Case 3:20-cv-08676-FLW-DEA Document 22 Filed 03/18/21 Page 1 of 1 PagelD: 770

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

GARMANY OF RED BANK, INC.,
Civil Action No. 20-8676 (FLW) (DEA)

Plaintiff,
v. : ORDER
HARLEYSVILLE INSURANCE
COMPANY and NATIONWIDE
INSURANCE COMPANY,

Defendants.

THIS MATTER comes before the Court on a Motion to Dismiss filed pursuant to Federal
Rule of Civil Procedure 12(b)(6) by Patrick J. Mulqueen, Esq., counsel for Defendants Harleysville
Insurance Company and Nationwide Mutual Insurance Company (“Defendants”); it appearing that
Plaintiff Garmany of Red Bank, Inc., through its counsel James A. Maggs, Esq., opposes the
Motion; the Court having reviewed the submissions of the parties pursuant to Federal Rule of Civil
Procedure 78, for the reasons set forth in the Opinion also filed on this date, and for good cause
shown,

IT IS on this 18th day of March, 2021,

ORDERED that Defendant’s Motion to Dismiss is GRANTED; and it is further

ORDERED that Plaintiff's Complaint is DIMISSED WITH PREJUDICE; and it is
further

ORDERED that the Clerk of the Court shall mark this case as CLOSED.

/s/ Freda L. Wolfson
Freda L. Wolfson
U.S. Chief District Judge


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 13 of 18 PagelD: 764

unambiguous text of the Policy and is ‘akin to arguing that a coverage exclusion for damage caused

by fire does not apply to damage caused by a very large fire.’”). | agree. The term “pandemic”
simply defines the prevalence of a virus or disease. The fact that the COVID-19 virus has become
a pandemic does not negate the simple fact that the Executive Orders were issued to curb the spread
of the COVID-19 virus.

Accordingly, I find that the Virus Exclusion unambiguously bars coverage of Plaintiff's
claims.

b. Public Policy

Plaintiff next contends that the Virus Exclusion is void because it violates both United
States and New Jersey public policy. In support of this position, Plaintiff points to H.R. 6494, a
bill introduced in the House of Representatives on April 14, 2020, and New Jersey Assembly Bill
No. 3844, introduced in the New Jersey Assembly on March 16, 2020. (Compl. § 30.) Both bills
sought to require commercial insurers to cover losses caused by the COVID-19 pandemic, (See
Compl. {| 31-32.) Plaintiff contends that these proposed bills demonstrate that “the Virus
Exclusion is in the process of being eliminated with respect to the losses suffered by Garmany in
recognition of the harmful effect of the exclusion on the public.’”4 (Opp. Br., at 29.)

The New Jersey Appellate division has explained that “our courts will decline to enforce
an insurance policy, like any other contract, if its enforcement would be contrary to public policy.”

Hebela v. Healthcare Ins. Co., 370 N.J. Super. 260, 270 (App. Div. 2004). This exception,

‘ In its opposition brief, Plaintiff points to two additional bills introduced in the New Jersey
Legislature: (1) Assembly Bill No. 4551, which would authorize insurers issuing business
interruption coverage to offer a rider “which includes, as a covered peril under the policy, coverage
for global virus transmission or pandemic, or both”; and (2) Assembly Bill No. 4805, which would
require insurers to disclose whether a business interruption insurance policy provides pandemic
coverage. (Opp. Br., at 29-30.)

13


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 4 of 18 PageiD: 755

or damage including Earnings and Extra Expense caused by the Executive Orders and any future
civil authority orders resulting in a shutdown.” (See id.) Defendant removed the action to this
Court pursuant to 28 U.S.C. § 1446 based on the diversity of the parties. This motion followed.
Il. STANDARD OF REVIEW
a. Rule 12(b)(6) Standard

Under Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for “failure
to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When reviewing a
motion to dismiss on the pleadings, courts “accept all factual allegations as true, construe the
complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable
reading of the complaint, the plaintiff may be entitled to relief.” Phillips v. Cty. of Allegheny, 515
F.3d 224, 233 (3d Cir. 2008) (quotations omitted). Under such a standard, the factual allegations
set forth ina complaint “must be enough to raise a right to relief above the speculative level.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Indeed, “the tenet that a court must accept as
true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Ashcroft
y. Iqbal, 556 U.S. 662, 678 (2009). “[A] complaint must do more than allege the plaintiff's
entitlement to relief. A complaint has to ‘show’ such an entitlement with its facts.” Fowler v.
UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009).

