Camp 1382 LLC v. Lancer Insurance Company

Background

Camp 1382 LLC, doing business as Campagnola Restaurant, sued Lancer Insurance Company for breach of contract and sought a declaration about coverage. Camp 1382 brought the action on behalf of itself and a proposed class of policyholders. It alleged that it suffered losses after New York government orders restricted restaurants to takeout and delivery and later closed nonessential businesses during the COVID-19 pandemic.

Camp 1382 had an all-risk commercial business insurance policy covering August 15, 2019, through August 15, 2020. The policy included Business Income, Extra Expense, and Civil Authority provisions. Business Income coverage required a suspension of operations caused by “direct physical loss of or damage to property.” Civil Authority coverage required a covered cause of loss involving damage to other property and government action responding to specified physical dangers.

The policy also contained a Virus Exclusion and an Ordinance Or Law Exclusion. Lancer moved to dismiss, arguing that Camp 1382 had not alleged the required physical loss or damage and that the exclusions independently precluded coverage.

Court’s Analysis

The court applied the standard for a motion under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim. The court relied on the Second Circuit’s decision in a separate case involving materially identical policy provisions. That precedent held that, under New York law, “direct physical loss” and “physical damage” do not include merely losing the use of property when the property has not suffered physical damage.

The court also relied on the Second Circuit’s holding that civil-authority coverage was unavailable where COVID-19 government orders responded to the danger to people from infection rather than a risk of physical damage to property. The court stated that Camp 1382’s claims rested on the same loss-of-use theory and therefore did not plausibly allege direct physical loss or damage required for Business Income and Extra Expense coverage, or a risk of direct physical loss required for Civil Authority coverage.

Ruling

The court held that Camp 1382’s coverage arguments were foreclosed by binding Second Circuit precedent. It granted Lancer’s motion to dismiss, directed the clerk to terminate the pending motions, and closed the case. Because the claims were foreclosed by that precedent, the court did not decide whether the Virus Exclusion or the Ordinance Or Law Exclusion also precluded coverage.