Michael Block, Attorney at Law v. The Hartford Financial Services Group, Inc.

Background

Michael Block, Attorney at Law, alleged that Hartford Underwriters Insurance Company breached an insurance policy by denying coverage for business losses associated with COVID-19 closures. The opinion states that the plaintiff, a law office located in lower Manhattan, purchased a one-year all-risk policy from Hartford Underwriters on December 17, 2019.

The policy included provisions for Business Income, Business Income from Dependent Properties, Extra Expense, and Civil Authority Actions. The relevant provisions required coverage to result from “direct physical loss” or “direct physical damage” to property. The policy defined Business Income to include lost net income and continuing normal operating expenses. Extra Expenses were expenses incurred during the restoration period that would not have been incurred without direct physical loss or damage to property.

Block alleged that an executive order limiting business operations during the COVID-19 pandemic prevented access to the office and impaired operations. Block also alleged that the closure of the state courts severely affected the business. After Block submitted a claim in May 2020, Hartford denied coverage. Hartford removed the state-court action to federal court, and Block later filed amended complaints.

Motion and analysis

Hartford moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. Hartford argued that the policy’s clear language barred each basis for coverage because Block alleged loss of use rather than physical loss or physical damage.

The court relied on the Second Circuit’s decision in 10012 Holdings, Inc. v. Sentinel Insurance Company, Ltd., which interpreted materially identical policy provisions under New York law. That decision held that “direct physical loss” and “physical damage” do not include mere loss of use of premises when there has been no physical damage. Instead, those terms require actual physical loss of or damage to the insured property.

The court also applied the Second Circuit’s analysis of an identical Civil Authority provision. That provision required the government action to result from a covered cause of loss involving direct physical loss or damage to property other than the insured premises. The court stated that Block did not allege that COVID-19 in the office or its vicinity directly caused the closure. Instead, the claims rested on interpreting physical loss to mean loss of use, which the court concluded was inconsistent with New York law.

Ruling

The court granted Hartford Underwriters Insurance Company’s motion to dismiss. It directed the Clerk of Court to terminate the motion at ECF No. 28 and close the case. The opinion does not specify whether the dismissal or the granting of the motion was with or without prejudice.