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UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF NEW YORK 

------------------------------x

SOCIAL LIFE MAGAZINE, INC.,

 Plaintiff, New York, N.Y. 

 v. 20 Civ. 3311(VEC) 

SENTINEL INSURANCE COMPANY 

LIMITED, 

 Defendant. 

------------------------------x Teleconference 

 Order to Show Cause 

 May 14, 2020 

 10:00 a.m. 

Before: 

HON. VALERIE E. CAPRONI, 

 District Judge 

APPEARANCES

GABRIEL J. FISCHBARG 

 Attorney for Plaintiff 

STEPTOE & JOHNSON, LLP 

 Attorneys for Defendant 

BY: CHARLES A. MICHAEL 

 SARAH D. GORDON 

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THE COURT: Good morning, everybody. 

Do I have a court reporter on the line? 

THE COURT REPORTER: Good morning, your Honor.

Kristen Carannante.

THE COURT: Good morning.

Okay. Do I have Mr. Fischbarg for the plaintiff?

MR. FISCHBARG: Yes, Judge. Hi.

THE COURT: Mr. Fischbarg, is anyone else on the line

for the plaintiff?

MR. FISCHBARG: Yes. The plaintiff is on a separate

phone available if you need evidence or --

THE COURT: The principal of Social Life?

MR. FISCHBARG: Yes. He is in my office, you know,

more than six feet away, and --

THE COURT: Okay.

And who do I have for the defendant? 

MR. MICHAEL: Good morning, your Honor. This is

Charles Michael, from Steptoe & Johnson, for the defendant.

With me is my partner Sarah Gordon, who was just admitted pro

hac vice, and who will be doing the presentation today.

THE COURT: Terrific. 

All right -- 

MS. GORDON: Good morning, your Honor.

THE COURT: Good morning.

Only people who are speaking need to note their

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appearances, and I have got those, Mr. Fischbarg and

Ms. Gordon. Everybody else, please mute your telephone.

Also, if you hear that sound that sounds like someone 

has dropped off the line once we get started, I need you to 

stop talking so that I can make sure that I have still got the 

court reporter and your adversary on the line. 

So, Mr. Fischbarg, this is your motion, so you get to

go first.

MR. FISCHBARG: Yes. So I submitted a reply

memorandum, you know, in the afternoon yesterday. I was just

wondering if --

THE COURT: Yes. I saw that. Thank you.

MR. FISCHBARG: Okay, so you were also able to read

it, I suppose?

THE COURT: Yes, yes.

MR. FISCHBARG: Okay.

So I guess the only other thing I want to add that's 

not in the papers, and then I don't know if your Honor has any 

issues that you want to talk about, is I mentioned that Liberty 

Mutual had this exclusion for viruses and it is also evident 

that other insurance companies have the same exclusion, 

including Travelers Insurance Company, and they filed the -- 

they actually filed a federal lawsuit for declaratory judgment 

in California, Docket No. 20 Civ. 3619, to preempt such claims, 

I guess to enforce their exclusion for viruses. So to the 

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extent that the defendant is claiming some kind of overreach by 

the plaintiff here, I don't think it is proper. There are 

several insurance companies who are capable of putting in a 

virus exclusion in their policies, and in this case there is 

none. So -- 

THE COURT: Let me ask you something. First off, I

want to start with basics. Do you agree that New York law

applies?

MR. FISCHBARG: Yes.

THE COURT: All right. So the -- is it the Roundabout

Theatre case?

MS. GORDON: Yes, your Honor.

THE COURT: First Department case?

MS. GORDON: Yes, your Honor. This is Ms. Gordon on

behalf of Sentinel.

THE COURT: Thank you.

Mr. Fischbarg, it would seem to me that the Roundabout

case is a real problem for your position.

Would you like to explain to me why it doesn't

preclude your claim?

MR. FISCHBARG: Yes. That case applies to off-site

property damage rendering the premises at issue inaccessible.

So in this case, you don't have off-site property damage. You

have on-site property damage.

THE COURT: What is the damage? There is no damage to

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your property.