However, Rule 12(b)(6) only requires a “short and plain statement of the claim showing
that the pleader is entitled to relief” in order to “give the defendant fair notice of what the... claim
is and the grounds upon which it rests.” Twombly, 550 U.S. at $55. The complaint must include
“enough factual matter (taken as true) to suggest the required element. This does not impose a
probability requirement at the pleading stage, but instead simply calls for enough facts to raise a

reasonable expectation that discovery will reveal evidence of the necessary element.” Phillips,


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 17 of 18 PagelD: 768

(Opp. Br., at 27.) I need not consider these new allegations as it is well-established that a plaintiff
may not use its opposition to a dispositive motion as an opportunity to amend the complaint. See
Scott v. Cohen, 528 F. App’x 150, 152 (3d Cir. 2013) (“It is a basic principle that the complaint
may not be amended by the briefs in opposition to a motion to dismiss.” (quoting Thomason v.
Nachtrieb, 888 F.2d 1202, 1205 (7th Cir. 1989)); Warfield v. SEPTA, 460 F. App’x 127, 132 (3d
Cir, 2012) (“A plaintiff may not amend a complaint by raising arguments for the first time in a
brief in opposition to a motion for summary judgment.”). Even if the Court were to accept these
allegations, however, they would not save Plaintiff's claim. Much like the allegations contained
in the Complaint, these new allegations fail to indicate any actual false statement or
misrepresentation made by the insurance industry regarding the scope of virus exclusions.°
Rather, Plaintiff makes only conclusory allegations that statements to state regulatory authorities
regarding the Virus Exclusion were “false.” This is insufficient to state a claim upon which relief

may be granted. See Phillips, 515 F.3d at 234.7

6 I further note that this is not the first case in which a plaintiff has raised the issue of
regulatory estoppel based the AAIS and ISO filings regarding the virus exclusion. See Del. Valley
Plumbing Supply, Inc., 2021 WL 567994, at *6. Indeed, federal courts that have considered the
issue have uniformly rejected claims that virus exclusions in commercial insurance policies are
void under principles of regulatory estoppel. See, e.g., id. at *6; Brian Handel D.M.D., P.C. v.
Foods Co., 2020 WL 6271021, at *6 (“Even if ISO mispresented the purpose and scope of its
Virus Exclusion, Plaintiffs’ theory requires the Court to construe Defendant’s plain, unambiguous
Virus Exclusion to mean the exact opposite of its ordinary meaning. Neither California law nor
federal courts interpreting Virus Exclusions, permit such an outcome.”); Turek Enters., Inc. v.
State Farm Mut. Auto. Ins. Co., 484 F, Supp. 3d 492, 504 & n.13 (E.D. Mich. 2020).

7 Because the Court finds that the Virus Exclusion is enforceable and clearly bars Plaintiff's
claim for coverage, the Court need not consider the parties’ arguments with respect to whether
the interruption of Plaintiffs business resulted from a “physical loss of or damage to” the covered

property.
17


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 9 of 18 PagelD: 760

b. any denial of access to property because of any virus, bacterium,
or other microorganism.

(Mulqueen Decl., Ex. B.) The “Perils Excluded” section of the Policy further provides that
Harleysville “do[es] not pay for any excluded loss, damage or expense, even though any other
cause or even contributes concurrently or in any sequence to the loss, damage or expense” and,
furthermore “do[es] not pay for loss, damage or expense caused directly or indirectly by one or
more of the following excluded causes or events, whether or not caused by or resulting from a peril
covered.” (Mulqueen Decl., Ex. A, at HP139.)

Where, as here, “there is a conflict as to whether, for coverage purposes, losses should be
considered to be ‘caused by’ an excluded peril, the New Jersey courts employ the efficient
proximate cause test, which is sometimes referred to as the Appleman’s Rule.” N.J. Transit Corp.
v. Certain Underwriters at Lloyd’s London, 461 N.J. Super. 440, 460 (App. Div. 2019). Pursuant
to this rule, “if an exclusion ‘bars coverage for losses caused by a particular peril, the exclusion
applies only if the excluded peril was the efficient proximate cause of the loss.’” Jd. (quoting
Zurich Am. Ins. v. Keating Bldg. Corp., 513 F. Supp. 2d 55, 70 (D.N.J. 2007)). Thus, “[wjhere a
peril specifically insured against sets other causes in motion which, in an unbroken sequence and
connection between the act and the final loss, produces the result for which recovery is sought, the
insured peril is regarded as the proximate cause of the entire loss.” Jd. at 460-61 (quoting Auto
Lenders Acceptance Co. v. Gentillini Ford, Inc., 181 N.J. 245, 257-58 (2004)). Conversely, a loss
may also be covered where the covered cause “ends the sequence of events leading to the loss.”
Flomerfelt, 202 N.J. at 447. Ultimately, however, the pertinent question is not where in the

sequence the alleged cause of loss occurred, but what was the predominant cause that produced


