohibited access to the insured location because of direct physical loss or damage to property located away from that location.

The policy also contained a microbe exclusion. It excluded losses caused directly or indirectly by fungi, rot, or microbes, and defined “microbes” to include “any . . . virus.” The policy did not define “direct,” “physical,” “loss,” or “damage,” and did not specifically mention a pandemic.

In March 2020, Office Solution Group closed its office after COVID-19 spread and New York issued orders reducing or eliminating in-person work at business locations. The company alleged that it lost the use of its office, suffered business-income losses, and laid off thirty-five employees. It sought coverage under the policy, but National Fire Insurance denied the claim.

Motion to Dismiss

National Fire Insurance moved to dismiss the amended complaint for failure to state a claim under Rule 12(b)(6), which permits dismissal when the alleged facts do not establish a legally recognized claim for relief. The court considered the insurance policy and the executive orders because the complaint relied on those documents.

Office Solution Group argued that the COVID-19 threat and resulting closure created a direct physical loss, that the executive orders prohibited access to its office and nearby properties, and that the microbe exclusion was ambiguous. National Fire Insurance argued that the policy required physical damage, that the executive orders did not satisfy the civil-authority provision, and that the microbe exclusion covered losses caused by COVID-19.

Court’s Analysis

The court held that the business-property coverage required actual physical damage to the insured property. Office Solution Group alleged that its office remained physically intact and unharmed, apart from being closed to the public. The court concluded that loss of use caused by the pandemic did not qualify as direct physical loss or damage under the policy.

The court also held that Office Solution Group had not alleged facts satisfying the civil-authority coverage. The policy required both a prohibition on access and civil-authority action responding to direct physical loss or damage to property away from the insured location. The court concluded that the executive orders limited in-person employees but did not prohibit all access to the office. It also concluded that the orders responded to the spread of COVID-19, not to physical damage to specific neighboring properties.

The court further stated that the microbe exclusion independently barred coverage. Because the policy defined “microbes” to include any virus, the court concluded that the exclusion unambiguously covered COVID-19. It rejected Office Solution Group’s arguments that the exclusion was limited to wood or structural damage or did not apply because the policy did not use the word “pandemic.”

Disposition

The court declined to allow Office Solution Group to file another amended complaint because it had already amended its complaint, had not requested another opportunity to amend, and had not identified facts that would cure the deficiencies. The court granted National Fire Insurance’s motion to dismiss the amended complaint, directed the clerk to enter judgment for National Fire Insurance, and closed the case.