MR. FISCHBARG: Well, the virus exists everywhere.

THE COURT: It damages lungs. It doesn't damage

printing presses.

MR. FISCHBARG: Right. Well, that's a different

issue, whether or not -- that's a different issue than the

Roundabout case that had to do with accessibility. Now we are

jumping to the topic of whether a virus can cause physical

damage to a printing press, as your Honor mentioned. So that's

a separate issue, and there are a lot of cases that we have

cited where this type of material, a virus, does cause physical

damage.

THE COURT: What's your best case? What do you think

is your best case under New York law?

MR. FISCHBARG: Well, the problem is, under New York

law, there isn't much law. The New Jersey federal court, in

TRAVCO, citing other cases, including from other circuits,

where physical damage had a broader interpretation that

includes loss of use and not just, you know, something where

you take a hammer and break an item.

THE COURT: With loss of use, I mean, loss of use from

things like mold is different from you not being able to,

quote, use your premises because there is a virus that is

running amuck in the community.

MR. FISCHBARG: Okay. I would disagree with that. I

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would say virus and mold are equivalent. They are both

physical items which, if they land on a surface or are on a

surface, just like spores that are also listed in the policy,

mold is also listed in the policy. I would say that the virus,

mold spores --

THE COURT: Hang on -- 

MR. FISCHBARG: -- anything -- 

THE COURT: A second.

Do I still have the court reporter? 

THE COURT REPORTER: Yes, your Honor.

THE COURT: Do I have I still have, Ms. Gordon?

MS. GORDON: Yes, your Honor.

THE COURT: All right. Go ahead.

MR. FISCHBARG: Mold spores, bacteria, virus, all

those are physical items which damage whatever they are on,

whatever they land on. And in this case, the virus, when it

lands on something and you touch it, you could die from it.

So --

THE COURT: That damages you. It doesn't damage the

property.

MR. FISCHBARG: But you are not able to use the

property because it damages you. So it's a corollary. In

other words, this policy, by the way, mentions the word "virus"

and "bacteria" in it in two places.

THE COURT: Where does it mention it?

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MR. FISCHBARG: It mentions it in the PDF as well as

Exhibit 9, page 36 and 37, which is page 7 of 25 of the special

property coverage form under additional coverages, section

5(j), where the insured would cover certain law enforcement

orders requiring you to -- requiring remediation. But it

contains an exclusion for bacteria and viruses, and it uses the

word "bacteria" and it uses the word "virus." 

So what this is really referring to is the Legionella

bacteria, which is causes Legionnaires' disease typically. 

That's the bacteria. Virus is obviously something else. So 

this is obviously referring to when there is a Legionnaires' 

outbreak in a building, which could happen in New York pretty 

often, every few years, and then the building gets shut down 

and they have to do remediation. Either they -- at least as a 

bacteria, Legionella bacteria only occurs in water or pipes or 

in mist. So the building is shut down, and then you might have 

to -- and now there is a new code where the buildings have to 

test their cooling systems for Legionella bacteria. So that's 

an example where a bacteria causes property loss, or loss of 

use, or damage, physical damage to property. And I would say 

the virus is equivalent to that bacteria. So -- 

THE COURT: But it's not. This is different. The

virus is not specifically in your property that is causing

damage. It is everywhere. The Legionnaire example is very

different. Because it's not like Legionnaire is running

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rampant throughout the city, and therefore your office building

can get closed. It is that the Legionnaire bacteria is in that

building causing -- 

MR. FISCHBARG: Yes. 

THE COURT: -- that building to be shut down.

MR. FISCHBARG: Yes. Yes.

So this virus is everywhere, including this office in 

particular, this office. In other words, they just did a 

random survey of people going into a grocery store in New York, 

and 20 percent tested positive. So, Judge, that's just a 

one-sample test. So if the infection rate in New York City is 

20 percent, then the virus is literally everywhere. So if 

it -- 

THE COURT: That's what -- 

MR. FISCHBARG: -- is -- 

THE COURT: That is what has caused the damage is that

the governor has said you need to stay home. It is not that

there is any particular damage to your specific property.