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 6 of 18 PagelD: 757

principles of fairness.” Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992); see
Zacarias v. Allstate Ins. Co., 168 N.J. 590, 594 (2001) (“We give special scrutiny to insurance
contracts because of the stark imbalance between insurance companies and insureds in their
respective understanding of the terms and conditions of insurance policies.”). In a dispute over
the interpretation of an insurance contract, the “burden is on the insured to bring the claim within
the basic terms of the policy.” Reliance Ins. Co. v. Armstrong World Indus., Inc., 292 N.J. Super.
365, 377 (App. Div. 1996). However, where, as here, “the insurance carrier claims the matter in
dispute falls within exclusionary provisions of the policy, it bears the burden of establishing that
claim.” Rosario ex rel. Rosario v. Haywood, 351 N.J. Super 521, 530 (App. Div. 2002).

In New Jersey, the court’s function in construing policies of insurance, as with any other
contract, “is to search broadly for the probable common intent of the parties in an effort to find a
reasonable meaning in keeping with the express general purposes of the policies.” Royal Ins. Co.
v. Rutgers Cas. Ins. Co., 271 N.J. Super. 409, 416 (App. Div. 1994). In most cases, the best
indication of the parties’ reasonable expectations lies in the language of the insurance policy itself,
Moessner, 121 F.3d at 903, and thus, ordinarily, “the words of an insurance policy are to be given
their plain, ordinary meaning.” Zacarias, 168 N.J. at 595. In that regard, “[w]here the express
language of the policy is clear and unambiguous, ‘the court is bound to enforce the policy as it is
written.”” Rosario, 351 N.J. Super. at 530 (quoting Royal Ins., 271 N.J. Super. at 416); Chubb
Custom Ins. Co. v. Prudential Ins. Co. of Am., 195 N.J. 231, 238 (2008) (“If the language is clear,
that is the end of the inquiry.”), This governing principle precludes courts from writing “‘for the
insured a better policy of insurance than the one purchased,’” Gibson v. Callaghan, 158 N.J. 662,

670 (1999) (citation omitted).


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 5 of 18 PagelD: 756

515 F.3d at 234 (citation and quotations omitted); Covington v. Int'l Ass'n of Approved Basketball
Officials, 710 F.3d 114, 118 (3d Cir. 2013) (“[A] claimant does not have to set out in detail the
facts upon which he bases his claim. The pleading standard is not akin to a probability requirement;
to survive a motion to dismiss, a complaint merely has to state a plausible claim for relief.” (citation
and quotations omitted)).

In sum, under the current pleading regime, when a court considers a dismissal motion, three
sequential steps must be taken: first, “it must take note of the elements the plaintiff must plead to
state a claim.” Connelly v. Lane Constr. Corp., 809 F.3d 780, 787 (3d Cir. 2016) (quotations
omitted). Next, the court “should identify allegations that, because they are no more than
conclusions, are not entitled to the assumption of truth.” Jd. (quotations omitted). Lastly, “when
there are well-pleaded factual allegations, the court should assume their veracity and then
determine whether they plausibly give rise to an entitlement to relief.” /d. (quotations and brackets
omitted).

b. Interpretation of Insurance Contracts Under New Jersey Law

Under New Jersey law, the determination of “the proper coverage of an insurance contract
is a question of law.”! Buczek v. Cont’l Cas. Ins. Co., 378 F.3d 284, 288 (3d Cir. 2004) (citing
Atl. Mut. Ins. Co. v. Palisades Safety & Ins. Ass’n, 364 N.J. Super. 599, 604 (App. Div. 2003)).
“An insurance policy is a contract that will be enforced as written when its terms are clear in order
that the expectations of the parties will be fulfilled.” Flomerfelt v. Cardiello, 202 N.J. 432, 441
(2010). However, because insurance policies are contracts of adhesion, they “are subject to special
rules of interpretation,” Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530, 537 (1990), and

“courts must assume a particularly vigilant role in ensuring their conformity to public policy and

' The parties do not dispute that New Jersey law applies to this matter.

5


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 18 of 18 PageiD: 769

IV. CONCLUSION
For the reasons set forth above, Defendants’ Motion to Dismiss is GRANTED and

Plaintiff's Complaint is DISMISSED WITH PREJUDICE. An appropriate Order accompanies
this Opinion.

