Broadwall Management Corp. v. Affiliated FM Insurance Company

Background

Broadwall Management Corp. and affiliated and subsidiary entities sued Affiliated FM Insurance Company for breach of an insurance contract. The plaintiffs sought coverage under a property policy for losses allegedly caused by the COVID-19 pandemic, including lost rental income and business-interruption losses at commercial properties. The policy covered risks of physical loss or damage, subject to exclusions, and included business-interruption provisions for civil-authority orders, communicable disease, and blocked entry or exit.

The amended complaint alleged that COVID-19 droplets and contaminated surfaces were present at the insured properties and made them unsafe or unusable. It also alleged that government authorities issued orders restricting businesses during the pandemic. The policy’s communicable-disease provision required the actual, not merely suspected, presence of a communicable disease at an insured location and an order restricting access because of that presence.

Affiliated moved under Federal Rule of Civil Procedure 12(b)(1), which concerns subject-matter jurisdiction, to challenge the contractual standing of four plaintiffs that were not expressly listed as named insureds. It also moved under Rule 12(b)(6), which tests whether a complaint states a legally sufficient claim, arguing that the alleged COVID-19 conditions did not constitute physical loss or damage and that the government orders did not respond to confirmed COVID-19 cases at the plaintiffs’ properties.

Contractual Standing

The court distinguished contractual standing—the right to enforce a particular contract—from constitutional standing, which concerns the court’s jurisdiction. It held that the amended complaint plausibly alleged that the challenged plaintiffs were covered by the policy’s named-insured clause. That clause included Broadwall’s wholly or majority-owned subsidiaries and interests owned, controlled, or operated by a named insured. The complaint alleged that Broadwall managed the affected properties and operated the other plaintiff entities.

The court also alternatively held that the challenged plaintiffs plausibly had rights as third-party beneficiaries. The court therefore denied Affiliated’s partial Rule 12(b)(1) motion.

Physical-Loss and Physical-Damage Provisions

The court evaluated the civil-authority and ingress/egress provisions together because both required “physical damage” or “physical loss or damage” of the type insured. Applying New York law, the court held that these terms require actual physical loss of or damage to the insured property, not merely loss of use.

The court concluded that the alleged presence of COVID-19 on surfaces or in the air did not physically damage the buildings themselves. It rejected the plaintiffs’ arguments that other policy provisions concerning property damage, electronic data, and non-physical computer-system damage made the relevant coverage terms ambiguous. The court held that the amended complaint did not state a breach-of-contract claim under either the civil-authority provision or the ingress/egress provision.

Communicable-Disease Coverage

The court held that the communicable-disease provision required allegations of confirmed COVID-19 at specific insured properties, not general allegations that the virus was widespread or likely present because employees and customers had visited the properties. The amended complaint did not specifically allege sick employees or customers or confirmed cases at the affected locations.

The court also held that the complaint did not connect the government orders to confirmed COVID-19 cases at the plaintiffs’ properties. The order specifically described in the complaint, New York City Emergency Executive Order No. 100, referred generally to COVID-19 causing property loss and damage but did not identify the plaintiffs’ properties or confirmed cases there. The court found that the broader allegations about government orders did not show that access was restricted because of the actual, not suspected, presence of COVID-19 at a particular insured location.

Disposition

Judge Paul A. Engelmayer granted Affiliated’s Rule 12(b)(6) motion to dismiss the amended complaint in its entirety for failure to state a breach-of-contract claim. The court denied the plaintiffs’ request to file another amended complaint because they had not identified data that would cure the pleading problems and, in the court’s view, amendment would be futile without allegations linking a government order to confirmed COVID-19 cases at the affected properties. The court stated that the ruling was with prejudice, denied the motion to replead, directed the clerk to close the case, and terminated the pending motion.