MR. FISCHBARG: Well, okay, that's --

THE COURT: You may not even have the virus in your

property.

MR. FISCHBARG: Well, okay, that's -- I would

disagree. The virus not just causes -- it lands on equipment,

it lands everywhere. That's why all of these -- all of the

health guidelines from the World Health Organization and

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elsewhere talk about wearing gloves, talk about wiping things

down, because it lands on surfaces. It doesn't just get

transmitted through the air. Another way of getting it is

through contact --

THE COURT: Right, but what -- 

MR. FISCHBARG: -- when it touches your -- 

THE COURT: What evidence do you have that your

premises are infected with the COVID bug.

MR. FISCHBARG: Well, the plaintiff is here. He got

COVID. So that's evidence there.

THE COURT: Well, it's not evidence that he got it in

his office.

MR. FISCHBARG: Yes, but, okay, it's not -- we're

not -- I don't know what burden of proof we are looking at,

whether it is beyond a reasonable doubt -- 

THE COURT: No, it's -- 

MR. FISCHBARG: -- or more likely than not, more

likely than not, he can testify where he was and more likely

than not he either got it from his office or he got it from his

home. So that's a different burden of proof. If you are

looking for some kind of burden of proof to show that he got it

from his office, I mean, that's an evidentiary question, and we

can get an epidemiologist to testify and get an expert to

testify on that, which I understand is going to happen in the

other lawsuits that have been filed across the country

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regarding --

THE COURT: Okay.

MR. FISCHBARG: -- this issue.

THE COURT: Okay.

MR. FISCHBARG: So . . .

THE COURT: Anything further, Mr. Fischbarg?

MR. FISCHBARG: No, I guess that's all for now. Thank

you.

THE COURT: Okay. Thanks.

Ms. Gordon.

MS. GORDON: Thank you, your Honor. This is Sarah

Gordon on behalf of Sentinel, and we agree with your Honor's

thoughts here. 

The property policy has two distinct requirements 

here. There has to be direct physical loss or physical damage 

to the property and the cause of the business interruption 

damages they are seeking has to be direct physical loss or 

damage, and the cause here is not physical damage. 

We think, you know, as your Honor rightly pointed out, 

Roundabout controls. It is under New York law. It's a First

Department case from 2002. There are no subsequent decisions 

that have disagreed or overturned it here in New York; and, if 

anything, it has been confirmed by this . . . 

THE COURT: Hang on. Did I lose my court reporter? 

THE COURT REPORTER: No, Judge. I'm here. 

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THE COURT: Did I lose Mr. Fischbarg?

MR. FISCHBARG: No, I'm here.

THE COURT: Okay.

MS. GORDON: This court, your Honor, in Newman Myers,

adopted the exact same rationale for a law firm that was trying

to assert damages where there were no -- business interruption

damages, where there was no physical harm to the property.

And, you know --

THE COURT: Let me interrupt you for a second.

So Judge Engelmayer in Newman went out of his way to 

talk about a case where there was a bunch of -- there was a 

rock slide which didn't actually hit the house or the premises, 

and yet they got coverage and coverage for the invasion of 

fumes. 

MS. GORDON: Yes, your Honor.

So for most of the cases, there are a number of them,

there is -- what has happened is something physically has

happened to the property that prevents people from being on the

property. So, for example, in Gregory Packaging, in New

Jersey, there was ammonia leaked out and they couldn't be on

the property, so something physically happened. You couldn't

necessarily see it or touch it, but there were fumes and it was

unsafe to be there. The same thing with Motorists, where there

was E. coli in the well. You couldn't be in that house because

you were exposed to other things that had the E. coli.

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The property has to be entirely unusable or 

uninhabitable for physical loss or damage to constitute a loss 

of use. We don't think that's the law in New York in any 

circumstance, but even in those other cases, there is nothing 

equivalent here. Mr. Fischbarg's client can go to his 

premises. There is no ammonia or mold or anything in the air 

that's not going to allow him on to the property. In fact, the 

governor's orders explicitly allow him to go to the property 

and get his mail or do routine business functions. The only 

rule is that he has to stay six feet apart from other people. 

