SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION DOCKET NO. A-3711- 20

THE PLASTIC SURGERY CENTER, P.A., JOT MANAGEMENT, LLC, d/b/a SYCAMORE MEDICAL MANAGEMENT, and THE WOODS O.R., INC., d/b/a THE SURGERY CENTER FOR OUTPATIENT SURGERY, Plaintiffs-Appellants ,

v. THE HANOVER INSURANCE GROUP, INC., and MASSACHUSETTS BAY INSURANCE COMPANY, MARSCHIL INSURANCE AGENCY, INC., d/b/a NORTHEAST INSURANCE SERVICES, Defendants-Respondents.

_____ _________________________

Submitted January 19, 2023

– Decided January 12, 2024 Before Judges Accurso, Vernoia and Firko.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court. " Although it is posted on the internet, this opinion is binding only on the parti es in the case and its use in other cases is limite d. R. 1:36- 3.2 A- 3711

- 20 On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L

- 1874 -20. Maggs, McDermott & DiCicco, LLC, attorneys for appellants (Michael M. DiCicco, of counsel and on t he briefs; Stephanie L. DeLuca, on the briefs). Finazzo Cossolini O'Leary Meola & Hager, LLC, attorneys for respondents The Hanover Insurance Group, Inc., and Massachusetts Bay Insurance Company (Jeremiah L ynn O'Leary, on the brief). The opinion of the court was delivered by VERNOIA, J.A.D. Plaintiffs The Plastic Surgery Center, P.A. (TPSC), JOT Management LLC d/b/a Sycamore Medical Management (Sycamore), a nd The Woods O.R., Inc. d/b/a The Center for Outpatient Surgery (TCOPS ) (collectively, "plaintiffs"), appeal from a Law Division order gra nting defendants', The Hanover Insurance Group, Inc. (Hanover) and Massach usetts Bay Insurance Company (Mass Bay) (collectively, "defendants"), mo tion for summary judgment and dismissing plaintiffs' amended complai nt with prejudice. 1 Based on our de novo review of the record on appeal, we a ffirm.

I.

1 The amended complaint also included causes of actio n against Marschil Insurance Agency, Inc., doing business as Northeast Insurance Services. Those causes of action were dismissed by stipulation of t he parties.3 A- 3711

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We discern the following undisputed facts from the summary judgment record and consider them in a light most favorable to plaint iffs because they are the parties against whom summary judgment was enter ed. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). TPSC is a medical practice specializing in plastic, reconstructive, and cosmetic surgery. TCOPS is an ambulatory surgery c enter owned and operated by TPSC. Sycamore is a management services organiz ation that provides its

services to TPSC and TCOPS. Hanover is a holding company and Mass Bay is an ins urance company licensed to do business in New Jersey. Mass Bay is sued two successive annual policies to plaintiffs (collectively, "the policy") in exchange for premium payments. The policy covered the period March 8, 2 019, to March 8, 2021. Under the policy, Mass Bay agreed to indemnify plai ntiffs for certain losses at plaintiffs' thirty-seven insured properties in New Jersey and Pennsylvania under separate Business Income, Extra Expense, and Civil Authority coverage provisions. 2

2 Although the policy insures plaintiffs' New Jersey and Pennsylvania properties, the parties do not dispute that New Jer sey law governs the interpretation of the policy.4 A- 3711

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The Business Income provision provides coverage for "the actual loss of Business Income[,]" the insured sustained during a period of suspension of its operations caused "by direct physical loss of or da mage to a described premises shown in the Declarations," where the "loss or dama ge" is "caused by or

result ing from any Covered Cause of Loss." The Extra Expens e provision provides coverage for "necessary Extra Expense[s]" plaintiffs incurred during a period of restoration of their operations "due to d irect physical loss of or damage" to an insured premises "caused by or result ing from a Covered Cause

of Loss." A "Covered Cause of Loss" under the policy includes "risks of direct physical loss[,]" unless the claimed loss is otherwise excluded or limited by a separate provision in the polic y. For example, the policy explicitly excludes coverage for loss or damage "caused directly or ind irectly" by "[a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease." The Civil Authority coverage provision provides cov erage for business income loss and extra expense as follows:

(1) When a Covered Cause of Loss causes damage to property other than property at the described premi ses, [defendants] will pay for the actual loss of Busine ss Income [the insured] sustain[ed] and necessary Extr a5 A- 3711

