Court Opinion

ID: 6496524
Source: CourtListenerOpinion
Date Created: 2022-06-29 20:11:31.336395+00
Date Added: 2024-06-11T09:04:59.012024
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
              APPROVAL OF THE APPELLATE DIVISION

                                SUPERIOR COURT OF NEW JERSEY
                                APPELLATE DIVISION
                                DOCKET NOS. A-0714-20
                                             A-0962-20
                                             A-1034-20
                                             A-1110-20
                                             A-1111-20
                                             A-1148-20

MAC PROPERTY GROUP LLC
& THE CAKE BOUTIQUE LLC,

     Plaintiff-Appellant,         APPROVED FOR PUBLICATION

                                         June 20, 2022
v.
                                     APPELLATE DIVISION
SELECTIVE FIRE AND
CASUALTY INSURANCE
COMPANY,

     Defendant-Respondent.
_____________________________

PRECIOUS TREASURES LLC,

     Plaintiff-Appellant,

v.

MARKEL INSURANCE
COMPANY,

     Defendant-Respondent.
_____________________________

FAFB, LLC (d/b/a SALTED
LIME BAR & KITCHEN),
      Plaintiff-Appellant,

v.

BLACKBOARD INSURANCE
COMPANY,

     Defendant-Respondent.
_____________________________

COUNTRY DINER OF MULLICA
HILL, INC. d/b/a HARRISON
HOUSE,

      Plaintiff-Appellant,

v.

WESCO INSURANCE COMPANY

      Defendants-Respondents,

and

AMTRUST FINANCIAL
SERVICES, INC.,

     Defendants.
_____________________________

PEARL THREE TWO LLC
d/b/a ROUTE 40 DINER,

      Plaintiff-Appellant,

v.

WESCO INSURANCE COMPANY
                                    A-0714-20

                                2
      Defendants-Respondents,

and

AMTRUST FINANCIAL
SERVICES, INC.,

     Defendants.
_____________________________

MATTDOGG, INC. (d/b/a
PURE FOCUS SPORTS CLUB),

      Plaintiff-Appellant,

v.

PHILADELPHIA INDEMNITY
INSURANCE COMPANY,

     Defendant-Respondent.
_____________________________

            Argued (A-0962-20, A-1034-20 and A-1148-20) and
            Submitted (A-0714-20, A-1110-20 and A-1111-20)
            May 9, 2022 — Decided June 20, 2022

            Before Judges Sumners, Vernoia, and Firko.

            On appeal from the Superior Court of New Jersey, Law
            Division, Camden County, Docket Nos. L-2629-20,
            L-2630-20, L-2631-20, and L-2690-20, and Mercer
            County, Docket Nos. L-0820-20 and L-0892-20.

            Ashley S. Nechemia argued the cause for appellant
            Precious Treasures, LLC, (Mattleman Weinroth &
            Miller, PC, attorneys; Robert W. Williams, on the
            briefs).
                                                                   A-0714-20

                                     3
Kevin J. Kotch argued for the cause for appellants
FAFB, LLC and Mattdogg, Inc. (Ferrara Law Group,
PC, attorneys; Ralph P. Ferrara and Kevin J. Kotch, of
counsel and on the briefs).

Mattleman, Weinroth & Miller, PC, attorneys for
appellants MAC Property Group, LLC & The Cake
Boutique, LLC, Country Diner of Mullica Hill, Inc.,
and Pearl Three Two, LLC, (Robert W. Williams, on
the briefs).

Bennett Evan Cooper (Dickinson Wright PLLC) of the
Arizona and California bars, admitted pro hac vice,
argued the cause for respondent Markel Insurance
Company (Bennett Evan Cooper, Timothy M. Strong
(Dickinson Wright PLLC) of the Arizona bar, admitted
pro hac vice, and Peter E. Doyle (Dickinson Wright
PLLC), attorneys; Bennett Evan Cooper, Timothy M.
Strong and Peter E. Doyle, on the brief).

Keith Moskowitz (Dentons US LLP) of the
Connecticut, Illinois and New York bars, admitted pro
hac vice, argued for respondent Blackboard Insurance
Company (Dentons US LLP, attorneys; Shawn L.
Kelly, Kelly Lloyd Lankford, and Keith Moskowitz, on
the brief).

Stephen E. Goldman (Robinson & Cole LLP) of the
Connecticut bar, admitted pro hac vice, argued the
cause for respondent Philadelphia Indemnity Insurance
Company (Walsh Pizzi O'Reilly Falanga LLP, and
Dentons US LLP, attorneys; John R. Vales, Stephen M.
Turner and Jeffrey A. Zachman (Dentons US LLP) of
the Georgia bar, admitted pro hac vice, on the brief).