DATED: March 18, 2021 /s/ Freda L. Wolfson
Freda L. Wolfson

U.S. Chief District Judge

18


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 8 of 18 PagelD: 759

raises three grounds on which it challenges the Virus Exclusion, arguing that (1) it does not apply
because the Executive Orders were the proximate cause of Plaintiff's losses, (2) the exclusion is
unenforceable as contrary to public policy, and (3) Harleysville is barred from enforcing the
exclusion pursuant to the doctrine of regulatory estoppel. The Court considers each argument in
turn.
a. Proximate Cause of Loss

Plaintiff claims that the Virus Exclusion does not bar coverage here because (1) the
Executive Orders, not COVID-19, were the proximate cause of its losses and (2) “the Virus
Exclusion is not a pandemic exclusion.” (Opp. Br., at 26.) Defendant, however, maintains that
the Virus Exclusion clearly bars coverage for Plaintiff's losses which “were caused by, resulted
from, and relate to the Coronavirus.” (Moving Br., at 21.)

The Court first considers whether the Executive Orders, as opposed to the COVID-19 virus,
were the proximate cause of Plaintiffs losses. The Policy’s Virus Exclusion is set forth in an
endorsement that adds the following language to the “Perils Excluded” by the Policy:

“We” do not pay for loss, cost, or expense caused by, resulting from,

or relating to any virus . . . that causes disease, illness, or physical
distress or that is capable of causing disease, illness, or physical
distress.

This exclusion applies to, but is not limited to, any loss, cost, or
expense as a result of:

a. any contamination by any virus, bacterium or other
microorganism; or

bars coverage”); Eye Care Ctr. of N.J., PA v. Twin City Fire Ins. Co., No. 20-5743, 2021 WL
457890, at *2 (D.N.J. Feb. 8, 2021) (“The virus exclusion applies in blanket fashion to all forms
of coverage in the policy. If applicable, then, it will dispose of the case.”); N&S Restaurant LLC
v. Cumberland Mut. Fire Ins. Co.,____F. Supp. 3d __, 2020 WL 6501722, at *3 (D.N.J. Nov. 5,
2020) (“[T]he Court finds it unnecessary to decide whether Plaintiff's claim resulted from direct
physical loss or damage because the Court finds that the Virus Exclusion plainly applies here,
barring coverage.”).


EXHIBIT 1


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 11 of 18 PagelD: 762

Governor Murphy’s Executive Orders were the cause of the losses that resulted from the closure
of their businesses. Jd. at *5—6. As | explained in Causeway:

The Executive Orders were issued for the sole reason of reducing

the spread of the virus that causes COVID-19 and would not have

been issued but for the presence of the virus in the State of New

Jersey. See 7th Inning Stretch LLC v. Arch Ins. Co., No. 20-8161,

2021 U.S. Dist. LEXIS 11326, at *5 (D.NJ. Jan. 19, 2021)

(“Because the Stay-at-Home Orders were issued to mitigate the

spread of the highly contagious novel coronavirus, Plaintiffs’ losses

are tied inextricably to that virus and are not covered by the

policies.”).
Id, at *6. The same holds true here. Plaintiffs Complaint acknowledges that the Executive Orders
were issued “[iJn response to the COVID-19 pandemic.” (Compl. f{ 16-18.) As such, it is clear
that the “but for” cause of Plaintiffs’ losses was COVID-19—the Executive Orders and the virus
are so inextricably connected that it is undeniable that the Orders were issued because of the virus.”
See id.

Indeed, as I also observed in Causeway, the majority of courts to consider the issue of
causation in this context, including New Jersey courts, have determined that “[t]he Governor
issued his executive orders affecting Plaintiff's business as a direct result of COVID-19 .. . and
any losses incurred therefrom are squarely within the exclusion.” Mattdogg, Inc. v. Phil. Indem.
Ins. Co., No. L-820-20, 2020 WL 7702634, at *4 (N.J. Super. Ct. Law. Div. Nov. 17, 2020); Mac
Prop. Grp. LLC y. Selective Fire Cas. Ins. Co., No. L-2629-20, 2020 WL 7422374, at *8 (N.J.
Super. Ct. Law Div. Nov. 5, 2020) (“Since the virus is alleged to be the cause of the governmental
action, and the governmental action is asserted to be the cause of the loss, plaintiff cannot avoid
the clear and unmistakable conclusion that the coronavirus was the cause of the alleged damage or

loss.”); see also Del. Valley Plumbing Supply, Inc., 2021 WL 567994, at *3 “Therefore, ‘[b]ecause

the Stay-at-Home Orders were issued to mitigate the spread of the highly contagious novel


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 10 of 18 PagelD: 761

the loss. See Franklin Packaging Co. v. Cal. Union Ins. Co., 171 N.J. Super. 188, 191 (App. Div.
1979).