- 20 Expense caused by action of civil authority that prohibits access to the described premises due to d irect physical loss of or damage to property within one m ile of the described premises, provided that both of th e following apply: (a) Access to the area immediately surrounding the damaged property is prohibited by civil authori ty as a result of the damage, and the described premises are within that area but are not more than one mile fro m the damaged property; (b) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Caus e of Loss that caused the damage, or the action is ta ken to enable a civil authority to have unimpeded acces s to the damaged property. Pertinent to this appeal, on March 9, 2020, Governo r Phillip Murphy issued Executive Order 103, declaring a public heal th emergency and state of emergency in New Jersey in response to the COVID-19 pandemic. 3 On March 21, 2020, Governor Murphy issued Executive Order 10 7, which required closure of facilities where personal care services are perf ormed including medical spas at which solely elective and cosmetic procedures are performed. 4 On March 23, 2020, Governor Murphy issued Executive Order 109, w hich suspended all

3 Exec. Order No. 103 (Mar. 9, 2020), 52 N.J.R. 549(a ) (Apr. 6, 2020). 4 Exec. Order No. 107 (Mar. 21, 2020), 52 N.J.R. 554( a) (Apr. 6, 2020).6 A- 3711

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elective surgeries and invasive procedures performe d on adults and cancelled or

pos tponed indefinitely all elective or invasive proced ures already scheduled. 5 Similarly, Pennsylvania Governor Tom Wolf issued Ma rch 19 and March 23, 2020 executive orders requiring the closure of all non-life sustaining businesses and effectively prohibiting Pennsylvania hospitals and surgical centers from performing elective medical and surgical procedures

. In response to the executive orders, plaintiffs tem porarily suspended certain business operations

— elective medical and surgical procedures

— at their various locations in New Jersey and Pennsylvania. More particularly, their office and surgical encounters dropped from 2,870 a nd 941, respectively, in January 2020, to 1,280 and 345, respectively, in Ap ril 2020. On March 24, 2021, plaintiffs furloughed 116 employees due to a "slowdown in business" that they attribute to the executive orders and COVID-19. By June 14, 2020, plaintiffs

had rehired the furloughed staff. Plaintiffs filed suit against defendants, seeking a declaratory judgment that they were entitled to coverage under the polic y's Business Income, Extra Expense, and Civil Authority provisions for losses allegedly sustained as a result

5 Exec. Order No. 109 (Mar. 23, 2020), 52 N.J.R. 827( a) (Apr. 20, 2020).7 A- 3711

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of the presence of COVID-19 at their insured premis es in New Jersey and Pennsylvania and the restrictions on the operations at those premises under the

executive orders. Defendants filed an answer denying plaintiffs' clai med entitlement to coverage under the policy. Defendants' answer asse rted affirmative defenses, including: plaintiffs are not entitled to coverage under the Business Income and Extra Expense provisions because plaintiffs did not suffer a direct physical loss of or damage to covered property; the executive ord ers did not trigger coverage under the Civil Authority provision; and any claime d coverage under the policy

is otherwise excluded under the virus exclusion. Defendants later moved for summary judgment, arguin g plaintiffs are not entitled to relief as a matter of law because the p olicy does not provide coverage for plaintiffs' alleged causes of loss. Defendants argued: plaintiffs had not suffered a direct physical loss of or damage to the ir property such that they are entitled to coverage under any of the policy's prov isions; neither COVID-19 nor the executive orders resulted in any direct physica l loss of or damage to plaintiffs' properties within the plain language of the policy; and plaintiffs' alleged losses do not fall within the policy's prov isions or a re otherwise excluded from coverage under the policy.8 A- 3711

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Plaintiffs opposed the motion, arguing they establi shed facts supporting their entitlement to coverage under the Business In come, Extra Expense, and Civil Authority provisions that is not barred by the virus exclusion. Plaintiffs argued they had suffered a "physical loss" of the i nsured premises by virtue of the presence of COVID-19 and as a result of the exe cutive orders. Plaintiffs also alleged they are otherwise entitled to coverag e under the Civil Authority provision because discovery would establish the pre sence of COVID-19 at the properties, or within one mile of them, that resulted in direct physical loss of or damage to the properties and required the closure or curtailment of plaintiffs' operations. Plaintiffs also argued the virus exclu sion in the policy i s unenforceable on the grounds of regulatory estoppel

. Following argument, the motion court found that und er the policy's plain language, there is coverage only for direct physical loss of or damage to the insured premises under the policy's Business Income and Extra Expense provisions, and plaintiffs had not sustained such d amage or loss because plaintiffs' business operations continued at their properties, with the limited exception of

elective surgical and medical procedures. The cou rt further found that even if plaintiffs could prove a direct physic al loss of or damage to their properties due to the presence of COVID-19 on their premises, the policy's plain9 A- 3711

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language states there is no coverage under the virus exclusion. The court did not expressly address plaintiffs' regulatory estopp el argument. The court granted defendants' motion for summary judgment and dismissed plaintiffs' complaint with prejudice. This appeal followed.