                                                         A-0714-20

                          4
            Day Pitney LLP, attorneys for respondent Selective
            Fire and Casualty Insurance Company (Elizabeth J.
            Sher and Joseph K. Scully, on the brief).

            Dilworth Paxson, LLP, attorneys for respondent Wesco
            Insurance Company (Thomas E. Hastings and Richard
            J. Orr, of counsel and on the briefs).

      The opinion of the court was delivered by

SUMNERS, JR., J.A.D.

      These six back-to-back appeals arising from Law Division orders in two

vicinages have been consolidated for the issuance of a single opinion. They

require us to consider an issue of first impression––whether in the context of

Rule 4:6-2(e) motions to dismiss with prejudice, insurance policies issued by
----

defendants did not cover business losses incurred by plaintiffs that were forced

to close or limit their operations as a result of Executive Orders (EOs) issued by

Governor Philip Murphy to curb the COVID-19 global health crisis.

      Plaintiffs Pearl Three Two, LLC d/b/a Route 40 Diner (Pearl), Precious

Treasures, and Mac Property Group, LLC & The Cake Boutique, LLC (MPG)

each sued their respective defendant insurance companies, Wesco Insurance

Company (Wesco), Amtrust Financial Services, Inc. (Amtrust), Markel

Insurance Company (Markel), and Selective Fire and Casualty Insurance

Company (Selective), alleging breach of contract by refusing to cover plaintiffs'

                                                                           A-0714-20

                                        5
insurance claims for business losses they sustained due to the EOs. Plaintiffs

Mattdogg, Inc. d/b/a/ Pure Focus Sports (Mattdogg) and FAFB, LLC d/b/a

Salted Lime & Kitchen (FAFB) sued defendants Blackboard Insurance

Company (Blackboard) and Philadelphia Indemnity Insurance Company

(Philadelphia Indemnity) seeking declaratory judgments requiring payment of

plaintiffs' business loss claims sustained due to the EOs.

      We affirm because we conclude the motion judges were correct in

granting ----
         Rule 4:6-2(e) dismissals of plaintiffs' complaints with prejudice for

failure to state a claim on the basis that plaintiffs' business losses were not

related to any "direct physical loss of or damage to" covered properties as

required by the terms of their insurance policies.      We conclude plaintiffs'

business losses were also not covered under their insurance policies' civil

authority clauses, which provided coverage for losses sustained from

governmental actions forcing closure or limiting business operations under

certain circumstances. We further conclude defendants' denial of coverage was

not barred by regulatory estoppel. In the alternative, we conclude that even if

plaintiffs' business losses otherwise satisfied the requirements of the relevant

clauses, coverage was barred by their insurance policies' virus exclusions and

endorsements because the EOs were a direct result of COVID-19.

                                                                         A-0714-20

                                        6
                                       I.

      We begin with a brief discussion of the events and procedural postures

precipitating these appeals.

      A. Executive Orders

      On January 30, 2020, the World Health Organization (WHO) declared the

COVID-19 outbreak to be "a Public Health Emergency of International

Concern" that would require "a global coordinated effort." The next day, the

Secretary of the United States Department of Health and Human Services

declared a public health emergency for the nation in response to COVID-19.

      On March 9, Governor Murphy issued EO 103 in response to the

COVID-19 outbreak, which was spreading globally, including in the United

States. Exec. Order No. 103 (Mar. 9, 2020), 52 N.J.R. 549(a) (Apr. 6, 2020).

The EO stated COVID-19 "is a contagious, and at times fatal, respiratory disease

caused by the SARS-CoV-2 virus," with symptoms including "fever, cough, and

shortness of breath." Ibid. The order explained that the disease "can spread

from person to person via respiratory droplets." Ibid. EO 103 also stated the

Center for Disease Control (CDC) "expect[ed] that additional cases of

COVID-19 [would] be identified in the coming days . . . and that

person-to-person spread [was] likely to continue to occur." Ibid. Accordingly,

                                                                         A-0714-20

                                       7
Governor Murphy declared a "Public Health Emergency and State of Emergency

. . . in the State of New Jersey" and directed several State agencies and officials

to take action to protect "the health, safety and welfare" of New Jersey citizens

from the virus outbreak. Ibid.