So those cases are entirely distinguishable. 

And when a business, a property is allowed to remain 

open or people can still occupy the premises, there is no 

direct physical loss or damage. That was the case -- that's 

what the court said in Port Authority, that's what happened in 

Mama Jo's, where the restaurant was allowed to be open. The

cases where there is direct physical loss or damage, you 

literally cannot be on the premises because there is something 

there that is making it uninhabitable, and here that just isn't 

true. 

THE COURT: Okay. Mr. Fischbarg I will give you the

last word.

MR. FISCHBARG: All right. So I would disagree that

he is allowed to go to the premises. In fact, the opposite is

true. The executive order 202.8 says it requires 100 percent

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reduction. So he can't go there, and he is not allowed to go

there, and that is a separate claim. It is the civil authority

claim besides the breach of contract claim.

THE COURT: Doesn't the executive order say -- I'm

sorry, which executive order are you talking about?

MR. FISCHBARG: It is . . .

It is Exhibit 3 of the declaration, and then on page

2, "Each employer shall reduce the in-person workforce at any

work locations by 100 percent no later than March 22 at 8p.m."

And then it says --

THE COURT: Right, but that doesn't mean the boss

can't go to the work location.

MR. FISCHBARG: I would say he is -- he is an employee

and he can't go. I think it does. In my building here in New

York, there is nobody here. I'm the only one. There is no

bosses in any of the offices.

THE COURT: There is nothing about the governor's

order that prohibits a small businessperson or a big

businessperson from going into their office to pick up mail, to

water the plants, to do anything like -- 

MR. FISCHBARG: Your Honor -- 

THE COURT: -- that, including employees that are

working.

MR. FISCHBARG: Sorry.

MS. GORDON: Your Honor, this is Sarah Gordon. Oh, go

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ahead, Mr. Fischbarg.

MR. FISCHBARG: Okay. 

Again, I would disagree. I think the order is pretty 

clear that 100 percent means that you are not supposed to go to 

work, and that's what people have been doing in New York. They 

are not going into the office. And to the extent they are 

getting mail, I mean, there is work-arounds where the workers 

in the building have been leaving it downstairs for people to 

pick up, but the way it's been implemented is that 100 percent 

means no one is going to any office. 

THE COURT: You are in your office.

MR. FISCHBARG: Yeah, I'm not -- I'm considered, by

the way -- lawyers are considered essential, and if you are a

sole practitioner, you are considered essential. So I have the

exclusion, and that's why I am here, but otherwise I wouldn't

be here. So . . .

MS. GORDON: Your Honor, if I may? We submitted with

Mr. Michael's affidavit, Exhibit D, a printout from the Empire

State Development website. And on question 13, it addresses

exactly this issue. It says, "What if my business is not

essential but a person must pick up mail or perform a similar

routine function each day?" And the answer provided by the

Empire State is, "A single person attending a nonessential

closed business temporarily to perform a specific task is

permitted so long as they will not be in contact with other

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people."

THE COURT: I thought I had read that somewhere.

MS. GORDON: Yes. It is in Mr. Michael's declaration,

and I think it's ECF 18-4, page 304.

THE COURT: Okay.

MR. FISCHBARG: Right, but I think the executive order

supersedes that is what I would argue.

THE COURT: Okay.

Mr. Fischbarg, you have got to demonstrate a

probability of success on the merits. I feel bad for your

client. I feel bad for every small business that is having

difficulties during this period of time. But New York law is

clear that this kind of business interruption needs some damage

to the property to prohibit you from going. You get an A for

effort, you get a gold star for creativity, but this is just

not what's covered under these insurance policies.

So I will have a more complete order later, but your

motion for preliminary injunction is going to be denied.

Anything further for the plaintiff?

MR. FISCHBARG: I guess just a housekeeping thing. We

filed an amended complaint. Are we going to deem it served or

does it have to be re-served?