II. Our review of an order granting a summary judgment motion is de novo. Gilbert v. Stewart, 247 N.J. 421, 442 (2021) (citin g Branch v. Cream-O-Land Dairy, 244 N.J. 567, 582 (2021)). We apply the sam e standard as the trial court and determine whether the record shows "no genuine issue as to any material fact challenged and that the moving party is entitl ed to a judgment . . . as a matter of law." Burnett v. Gloucester Cnty. Bd. of Chosen Freeholders, 409 N.J. Super. 219, 228 (App. Div. 2009) (quoting R. 4:46 -2(c)). "An issue of material fact is 'genuine only if, con sidering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring t he non-moving party, would require submission of the issue to the trier of fac t.'" Grande v. St. Clare's Health Sys., 230 N.J. 1, 24 (2017) (quoting R. 4:46-2(c)). To determine whether there are genuine issues of material fact, we consider "w hether the competent evidential materials presented, when viewed in the light most favorable to the10 A- 3711

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non -moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving p arty." Davis v. Brickman Landscaping, Ltd., 219 N.J. 395, 406 (2014) (quotin g Brill , 142 N.J. at 540). When "interpreting insurance contracts, we first ex amine the plain language of the policy and, if the terms are clear, they 'are to be given their plain, ordinary meaning.'" Pizzullo v. N.J. Mfrs. Ins. Co ., 196 N.J. 251, 270 (2008) (quot ing Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595 (2 001)). The policy

must "be enforced as written when its terms are cle ar" so the "expectations of the parties will be fulfilled." Flomerfelt v. Card iello, 202 N.J. 432, 441 (2010) (citations omitted). We nevertheless recognize that insurance policies a re generally "contract[s] of adhesion between parties who are no t equally situated." Oxford Realty Grp. Cedar v. Travelers Excess & Surplus Lin es Co., 229 N.J. 196, 215 (2017) (quoting Nav-Its, Inc. v. Selective Ins. Co. of Am., 183 N.J. 110, 118 (2005) (alteration in original)). Thus, where an i nsurance policy is ambiguous,

courts construe the terms in favor of the insured. M AC Prop. Grp. LLC v. Selective Fire & Cas. Ins. Co., 473 N.J. Super. 1, 18 (App. Div.) (citation omitted), certif. denied sub nom , MAC Prop. Grp. LLC v. Selective Fire & Cas. Ins., Co., 252 N.J. 258 (2022).11 A- 3711

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A genuine ambiguity arises wh en "'the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage,'" Birmingham v. Travelers N.J. Ins. Co., 475 N.J. Super. 246, 256 (App. Div. 2023) (quoting Weedo v. Stone-E-Brick, I nc., 81 N.J. 233, 247 (1979)), and "when 'the text appears overly technic al or contains hidden pitfalls, cannot be understood without employing subtle or le galistic distinction, is obscured by fine print, or requires strenuous study to comprehend,'" ibid. (quoting Zacarias, 168 N.J. at 601). The reasonabl e expectations of the parties are of no moment where the terms of the policy are unambiguous. Oxford Realty Grp. Cedar, 229 N .J . at 212; see also Cypress Point Condo. Ass'n v. Ad ria Towers, L.L.C. , 226 N.J. 403, 415 (2016) ("[w]hen the terms of an i nsurance contract are clear, it is the function of a court t o enforce it as written"). By extension, "[e]xclusions in insurance contracts 'are presumptively valid and will be given effect if [they are] 'speci fic, plain, clear, prominent, and not contrary to public policy.'" M AC Prop. Grp. LLC, 473 N.J. Super. at 35 (quoting Princeton Ins. Co. v. Chunmuang, 151 N.J. 8 0, 95 (1997)). "'The basic notion [is] that the premium paid by the insured do es not buy coverage for all . . . damage but only for that type of damage provided f or in the policy.'" Id. at 19 (quoting Weedo, 81 N.J. at 237). Limitations on coverage "designed 'to12 A- 3711

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restrict and shape the coverage otherwise afforded' " are therefore permissible. Ibid. (quoting Hardy ex rel. Dowdell v. Abdul-Matin , 198 N.J. 95, 102 (2009)).