      On March 16, to "mitigate [the] community spread" of the disease,

Governor Murphy issued EO 104, which "limit[ed] the unnecessary movement

of individuals in and around their communities and person-to-person

interactions in accordance with CDC and DOH guidance"; designated a subset

of businesses within the state as "essential"; and limited the scope of service and

hours of operation for restaurants and some retail establishments. Exec. Order

No. 104 (Mar. 16, 2020), 52 N.J.R. 550(a) (Apr. 6, 2020). Five days later, on

March 21, due to the increase of confirmed COVID-19 cases nationally and in

our state, and based upon the CDC's advice, EO 107 was issued, which

"established statewide social mitigation strategies for combatting COVID -19,"

including further limiting social gatherings and requiring that all brick-and-

mortar premises of "non-essential" businesses remain "close[d] to the public"

for as long as the order remained in effect. Exec. Order No. 107 (Mar. 21, 2020),

52 N.J.R. 554(a) (Apr. 6, 2020). Specific to plaintiffs, the order required that:

(1) "All recreational and entertainment businesses" close to the public, including

                                                                            A-0714-20

                                        8
a non-exhaustive list of such businesses such as "gyms and fitness centers and

classes;" (2) "[a]ll public, private, and parochial preschool program premises,

and elementary and secondary schools, including charter and renaissance

schools" remain "closed to students" for the duration of the order; and (3)

restaurants and other "dining establishments" were "permitted to operate their

normal business hours," but were "limited to offering only food delivery and/or

take-out services." Ibid. EO 107 concluded by stating it was "the duty of every

person or entity in this State or doing business in this State . . . to cooperate fully

in all matters concerning this Executive Order." 1 Ibid.

       B. Parties' Complaints & Dismissals

       Mattdogg owns and operates a full-service, twenty-four-hour gym, Pure

Focus Sports Club, in Brick, which was forced to close due to the EOs. In

anticipation of seeking insurance coverage for its business losses, Mattdogg

filed a declaratory judgment complaint in Mercer County against Philadelphia

Indemnity, which insured the gym from November 15, 2019 to November 15,

2020. Mattdogg alleged that because of the EOs, it was "forced to close its

business to the public," causing a loss of income.           It stated that the EOs

1
    The order went into effect on March 21, 2020, at 9:00 p.m.
                                                                                A-0714-20

                                          9
"physically impact[ed]" it, and that "[a]ny effort by Philadelphia Indemnity to

deny" coverage under its policy "would constitute a false and potentially

fraudulent misrepresentation that could endanger [Mattdogg] and the public."

Mattdogg stated that to its knowledge, no employee or patron of its gym had

been "diagnosed with COVID-19." Mattdogg did not state that it had submitted

a claim for coverage to Philadelphia Indemnity related to its losses.       The

complaint was dismissed with prejudice when the motion judge granted

Philadelphia Indemnity's Rule 4:6-2(e) motion to dismiss for failure to state a

claim based on the determination that Mattdogg's business losses were not

covered under the insurance policy.

      FAFB owns and operates a restaurant and bar, Salted Lime Bar & Kitchen,

in Somerville, which was forced to close its dine-in services due to the EOs but

was still able to offer food and beverage for takeout during limited hours .2 In

anticipation of seeking insurance coverage for its business losses, FAFB filed a

declaratory judgment complaint in Mercer County against Blackboard, which

insured the restaurant and bar from November 6, 2019 to November 6, 2020.

FAFB alleged the EOs were "physically impacting" it and that "[a]ny effort by

2
  The record is unclear as to whether FAFB ceased all its restaurant business
operations.
                                                                         A-0714-20

                                      10
Blackboard to deny" coverage under its insurance policy for its financial losses

"would constitute a false and potentially fraudulent misrepresentation that could

endanger [FAFB] and the public."

      FAFB specifically stated that to its knowledge, no employee or patron of

its restaurant and bar had been "diagnosed with COVID-19," and that it was "not

seeking a determination of whether [COVID-19] was present in its business."

FAFB's complaint did not allege it had submitted a claim to Blackboard . The

complaint was dismissed with prejudice when the motion judge granted

Blackboard's ----
             Rule 4:6-2(e) motion to dismiss based on the determination that

FAFB's business losses were not covered under the insurance policy.

      Precious Treasures owns and operates Lil' Big Ones Child Care &

Learning Center (Center) in South Plainfield—offering day care programs for

infants to pre-kindergarten aged children, after-school care, and homework

assistance—and was forced to close due to the EOs. When Precious Treasures's

claim for its business losses was denied by defendant Markel, which insured the

Center from August 30, 2019 to August 30, 2020, it filed a complaint in Camden

County claiming breach of contract and seeking declaratory judgment. Precious

Treasures alleged that it "suffered a direct physical loss of and damage to its

property" because it was "unable to use its property for its intended purpose." It

                                                                           A-0714-20

                                       11
maintained that its losses of revenue during the effective period of the EOs were

covered under its insurance policy's business income and civil authority clauses.

The complaint was dismissed with prejudice when the motion judge granted

Markel's Rule 4:6-2(e) motion to dismiss based on the determination that

Precious Treasures's business losses were not covered under the insurance

policy.