THE COURT: Has the defendant -- does the defendant

want to be reserved or will you take the amended complaint?

MR. MICHAEL: Your Honor, this is Charles Michael. 

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We have entered a notice of appearance, and so I think 

once they filed it on ECF, that service, we are happy to 

consider it served. That's fine. And he does have one 

amendment as of right. 

THE COURT: Correct.

MR. MICHAEL: That was within his right to file it.

THE COURT: Does defendant plan to move or answer?

MR. MICHAEL: Probably to move. We would have to

discuss it with our client, but I believe so. 

THE COURT: Okay. What are the parties' position on

discovery while the motion to dismiss is pending? 

MR. FISCHBARG: Well, I would say there are two

motions filed -- there is one in the Eastern District of

Pennsylvania and one in, I think, the Northern District of

Illinois -- for an MDL, multi-district litigation, involving a

lot of lawsuits combining, so I think this might be happening

in each state until that motion is decided, and I think the

briefing schedule is in June --

MS. GORDON: We -- your Honor --

MR. FISCHBARG: -- so I think -- 

MS. GORDON: Sorry, Mr. Fischbarg.

MR. FISCHBARG: So I would say that this case might be

transferred to the multi-district panel at some point.

THE COURT: Okay. So, Mr. Fischbarg, what I am

hearing you say is that you are perfectly happy to have the

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defendants not move until we find out whether or not your case

is going to get scooped up into the MDL?

MR. FISCHBARG: Yes, correct.

THE COURT: All right. I presume that the defendants

are perfectly happy to do nothing until you hear back from the

MDL.

MS. GORDON: Your Honor, I need to consult with my

client on that. I'm not sure that that's true. We don't think

these cases are appropriate for consolidation in the MDL for

many of the reasons which were evident today, given the

different states' conclusions on these laws. So I need to

consult with my client on the motion practice. We may intend

to want to move in any event.

THE COURT: Okay. Well, you could move, but if there

is a likely -- if there is some likelihood that they are going

to get scooped into the MDL, I'm not likely to decide it until

that decision is made. So it is entirely -- I guess from my

perspective I don't really care, but from your client's

perspective, they may be making a motion to dismiss that's

unnecessary. If you are right, and you may well be right, that

they are not going to MDL these kinds of cases, then all that's

happening is this is just being delayed into the summer for you

to incur fees making a motion to dismiss.

So why don't you talk to your client, figure out what

you want to do. One way or the other, it does not seem to me

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to make sense to proceed with discovery in this matter,

certainly under the circumstances that everyone is in, and

particularly the plaintiff is in, strapped for revenue, until

we figure out whether a lawsuit is going to go forward.

So talk to your client, figure out whether -- the

defendant should talk to Sentinel. Figure out whether you are

happy staying this case pending a decision on the MDL or not,

and just write me a letter and let me know.

MS. GORDON: Yes, your Honor. Thank you.

MR. MICHAEL: Your Honor --

THE COURT: Anything further from the plaintiff?

MR. MICHAEL: Just one housekeeping matter. This is

Charles Michael, again, for the defendant.

THE COURT: Okay.

MR. MICHAEL: I just wondered if there was any special

procedures for ordering the transcript or if we go just through

the normal Southern District website? I didn't know, under the

COVID circumstances, if there is something different we should

do.

THE COURT: I don't think there is anything different,

but we have got the court reporter on. 

So, Madam Court Reporter, is there anything different 

they need to do? 

THE COURT REPORTER: At the end of this proceeding, I

am going to email the parties with their instructions.

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THE COURT: Okay. 

MR. MICHAEL: Terrific. Thank you so much. 

THE COURT: Anything further from the plaintiff,

Mr. Fischbarg?

MR. FISCHBARG: No. Thank you, Judge.

THE COURT: Anything further from the insurance

company? Ms. Gordon?

MS. GORDON: No. Thank you, your Honor.

THE COURT: All right. Thank you, all.

MR. FISCHBARG: Okay. Bye, Judge.

MR. MICHAEL: Thank you, your Honor.

oOo 

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