III. We examine the pertinent pro visions of the policy in accordance with the above-mentioned principles. The Business Income provision obligated defendants to compensate plaintiffs for actual loss o f business income sustained during a suspension of business operations where th e suspension was caused by direct physical loss of or damage to an insured pre mises resulting from a covered loss. Under the Extra Expense provision, defendant s are obligated to compensate plaintiffs for necessary expenses incurr ed during the period of restoration that resulted from a direct physical lo ss of or damage to an insured premises. Under the Civil Authority provision, defendants are obligated to compensate plaintiffs for the loss of business inco me and necessary extra expense caused by civil authority that prohibited a ccess to an insured premises as the result of the direct physical loss of or dam age of other properties within one mile of the insured premises resulting from a c overed cause of loss at the other properties. As noted, the policy excluded co verage for loss or damage "caused directly or indirectly" by "[a]ny virus, ba cterium or other13 A- 3711

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microorganism that induces or is capable of inducin g physical distress, illness

or disease." On appeal, plaintiffs argue the motion court erred by granting summary judgment because plaintiffs had demonstrated an ent itlement to coverage under the Business Income, Extra Expense, and Civil Autho rity provisions of the policy and that they had sustained a Covered Cause of Loss under the policy. In making their arguments, plaintiffs expressly acknow ledge, in accordance with the policy's plain language, that to establish an e ntitlement to coverage under those provisions they are required to establish "a suspension of [their] business operations . . . caused by direct physical loss of or damage to property at [the] premises . . . or the issuance of a civil authority order." Plaintiffs claim the presence of COVID- 19 , and the executive orders' prohibition against per forming elective procedures, resulted in the direct physica l loss of or damage to the property at their premises such that they are entit led to coverage. Plaintiffs also argue the virus exclusion cannot be applied to exclude the coverage because the court granted summary judgment prematurely

— that is, before plaintiffs had an opportunity to develop evidence supporting their cl aim the virus exclusion is unenforceable under the doctrine of regulatory esto ppel.14 A- 3711

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In M AC Property Group LLC, we rejected virtually identica l arguments

— regarding virtually identical policy provisions

— as those asserted by plaintiffs here. 473 N.J. Super 1. We interpreted an insuran ce policy that provided business income loss coverage where the plaintiff had alleged it suffered losses due to "direct physical loss of or damage to" cover ed property resulting in a period of suspension of business operations during the period of restoration of the property. Id. at 20. We held that business lo sses suffered as the result of executive orders barring or curtailing the plaintif f's operations in response to the COVID-19 pandemic did not constitute "direct physic al loss of or damage to" the insured property such as to permit or require c overage. Id. at 10. We explained the phrase "direct physical loss of or dama ge to" property was neither ambiguous nor "so confusing that the average policy holders . . . could not understand that coverage extended only to instances where the insured property has suffered a detrimental physical altercation of some kind, or there was a physical loss of the insured property." Id. at 21- 22.

As noted in M AC Property Group LLC, "scores of federal and state appellate-level courts . . . have addressed" claims for coverage for losses due to executive orders limiting or curtailing business op erations due to the COVID19 pandemic under insurance policies providing covera ge for "direct physical15 A- 3711

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loss of or damage" to insured property, and the "ov erwhelming majority of them have" dismissed the complaints "because the losses were not due to physical loss or damage to their insured premises." Id. at 26- 27; see also Verveine Corp. v. Strathmore Ins. Co, 489 Mass. 534, 542 (2022) (noti ng that "[e]very appellate court that has been asked to review COVID-19 insura nce claims has agreed" that "'direct physical loss of or damage to' property re quires some 'distinct, demonstrable, physical alteration of the property'" ); see, e.g. , Wilson v. USI Ins. Serv. LLC, 57 F.4th 131, 142- 43 (3d Cir. 2023) (applying New Jersey Law, and finding COVID-19 executive orders limiting or curta iling operation of an insured's business did not result in a "direct phys ical loss of or damage" to the insured's property because the orders were not issu ed in response to physical damage to the property and "[t]he propert[y] could certainly be used and inhabited, just not in the way the business[] would have liked"). Applying what we determined was the plain and ordinary meaning of the phrase "direct physical loss of or damage to proper ty," we explained that because New Jersey has "adopted a broad notion of the term 'physical[,]'" when the word is paired with another word, e.g. "'physical injury ,'" "the resulting term means a 'detrimental alteration[],' or 'damage or harm to t he physical condition of a thing,'" M AC Prop. Grp. LLC, 473 N.J. Super. at 20. We conclud ed the16 A- 3711