      Country Diner owns and operates a restaurant, Harrison House, in Mullica

Hill, which was forced to close its dine-in services due to the EOs but was still

able to offer food and beverage for takeout during limited hours.3 After Country

Diner's claim for its business losses was denied by Wesco, which covered the

restaurant from October 21, 2019 to October 21, 2020, it filed a complaint in

Camden County against Wesco and insurance provider AmTrust claiming

breach of contract and seeking declaratory judgment. Country Diner alleged:

(1) as a result of the EOs it was "required to suspend . . . its operations" at its

restaurant; (2) it "suffered a direct physical loss of and damage to its property"

because it was "unable to use its property for its intended purpose," causing

financial losses; and (3) these losses were covered under its insurance policy's

3
  The record is unclear as to whether Country Diner ceased all its restaurant
business operations.
                                                                            A-0714-20

                                        12
business income and civil authority clauses. The complaint was dismissed with

prejudice when the motion judge granted Wesco's and AmTrust's Rule 4:6-2(e)

motion to dismiss based on the determination that Country Diner's business

losses were not covered under the insurance policy.

      Pearl owns and operates a restaurant, Route 40 Diner, in Monroeville,

which was forced to close its dine-in services due to the EOs but was still able

to offer food and beverage for takeout during limited hours.4 After Pearl's claim

for its business losses was denied by its insurer Wesco, which covered the

restaurant from February 22, 2020, to February 22, 2021, it filed a breach of

contract complaint in Camden County against Wesco and insurance provider

AmTrust. Pearl, which had the same insurer, insurance provider, and counsel

as Country Diner, reiterated the same allegations as Country Diner did in its

complaint. Its complaint was also dismissed with prejudice when the motion

judge granted Wesco and AmTrust's Rule 4:6-2(e) motion to dismiss based on

the determination that Pearl's business losses were not covered under the

insurance policy.

4
  The record is unclear as to whether Pearl ceased all its restaurant business
operations.
                                                                          A-0714-20

                                       13
      MPG owns and operates The Cake Boutique—which sells cakes and other

baked goods for dining-in and at various events, as well as offers on-site

decorating classes and parties—and was forced to close its on-site services due

to the EOs. After MPG's claim for its business losses was denied by its insurer

Selective, which covered the restaurant in two separate but similar polices from

April 28, 2019 through April 28, 2022, MPG filed a breach of contract complaint

in Camden County against Selective. The complaint stated that EOs 103 and

107 declared a state of emergency in New Jersey and required residents "to

remain home or at their place of residence subject only to certain limited

exceptions."   MPG averred that "[a]s a result of" these "[g]overnmental

[a]ctions," it was "required to suspend its operations" at The Cake Boutique.5

MPG alleged that it "suffered a direct physical loss of and damage to its

property" under its insurance policy "because it has been unable to use its

property for its intended purpose." It claimed that this loss was covered under

the policy's business income and civil authority clauses. The complaint was

dismissed with prejudice when the motion judge granted Selective's Rule 4:6-

5
  The record does not disclose whether MPG ceased all business at the bakery
or only stopped offering on-premises dining, events, celebrations, and classes.
                                                                         A-0714-20

                                      14
2(e) motion to dismiss based on the determination that MPG's business losses

were not covered under the insurance policy.

                                        II.

      A. Rule 4:6-2(e) Standard

      Plaintiffs contend the motion judges erred by dismissing their complaints

with prejudice under Rule 4:6-2(e). Our review of a trial judge's order on a Rule

4:6-2(e) motion to dismiss a complaint is de novo, Watson v. New Jersey Dep't

of Treasury, 453 N.J. Super. 42, 47 (App. Div. 2017), and, thus, "we owe no

deference to the . . . judge's conclusions," State ex rel. Comm'r of Transp. v.

Cherry Hill Mitsubishi, Inc., 439 N.J. Super. 462, 467 (App. Div. 2015). In

deciding whether to grant dismissal, the complaint's allegations are accepted as

true and with all favorable inferences accorded to plaintiff. Watson, 453 N.J.

Super. at 47. "A complaint should be dismissed for failure to state a claim

pursuant to Rule 4:6-2(e) only if 'the factual allegations are palpably insufficient

to support a claim upon which relief can be granted.'" Frederick v. Smith, 416

N.J. Super. 594, 597 (App. Div. 2010). A plaintiff's opposition to a motion to

dismiss is "not to prove the case" but only to show that the complaint co ntains

"allegations which, if proven, would constitute a valid cause of action." Leon

v. Rite Aid Corp., 340 N.J. Super. 462, 472 (App. Div. 2001). In limiting our

                                                                             A-0714-20

                                        15
inquiry "to examining the legal sufficiency of the facts alleged on the face of the

complaint," Green v. Morgan Prop., 215 N.J. 431, 451 (2013) (internal quotation

marks omitted), the complaint is "search[ed] . . . in depth and with liberality to

ascertain whether the fundament of a cause of action may be gleaned even from

an obscure statement of claim," Printing Mart-Morristown v. Sharp Elecs. Corp.,

116 N.J. 739, 746 (1989) (internal quotation marks omitted).

      Dismissals under Rule 4:6-2(e) are ordinarily without prejudice. See id.