While Plaintiff contends that the Executive Orders were the proximate cause of its losses
because the Orders required the closure of its retail business, Plaintiff fails to acknowledge that
the Policy provides that loss caused “directly or indirectly” by a virus is excluded. This language
is known as an “anti-concurrent clause,” which is “designed to avoid the ‘efficient proximate cause
doctrine.’” N&S Restaurant LLC, 2020 WL 6501722, at *4. Such clauses are enforceable under
New Jersey law. See, e.g., Mac Prop. Grp. LLC y. Selective Fire & Cas. Ins. Co., No. L-2629-20,
2020 WL 7422374, at *7 (N.J. Super. Ct. Law Div. Nov. 5, 2020) (enforcing virus exclusion that
contained an anti-concurrent clause where plaintiff argued that its losses were caused by executive
orders as opposed to COVID-19 virus); see also Assurance Co. of Am., Inc. v. Jay-May, Inc., 38
F. Supp. 2d 349, 354 (D.N.J. 1999) (finding anti-concurrent clause enforceable under New Jersey
law); Simonetti v. Selective Ins. Co., 372 N.J. Super. 421, 431 (App. Div. 2004) (noting that the
inclusion of an anti-concurrent clause “evidence[ed] a clear intention to bar coverage”). Here, the
plain language of the Virus Exclusion indicates that the Policy was drafted to eliminate the efficient
proximate cause doctrine. In other words, the Policy “does not provide coverage for losses caused
directly or indirectly by a virus, regardless of any other cause or event that contributes concurrently
or in any sequence to the loss.” N&S Restaurant LLC, 2020 WL 6501722, at *4.

Moreover, even if the Policy did not contain an anti-concurrent clause, Plaintiff cannot
show that the Executive Orders, and not the COVID-19 virus, were the proximate cause of its
losses. The Court recently addressed a similar issue in Causeway Automotive, LLC v. Zurich Am.
Ins. Co., No. 20-8393, 2021 WL 486917 (D.N.J. Feb. 10, 2021). Causeway involved a virus

exclusion that did not contain an anti-concurrent clause. Jd. at *5 n.6. There, plaintiffs argued that


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 7 of 18 PagelD: 758

Additionally, in the context of an insurance policy, “[e]xclusionary clauses are
presumptively valid and are enforced if they are ‘specific, plain, clear, prominent, and not contrary
to public policy.” Flomerfelt, 202 N.J. at 441 (quoting Princeton Ins. Co. v. Chunmuang, 151
N.J. 80, 95 (1997)). Because the burden is on the insurer to bring the case within an exclusion,
Chunmuang, 151 N.J. at 95, “exclusions are ordinarily strictly construed against the insurer, and
if there is more than one possible interpretation of the language, courts apply the meaning that
supports coverage rather than the one that limits it.” Flomerfelt, 202 N.J. at 442 (internal citation
omitted). Nonetheless, “[i]f the words used in an exclusionary clause are clear and unambiguous,
‘a court should not engage in a strained construction to support the imposition of liability.” Jd.
(quoting Longobardi, 121 N.J. at 537). In that regard, courts cannot “disregard the ‘clear import
and intent’ of a policy exclusion,” Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 41
(1998) (citation omitted), and “[flar-fetched interpretations of a policy exclusion are insufficient
to create an ambiguity requiring coverage.” Essex Ins. Co. v. New Jersey Pan-African Chamber
of Commerce & Indus., Inc., No. A~1237-14T3, 2017 WL 4051726, at *3 (N.J. Super. Ct. App.
Div. Sept. 14, 2017). “Rather, courts must evaluate whether, utilizing a ‘fair interpretation’ of the
language, it is ambiguous.” Flomerfelt, 202 N.J. at 442 (quoting Stafford v. T.H.E. Ins, Co., 309
N.J. Super. 97, 105 (App. Div. 1998)).

Ill. DISCUSSION

The Policy’s Virus Exclusion applies to all coverage under the Policy. As such, if I

determine that the Virus Exclusion is enforceable, and applicable to Plaintiffs claim, it will

dispose of the case.’ The Court, therefore, begins with a discussion of the exclusion. Plaintiff

2 See Del. Valley Plumbing Supply, Inc. v. Merchants Mut. Ins, Co., No. 20-8257, 2021 WL
567994, at *3 (D.N.J. Feb. 16, 2021) (finding it unnecessary to address argument regarding
interpretation of the term “direct physical loss” because “the Virus exclusion clearly applies and

7


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 3 of 18 PageiD: 754

otherwise indicated on the “schedule of coverages,” this Income
Coverage Extension is limited to 30 consecutive days from the date
of the order.

