Borah v. Continental Casualty Company

Background

Borah, Goldstein, Altschuler, Nahins & Goidel, P.C. sought insurance coverage for business interruption and related losses after closing its offices and suspending operations because of the COVID-19 pandemic. The firm alleged that its offices remained closed for at least 12 months and that its projected lost revenue during one year was approximately two million dollars. It notified Continental Casualty Company of its anticipated losses, but Continental denied the claim, stating principally that there was no “direct physical loss or damage” to covered property.

The firm’s policy included coverage for business income and extra expenses, losses involving certain dependent properties, and losses caused by civil-authority actions. Each provision required “direct physical loss of or damage” to property. The firm asserted claims for declaratory relief and breach of contract.

Motion and Arguments

Continental moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not plausibly state a legally valid claim. Continental argued that the complaint did not allege physical loss or damage to property. The firm argued that COVID-19 could cause physical loss or damage because the virus could land on surfaces, remain there for hours or days, and require ongoing cleaning and disinfection. It also argued that earlier Second Circuit decisions did not foreclose its claims.

Court’s Analysis

The court applied the reasoning of Second Circuit decisions interpreting similar insurance provisions under New York law. Those decisions held that “direct physical loss” and “physical damage” require actual physical loss of or damage to insured property, not merely loss of use or loss of access. The court also relied on decisions explaining that the presence of COVID-19 on surfaces in an office would not, without more, physically damage the building or its contents.

The court found the allegations here substantively indistinguishable from those decisions. The complaint alleged that COVID-19 could be present on surfaces and that the firm had to close and undertake continuing cleaning efforts, but it did not allege that any part of the offices or anything in them was damaged to the point of repair, replacement, or total loss. The court therefore concluded that the complaint did not plausibly allege the physical loss or damage required by any of the three policy endorsements.

The court acknowledged that some of the Second Circuit decisions cited by Continental were summary orders and therefore not precedential. It nevertheless concluded that those decisions had persuasive value and should not be disregarded. The court also rejected the firm’s argument that the policy language was ambiguous merely because the parties disputed the meaning of an undefined term.

Ruling

The court concluded that the complaint failed to state a claim for relief and did not address Continental’s alternative grounds for dismissal. Judge Lewis J. Liman granted the motion to dismiss. Because the firm had identified no facts it could allege that would support coverage under the policy, the court dismissed the complaint with prejudice and directed the Clerk of Court to close the motion.