at 772; Pressler & Verniero, Current N.J. Court Rules, cmt. 4.1.1 on R. 4:6-2(e)

(2020).   Yet, a dismissal with prejudice is "mandated where the factual

allegations are palpably insufficient to support a claim upon which relief can be

granted," Rieder v. State, 221 N.J. Super. 547, 552 (App. Div. 1987), or if

"discovery will not give rise to such a claim," Dimitrakopoulos v. Borrus,

Goldin, Foley, Vignuolo, Hyman and Stahl, P.C., 237 N.J. 91, 107 (2019).

      B. Interpretation of Insurance Policies

      Dismissal of plaintiffs' complaints involved questions of contractual

interpretation: whether defendants' insurance policies covered plaintiffs'

claimed or future losses as a result of plaintiffs' inability to operate or the

limitations of their businesses following the issuance of the EOs. Our rules

regarding interpretation of insurance contracts are well-settled. "In interpreting

                                                                            A-0714-20

                                        16
insurance contracts, we first examine 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) (quoting Zacarias v. Allstate Ins.

Co., 168 N.J. 590, 595 (2001)). Thus, an undefined policy term or word "must

be interpreted in accordance with [its] ordinary, plain and usual meaning." Daus

v. Marble, 270 N.J. Super. 241, 251 (App. Div. 1994).

      A policy's language that is "direct and ordinary" is not ambiguous when it

can "be understood without employing subtle or legalistic distinctions," is not

"obscured by fine print," and does not "require[] strenuous study to

comprehend." Zacarias, 168 N.J. at 601. See Katchen v. Gov't Emps. Ins. Co.,

457 N.J. Super 600, 606 (App. Div. 2019) (holding an insurer "could have

included a definition of 'motor vehicle' in its policy," but the term was not

ambiguous simply because a definition was missing, since "any ordinary

reasonable person understands" its meaning). We "should not 'engage in a

strained construction to support the imposition of liability' or write a better

policy for the insured than the one purchased." Chubb Custom Ins. Co. v.

Prudential Ins. Co. of Am., 195 N.J. 231, 238 (2008) (quoting Progressive Cas.

Ins. Co. v. Hurley, 166 N.J. 260, 272-73 (2001)).

                                                                            A-0714-20

                                        17
      If the insurance policy's terms are ambiguous, courts will ordinarily

"construe . . . ambiguities in favor of the insured via the doctrine of contra

proferentem." Oxford Realty Grp. Cedar v. Travelers Excess & Surplus Lines

Co., 229 N.J. 196, 208 (2017). This doctrine recognizes "the vast differences in

the bargaining positions between an insured and an insurance company in the

drafting of an insurance policy," allowing interpretation of a contract against the

insurer drafter, Villa v. Short, 195 N.J. 15, 23 (2008), by utilizing rules of

construction outside the contract's four corners, Oxford Realty, 229 N.J. at 208.

      Insurance policies are very often contracts of adhesion, thus, "courts must

assume a particularly vigilant role in ensuring their conformity to public policy

and principles of fairness." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165,

175 (1992). Hence, a policy should be "construed liberally" in the insured's

favor "to the end that coverage is afforded 'to the full extent that any fair

interpretation will allow.'" Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475,

482 (1961) (quoting Danek v. Hommer, 28 N.J. Super. 68, 76 (App. Div. 1953)).

Nevertheless, only where there is a "genuine ambiguity" in the policy or "the

phrasing of the policy is so confusing that the average policyholder cannot make

out the boundaries of coverage" does public policy influence a court's

                                                                            A-0714-20

                                        18
interpretation. Templo Fuente De Vida Corp. v. Nat'l Union Fire Ins. Co. of

Pittsburg, 224 N.J. 189, 200 (2016).

      An "insured's reasonable expectations should not be considered where the

policy is plain in its meaning unless the policy is 'inconsistent with public

expectations [and] commercially accepted standards.'" Nunn v. Franklin Mut.

Ins. Co., 274 N.J. Super 543, 550 (App. Div. 1994) (alteration in original)

(quoting Werner Indus., Inc. v. First State Ins. Co., 112 N.J. 30, 36 (1988)).

Generally, "the basic notion [is] that the premium paid by the insured does not

buy coverage for all . . . damage but only for that type of damage provided for

in the policy."    Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 237 (1979).