(Id. at HP103.)

The Policy is modified by an endorsement form, entitled “Virus Or Bacteria Exclusion,”
which applies to all coverages provided by the Policy (the “Virus Exclusion”). The Virus
Exclusion provides, in pertinent part that Harleysville “do[es] not pay for loss, cost, or expense
caused by, resulting from, or relating to any virus .. . that causes disease, illness, or physical
distress or that is capable of causing disease, illness, or physical distress.” (Mulqueen Decl., Ex.
B.) The Virus Exclusion “applies to, but is not limited to, any loss, cost, or expense as a result of
a. any contamination by a virus, bacterium, or other microorganism; or b. any denial of access to
property because of any virus, bacterium, or other microorganism.” (Jd.)

On April 21, 2020, Plaintiff provided Harleysville with a notice of a claim for Earnings
and Extra Expense coverage under the Policy. (Compl. § 22.) On April 29, 2020, Harleysville
denied Plaintiff's claim for three stated reasons: (1) there was no direct physical loss or damage to
covered property at an insured premise; (2) the suspension of operations was not caused by direct
physical loss or damage to property other than an insured premise; and (3) COVID-19 is not a
covered cause of loss based on the Virus Exclusion. (/d. J 24.)

On May 27, 2020, Plaintiff filed a complaint against Defendants in the Superior Court of
New Jersey, Law Division, Monmouth County, seeking a declaration that “the Executive Orders
trigger coverage under the Policy because [they] prohibit[] access to the Insured Premises”; “that
the shutdown resulting from the Executive Orders constitute[s] an interruption of business
operations under the Policy”; that “the Virus Exclusion is void and enforceable as violative of New

Jersey public policy”; and that “coverage is provided to [Plaintiff] for any current and future losses


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 14 of 18 PagelD: 765

however, is narrowly applied. See Tucci v. Hartford Fin. Servs. Grp., 507 F. App’x 211, 212 3d
Cir. 2012) (“Only in exceptional cases involving terms that violate public policy, such as terms
that would virtually nullify insurance coverage if taken literally, are unambiguous insurance
contracts interpreted so as to conform with the reasonable expectations of the insured.”); Colliers
Lanard & Axilbund v, Lloyds of London, 458 F.3d 231, 236 (3d Cir. 2006) (holding “that the New
Jersey Supreme Court would hold that a clear and unambiguous policy exclusion should be applied
according to the plain language of the exclusion unless it violates public policy as well as the
objectively reasonable expectations of the insured”).

Plaintiff has not demonstrated that the Virus Exclusion is contrary to public policy. The
bills relied on by Plaintiff were never voted on by either the House of Representatives or the New
Jersey Assembly. Plaintiff nevertheless contends that the “bills recognize the disastrous public
policy consequences that enforcement of the Virus Exclusion will have.” (Opp. Br., at 29.) I
disagree. As I observed in Causeway, while the proposal of these bills “may demonstrate the
beliefs of some legislators” as to what “public policy on virus exclusions in insurance policies
should be, the mere existence of a proposed bill does not demonstrate that the public policy,
currently, precludes application of virus exclusions in the context of the COVID-19 pandemic.”
Causeway Automotive, 2021 WL 486917, at *8. In that regard, “[t]he public policy which [the
Court] must follow is that which instructs our courts to enforce an insurance policy ‘as written’
and not seek ‘to make a better contract for either of the parties’ than that which they chose to make
for themselves.” Hebela, 370 N.J. Super. at 272 (quoting Kampf v. Franklin Life Ins. Co., 33 N.J.

36, 43 (1960)). Accordingly, I decline to find the Virus Exclusion is a void as violative of public

policy.


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 16 of 18 PagelD: 767

approval of standard industry-wise policy form to assure fairness in rates and in policy content,
and would condone the industry’s misrepresentation to regulators in New Jersey and other states
concerning the effect of the clause.” /d. at 30.°

Here, however, Plaintiff fails to allege the kind of misrepresentations that were at issue in
Morton. Plaintiff alleges that Harleysville advised the Department that the Virus Exclusion would
bar coverage for losses caused by, related to, or arising from any virus. Plaintiff has not, however,
alleged how that statement is contradicted by Harleysville’s interpretation of the Virus Exclusion
in denying Plaintiff's claim for coverage. In that regard, the Court is unable to discern any
misrepresentation made by Harleysville to the Department.