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plaintiffs were not entitled to coverage because th ey had failed to show COVID19 physically damaged their equipment or property o n the insured premises, or that the presence of COVID-19 rendered the insured premises uninhabitable, and therefore the plaintiffs failed to establish th ey suffered a direct physical loss of or damage to their property under the plain and unambi guous language of the policy. Id. at 23. Here, plaintiffs' arguments fail for the same reas ons we rejected the claims

in MAC Property Group LLC. The uncontroverted materia l facts establish plaintiffs have not, and cannot, show they suffered any "direct physical loss or damage" to their property such that they are entitl ed to coverage under the Business Income, Extra Expense, or Civil Authority provi sions of the policy. It is undisputed the executive orders did not require that plaintiffs cease operations completely, or render the insured premises uninhabi table, and instead they resulted only in a curtailment of plaintiffs' norma l business operations. Plaintiffs claim they suffered a "physical loss" an d damage because the "physical presence of COVID-19" did not allow use o f their businesses for elective medical procedures for a finite duration. As we have explained, for plaintiffs to be entitled to coverage under the pol icy language, "the loss itself must be a 'direct physical' loss, clearly requiring a direct, physical deprivation17 A- 3711

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of possession" and a partial curtailment of the of use of the premises "'without any physical alteration [to the premises] to accomp any it'" does not amount to such. MAC Prop. Grp. LLC, 473 N.J. Super. at 26 (a lteration in original) (quoting Verveine Corp., 489 Mass. at 545); see also Wilson, 57 F.4th at 142-

43. Therefore, as a matter of law, plaintiffs are not e ntitled to coverage under

the Business Income or Extra Expense provisions of the policy because the material facts do not reflect that their premises w ere directly, physically altered such that they suffered a direct physical loss of o r damage to their property within the policy's plain language. In MAC Property Group LLC, we also considered a cla im for coverage

under a c ivil authority provision that is essentially identical t o the provision at issue here. 473 N.J. Super. at 27-30. We found no coverage under the provision because it provided coverage where the civil author ity "prohibited [the plaintiff from] access to the insured premises," and we expla ined the Governor Murphy's executive orders did not prohibit access to the ins ured premises but instead only restricted business activities at the premises. Id . at 30. Thus, because the plaintiff alleged that the executive orders only re stricted its business activities, and did not prohibit access to its insured premises , we did not find the civil authority provision provided coverage. Ibid. So too here.18 A- 3711

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In pertinent part, the Civil Authority provision in plaintiffs' policy provides coverage where the exercise of civil autho rity "prohibits access to the described premises due to direct physical loss of o r damage to property within one mile of the described premises." The undispute d facts establish the executive orders did not impose such a prohibition and did not bar access to plaintiffs' insured premises. Rather, the executiv e orders permitted access to plaintiffs' insured premises and limited only the p rocedures that could be performed following access. Moreover, there is no evidence the executive orders were issued "due to direct physical loss of or damage to property within one mile of the [plaintiffs' insured] premises" as is required for coverage under the Civil Authority provision. Plaintiffs are therefore not entitled to coverage under the Civil Authority provision of the policy. We recognize plaintiffs' claim they were unable to complete their planned discovery of information from the New Jersey Depart ment of Banking and Insurance concerning plaintiffs' addition of the vi rus exclusion to the policy. Plaintiffs had sought the information under the Ope n Public Records Act, N.J.S.A. 47:1A-1 to -13, and argue the requested in formation may have support ed their contention the virus exclusion is unenforceable under the doctrine of regulatory estoppel. See MAC Prop. Grp . LLC, 473 N.J. Super. at19 A- 3711

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33 (rejecting plaintiff's claim the doctrine of reg ulatory estoppel barred an insurer carrier from enforcing a virus exclusion ba rring coverage for business losses suffered as a result of COVID-19). We find it unnecessary to address plaintiffs' contention summary judgment was awarded prematurely because it was not afforded the opportunity to obtain the info rmation, because plaintiffs otherwise failed to present evidence establishing a n entitlement to coverage under the policy provisions under which they sought coverage. Stated differently, we need not address the validity of th e virus exclusion because plaintiffs failed to demonstrate an entitlement to coverage in the first instance. Plaintiffs' remaining arguments, to the extent we have not addressed them, lack sufficient merit to warrant any further discus sion in a written opinion. R.

2:11 -3(e)(1)(E).

Affirmed.