Accordingly, an insurance policy may contain limitations on coverage "designed

'to restrict and shape the coverage otherwise afforded.'" Hardy ex rel. Dowdell

v. Abdul-Matin, 198 N.J. 95, 102 (2009) (quoting Weedo, 81 N.J. at 237).

                                       III.

      Guided by the above principles, we examine the pertinent provisions of

the parties' insurance policies and address plaintiffs' arguments. Except for

Pearl and Country Diner who were insured by Wesco, the other plaintiffs had

different insurers. However, excluding a few minor differences as discussed

below, the relevant provisions of the insurance policies are essentially identical.

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                                        19
      A. Direct Physical Loss Of Or Damage To Covered Property

      The insurance policies obligated defendants to "pay for direct physical

loss of or damage to Covered Property at the premises described in the

Declarations caused by or resulting from any Covered Cause of Loss," as well

as "pay for the actual loss of Business Income [plaintiffs] sustain due to the

necessary 'suspension' of [plaintiffs'] 'operations' during the 'period of

restoration.'" "Business Income" was defined as "Net Income (Net Profit or Loss

before income taxes) that would have been earned or incurred" if the physical

loss or damage had not occurred and "[c]ontinuing normal operating expenses

incurred, including payroll." "Period of restoration" was defined as the period

of time beginning after the "physical loss or damage" that was "caused by or

resulting from any Covered Cause of Loss" and ending on the date when the

property "should be repaired, rebuilt or replaced with reasonable speed and

similar quality."

      To trigger business income coverage, "[t]he 'suspension' must be caused

by direct physical loss of or damage" to plaintiffs' covered premises and "[t]he

loss or damage must be caused by or result from a Covered Cause of Loss."

"Covered Causes of Loss" was defined as "direct physical loss unless the loss is

                                                                         A-0714-20

                                      20
excluded or limited" in the policies, but the policies did not define "physical

loss" and "physical damage."

      The insurance policies also contained "Civil Authority" sections, stating

defendants would "pay for the actual loss of Business Income" plaintiffs

sustained "caused by action of civil authority that prohibits access to" its

premises. To trigger coverage, the action of the civil authority needed to be

taken "as a result of the damage" to nearby property, and either "in response to

dangerous physical conditions resulting from the damage or continuation of the

Covered Cause of Loss that caused the damage" or "to enable a civil authority

to have unimpeded access to the damaged property." (Ibid.)

      The motion judges all agreed with defendants' arguments that the

insurance policies did not cover plaintiffs' business losses because the

suspension of their businesses due to the EOs was not a "direct physical loss of

or damage to" their insured premises. Because the policies do not define the

term, we look to the term's plain meaning. Pizzullo, 196 N.J. at 270; Daus, 270

N.J. Super. at 251.

      Our courts have "adopted a broad notion of the term 'physical.'" Phibro

Animal Health Corp. v. Nat'l Union Fire Ins. Co., 446 N.J. Super 419, 437 (App.

Div. 2016). When, however, "physical" is paired with another word, such as in

                                                                         A-0714-20

                                      21
"physical injury," we have found that the resulting term means a "detrimental

alteration[]," or "damage or harm to the physical condition of a thing." Id. at

438 (quoting Farm Bureau Mut. Ins. Co. of Am. v. Earthsoils, Inc., 812 N.W.2d

873, 876 (Minn. Ct. App. 2012)).

      In Wakefern Food Corp. v. Liberty Mutual Fire Insurance Co., this court

determined "the undefined term 'physical damage'" in the plaintiff supermarket's

insurance policy was "ambiguous" and should not have been interpreted "in a

manner favoring the insurer and inconsistent with the reasonable expectations

of the insured." 406 N.J. Super. 524, 540 (App. Div. 2009). In that case, a

power outage at the supermarket occurred when an electrical "cascade"

disrupted a large part of the nation's power grid. Id. at 532-38. We held plaintiff

was entitled to its lost revenue under its insurance policy, which covered

"consequential loss or damage resulting from interruption of" electrical power

at its premises if the interruption resulted from "physical damage" to electrical

equipment and property located elsewhere. Id. at 531-32.

      We concluded "physical damage" was ambiguous because it was

susceptible to "at least two different reasonable interpretations": (1) the part of

the electric grid serving the supermarket was not damaged because there was no

detrimental alteration to its structure; or (2) the electric grid was damaged

                                                                            A-0714-20

                                        22
because it was shut down due to the cascade elsewhere, rendering it physically

incapable of providing electricity. Id. at 540-41. Given this ambiguity, the term

should have been construed in the plaintiff's favor, since "due to a physical

incident or series of incidents" elsewhere, the entire grid had become "physically

incapable of performing [its] essential function." Id. at 540.