In an apparent attempt to save its claim, Plaintiff includes in its Opposition Brief additional
factual allegations to support its regulatory estoppel argument. Specifically, Plaintiff now
contends that

In 2006, two insurance industry trade groups, Insurance Services
Office, In. (“ISO”) and the American Association of Insurance
Services (‘AAID”), represented hundreds of insurers (including
Harleysville) in a national effort to seek approval from the state
insurance regulators for the adoption of the Virus Exclusion. In their
filings with the various state regulators (including New Jersey), on
behalf of the insurers, ISO and AAIS represented that the adoption
of the Virus Exclusion was only meant to “clarify” that coverage for
“disease-causing agents” has never been in effect, and was never
intended to be included, in the policies. Specifically, AAIS
represented to the Department that policies “have not been, nor were
they intended to be, a source of recovery for loss, cost, or expense
caused by disease-causing agents” and that the Virus Exclusion was
merely a clarification and nothing new. But these representations
were false.

5 The Court is only aware of one New Jersey state court case addressing regulatory estoppel
in the context of virus exclusions and COVID-19. In Mattdogg, the court found that Plaintiff's
regulatory estoppel argument failed because, inter alia, “regulatory estoppel does not void clear
and unambiguous provisions or provide a basis for recission.” 2020 WL 7702634, at *4.

16


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 2 of 18 PagelD: 753

as 117-121 Broad Street, Red Bank, New Jersey. (/d. § 8.) The Policy provides that Harleysville
“is obligated to pay [Plaintiff] for actual loss of net income and continuing operating expenses
sustained during an interruption of business operations which interruption is caused by direct
physical loss of or damage at the Insured Premises as a result of a covered peril.” (id. § 12.) The
Policy additionally provides coverage for loss of earning “while access to the Insured Premises is
denied by an order of civil authority as a result of direct physical loss of or damage to property
other than to the Insured Premises that is caused by a covered peril.” (Id. 4 14.)

On March 9, 2020, New Jersey Governor Philip D. Murphy issued Executive Order 103,
which declared a state of emergency and public health emergency in response to the COVID-19
pandemic. (/d. § 17.) Thereafter, on March 21, 2020, Governor Murphy issued Executive Order
107, which, inter alia, required all non-essential retail businesses to close to the public. (Ud. 4 18.)
Plaintiff alleges that “[a]s a result of the Executive Orders, access of the public to the Insured
Premises for purposes of shopping has been shut down.” (/d. § 20.)

Relevant here, the Policy provides coverage for loss of earnings and for extra expense.
(Mulqueen Decl., Ex. A, at HP102-07.) This coverage is provided during the “restoration period”
when Plaintiff's “business” is necessarily wholly or partially interrupted by direct physical loss of
or damage to property at a “covered location.” (/d. at HP102~03.) For coverage to apply, the loss
of or damage to property must be the “result of a covered peril,” which means “risks of direct
physical loss unless the loss is limited or caused by a peril that is excluded.” (/d. at HP087,
HP 102.) The Policy also contains the following “Income Coverage Extension”:

Interruption by Civil Authority — “We” extend “your” coverage
for earnings and extra expense to include loss sustained while access
to “covered locations” or a “dependent location” is specifically
denied by an order of civil authority. This order must be a result of

direct physical loss of or damage to property, other than at a
“covered location” and must be caused by a covered peril. Unless


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 1 of 18 PagelD: 752

*NOT FOR PUBLICATION*

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

GARMANY OF RED BANK, INC.,
Civil Action No. 20-8676 (FLW) (DEA)

Plaintiff,

v. : OPINION
HARLEYSVILLE INSURANCE
COMPANY and NATIONWIDE
INSURANCE COMPANY,

Defendants.

WOLFSON, Chief Judge:

Plaintiff Garmany of Red Bank, Inc. (“Plaintiff’) initially filed this insurance coverage
action in the Superior Court of New Jersey, Law Division, Monmouth County, seeking coverage
for losses sustained as a result of the 2019 novel coronavirus (“COVID-19") pandemic. On July
11, 2020, Defendants Harleysville Insurance Company (“Harleysville”) and Nationwide Insurance
Company (collectively, “Defendants”), removed the action to this Court pursuant to 28 U.S.C. §§
1332(a), 1441, and 1446, based on the diversity of the parties. Before the Court is Defendants’
Motion to Dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure
to state a claim upon which relief may granted. For the reasons set forth herein, Defendants’
Motion to Dismiss is GRANTED.

I. BACKGROUND

Plaintiff is an upscale men and women’s clothing store in Red Bank, New Jersey. (Compl.