      We explained that the average policyholder should not be "expected to

understand the arcane functioning of the power grid" when submitting an

insurance claim after a power outage. Id. at 541. We did, however, recognize

that we would have "reach[ed] a different result if, for example, a governmental

agency had ordered that the power [to the supermarket] be shut off to conserve

electricity." Id. at 540 n.7.

      We disagree with plaintiffs' contention that the term "direct physical loss

of or damage to," as set forth in their insurance policies, is ambiguous. The term

was not so confusing that average policyholders like plaintiffs could not

understand that coverage extended only to instances where the insured property

has suffered a detrimental physical alteration of some kind, or there was a

physical loss of the insured property.

      The policies' business income coverage, which is explicitly provided only

during a "period of restoration," supports our conclusion.       The "period of

                                                                           A-0714-20

                                         23
restoration" is defined in the policies as beginning either at the time the physical

loss or damage occurred or some number of hours later and ending at the time

when business operations resumed at another permanent location, or when the

insured premises "should be repaired, rebuilt or replaced with reasonable speed

and similar quality." This definition clarifies the intended meaning of "direct

physical loss" and "direct physical damage" as contemplated by the parties in

their contract. Finding coverage where there has been no physical damage to

property that would require repairs, rebuilding, or replacement would render the

"period of restoration" language in the contracts "meaningless." Port Murray

Dairy Co. v. Providence Washington Insurance Co., 52 N.J. Super. 350, 357

(Ch. Div. 1958).

      Our interpretation is consistent with the sound reasoning set forth in Port

Murray Dairy. There, striking workers blockaded the entrances to the plaintiff's

dairy plant, hindering its operations but not damaging or destroying any of the

plaintiff's buildings or equipment. Id. at 353-54. Undelivered milk inside the

plant deteriorated, causing a loss of revenue. Ibid. The plaintiff's insurance

policy stated that in the event of "damage" from perils insured against, including

"riot attending a strike," the defendant insurer would pay for expenses incur red

"to continue the normal conduct of the insured's business during the period of

                                                                             A-0714-20

                                        24
restoration." Id. at 356. The court held the plaintiff's business losses were not

covered, reasoning that the policy "obviously refer[red] to a situation where the

insured's property . . . has been damaged or destroyed." Id. at 357. Further, the

term "period of restoration," defined as the time required to repair, rebuild, or

replace any part of the property that had been destroyed or damaged, would be

"meaningless" if the plaintiff were allowed to recover for purely economic

losses in the absence of any such damage or destruction. 6 Ibid.

      Here, there was no damage to plaintiffs' equipment or property on or off-

site that caused their premises to lose their physical capacity to operate, and

there was no physical alteration that made their premises dangerous to enter.

More specifically, no plaintiff alleges the coronavirus was present on their

properties or rendered their properties uninhabitable.        Instead, plaintiffs'

businesses were shut down or had their operations limited by the EOs. Each

plaintiff would have been able to continue functioning as a dine-in restaurant,

bakery, childcare and learning center, or gym without interruption had Governor

6
   In Kieffer v. High Point Ins. Co., 422 N.J. Super. 38, 45 (App. Div. 2011),
this court quoted the Texas Court of Appeals' decision in Carlton v. Trinity
Universal Insr. Co., 32 S.W.3d 454, 464 (Tex. App. 2000), which held: "In
common usage, 'repair' means 'to restore by replacing a part or putting together
what is torn or broken' or, stated slightly differently, 'to bring back to good or
usable condition.'"
                                                                           A-0714-20

                                       25
Murphy not issued his EOs. None of plaintiffs' premises required any repairs

due to damage, nor needed to be relocated and then reopened once the EOs'

effective period ended.

      Recently, the Seventh Circuit Court of Appeals and the Massachusetts

Supreme Court have affirmed motions dismissing with prejudice complaints by

insured businesses seeking business losses due to COVID-19 governmental

shutdowns under their insurance general liability policies.       In East Coast

Entertainment of Durham, LLC v. Houston Casualty Co., plaintiff East Coast

Entertainment of Durham, LLC (ECE) was forced to shut down its movie

theaters throughout North Carolina due to the imposition of statewide closures

in response to the COVID-19 pandemic. 31 F.4th 547, 549 (7th Cir. 2022).

ECE's insurance policy was essentially the same as plaintiffs' insurance policies.

ECE's policy contained a "Business Income" coverage provision, which stated,

            [w]e will pay the actual loss of Business Income you
            sustain due to the necessary "suspension" of your
            "operations" during the "period of restoration." The
            "suspension" must be caused by direct physical loss of
            or damage to property at premises that are described in
            the Declarations and for which a Business Income
            Limit of Insurance is shown in the Declarations. The
            loss or damages must be caused by or result from a
            Covered Cause of Loss.