{ 3.) Harleysville issued to Plaintiff General Liability Policy Number MPA00000050730B, for

the period April 28, 2019 through April 28, 2020. Ud. 4.9.) The Policy covers the premises known


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 12 of 18 PagelD: 763

coronavirus, Plaintiff's losses are tied inextricably to that virus.*”); Eye Care Ctr. of N.J., 2021
WL 457890, at *2 (“But for the “spread” of COVID-19, governments would not have issued
closure orders, and Eye Care would not have stopped performing non-emergency procedures.”);
N&S Restaurant LLC, 2020 WL 6501722, at *4-52
Plaintiff additionally argues, in cursory fashion, that the Virus Exclusion does not bar

coverage because it is not a “pandemic exclusion.” While Plaintiff provides no legal support for
this argument; Defendant cites to two cases in which courts rejected similar arguments. For
example, in Boxed Foods Co., LLC v. California Capital Insurance Co., the plaintiff also
contended the virus exclusion set forth in its insurance policy did not bar coverage because its
losses were caused by the COVID-19 “pandemic” as opposed to the virus. No. 20-CV-04571-
CRB, 2020 WL 6271021, at *5 (N.D. Cal. Oct. 26, 2020), as amended (Oct. 27, 2020). In rejecting
this position, the Central District of California explained:

[T]he word “pandemic” describes a disease's geographic

prevalence, but it does not replace disease as the harm-causing

agent. See Oxford English Dictionary (3rd ed., 2005). Plaintiffs

provide no support for their argument that insurers must specify the

magnitude of an excluded cause of loss in order to avoid ambiguity.

The Virus Exclusions alleged failure to specify how widespread a

disease must become to trigger the exclusion does not demonstrate
that the exclusion is ambiguous.

Id.; see also W. Coast Hotel Mgmt., LLC v. Berkshire Hathaway Guard Ins. Cos., No. 20-5663,

2020 WL 6440037, at *6 (C.D. Cal. Oct. 27, 2020) (“Plaintiffs’ interpretation defies the plain and

3 On March 17, 2021, Plaintiff submitted to the Court a letter advising the Court of two state
court orders denying defendants’ motions to dismiss in Westfield Area YMCA y., North River Ins.
Co., No. UNNL-2584 (N.J. Super. Ct. Law. Div. Jan. 8, 2021), which Plaintiff submits is “relevant
to the Court’s determination of the pending motion.” (ECF No. 20.) It appears, based on Plaintiff's
submission, that Westfield Area YMCA is also an insurance coverage action related to losses caused
by the COVID-19 pandemic. (/d.) However, the orders contain no explanation of the state court’s
reasons for denying defendants’ motions to dismiss. Without the state court’s reasoning, the Court
cannot assess the relevance of these decisions, if any, on this matter.

12


Case 3:20-cv-08676-FLW-DEA Document 21 Filed 03/18/21 Page 15 of 18 PagelD: 766

c. Regulatory Estoppel

Finally, Plaintiff claims that the Virus Exclusion is void under the principles of regulatory
estoppel. Specifically, Plaintiff alleges, upon information and belief, that “Harleysville proffered
the Virus Exclusion to the New Jersey Department of Banking and Insurance (“the Department”)
as a clarification to policy intent” and that “Harleysville represented that the endorsement clarifies
that losses caused by, resulting from, or relating to any virus is excluded.” (Compl. § 26.)
However, Plaintiff claims that “Harleysville added the Virus Exclusion to eliminate virus-caused
property-damage coverage without advising the Department that there was such a sweeping
change in coverage or that rates should be reduced as a result of the proffered exclusion.” (Ud. ¥
27.) Plaintiff contends that these alleged “omissions and representations . .. were knowingly false,
or recklessly or negligently made and had the effect of misleading the Department to the detriment
of all insureds of Harleysville.” (dd. 28.)

In support of its regulatory estoppel argument, Plaintiff relies on the New Jersey Supreme
Court’s decision in Morton International, Inc. v. General Accident Ins. Co., 134 N.J. 1 (1993).
There, the New Jersey Supreme Court held that insurers were estopped from relying on an
interpretation of a pollution exclusion clause that was inconsistent with representations made to
regulatory authorities concerning the impact and scope of that clause. Specifically, the Morton
Court found that the insurance industry failed to “candidly reveal[] the extent of the contraction in
coverage intended by the pollution-exclusion clause,” preventing regulatory officials from making
“informed judgments concerning the rate and coverage implicated by the clause” and “insureds
would have been aware that insurance coverage for environmental pollution would be sharply
restricted.” Id. at 79. Accordingly, the court declined to enforce the pollution-exclusion clause as

written because, to do so “would contravene th{e] State’s public policy requiring regulatory

15