            [Ibid.]

                                                                           A-0714-20

                                       26
The policy defined the "period of restoration" as "the period between 'the date

of direct physical loss or damage to the property' and either '[t]he date when the

property should be repaired, rebuilt or replaced with reasonable speed and

similar quality' or 'when business is resumed at a new permanent location,'

whichever occurs first." Ibid. (alteration in original).

      The Seventh Circuit affirmed the federal district court's dismissal of the

plaintiff's suit for declaratory relief and damages for the denial of its insurance

claims regarding its losses during the COVID-19 pandemic based on its decision

in Sandy Point Dental, P.C. v. Cincinnati Insurance Co., 20 F.4th 327 (7th Cir.

2021). In Sandy Point, the Seventh Circuit joined four other circuits in deciding

that the mere loss of business due to COVID-related closures did not constitute

"direct physical loss" when unaccompanied by any physical alteration to

property. Id. at 330, 333. The court reiterated its reasoning in Sandy Point that

            [t]he phrase is "direct physical loss or damage." The
            words "direct physical" are most sensibly read as
            modifying both "loss" and "damage." But even if they
            can be divorced from "damage" (and we do not think
            that they can), they indisputably modify "loss." . . .
            Whatever "loss" means, it must be physical in nature.

            [E. Coast Ent. of Durham, 31 F.4th at 551 (quoting
            Sandy Point, 20 F.4th at 332)].

                                                                            A-0714-20

                                        27
      The court stated that similar to ECE's claim, the businesses in Sandy Point

failed to state a claim for coverage because they "alleged neither a physical

alteration to property nor an access- or use-deprivation so substantial as to

constitute a physical dispossession." Ibid. (quoting Sandy Point, 20 F.4th at

337). It held that "[t]he mere presence of the virus on surfaces did not physically

alter the property, nor did the existence of airborne particles carrying the virus,"

so the district court properly found that ECE was not entitled to coverage under

its insurance policy with defendant. Ibid. The court also held the meaning of

"direct physical loss" was "unambiguous" so "there [was] no need to construe

them against the insurer," and it noted that "multiple federal district courts

applying North Carolina law in COVID-19 insurance cases have reached the

same conclusion as Sandy Point." Ibid.

      Applying the same legal guidelines for interpreting insurance policies as

noted in Section II. B. above, the Massachusetts Supreme Court in Verveine

Corp. v. Strathmore Insr. Co. held that the plaintiffs' restaurants were not

entitled to coverage for their business losses due to that state's governor's

COVID-19 emergency orders prohibiting in-person dining at restaurants. 184

N.E.3d 1266, 1276 (Mass. 2022). The policies explicitly defined "'Covered

Causes of Loss' as 'Risks of Direct Physical Loss,'" and the "Building and

                                                                             A-0714-20

                                        28
Personal Property Coverage Form" contained in the policies provided that the

defendant insurer would

            ["]pay for direct physical loss of or damage to Covered
            Property at the [insured] premises . . . caused by or
            resulting from any Covered Cause of Loss." "Covered
            Property" includes the "building or structure" identified
            in each policy and personal property "[l]ocated in or on
            the building described in the Declarations or in the open
            (or in a vehicle) within [one hundred] feet of the
            described premises," subject to certain exclusions.

            [Id. at 1273 (second and third alterations in original).]

The Court emphasized that "in the context of the restaurants' property coverage

forms, 'direct physical loss of or damage to Covered Property' characterize[d]

what effects the covered causes must have on the property to trigger coverage,

not the causes themselves." Ibid.

      The Court further explained,

            The "Business Income (and Extra Expense) Coverage
            Form" in both policies states,
                 [Defendant] will pay for the actual loss of
                 [b]usiness [i]ncome . . . sustain[ed] due to
                 the necessary 'suspension' of . . .
                 'operations' during the 'period of
                 restoration.' The 'suspension' must be
                 caused by direct physical loss of or damage
                 to the property at [the insured
                 premises]. . . . The loss or damage must be
                 caused by or result from a Covered Cause
                 of Loss.

                                                                        A-0714-20

                                       29
            Likewise, the extra expense provision covers
            "necessary expenses . . . incur[red] during the 'period of
            restoration' that . . . would not have incurred if there
            had been no direct physical loss or damage to property
            caused by or resulting from a Covered Cause of Loss."

            [Ibid. (fifth alteration in original)].

      The Court reasoned that "direct physical loss of or damage to property"

shifts from "effect to cause, but does not change in meaning." Id. at 1274. The

losses covered describe "the actual loss of income and certain extra expenses

incurred during a defined suspension period" insofar as the suspension was

"caused by the kind of loss or damage covered by the property coverage forms,

which must in turn be caused by a nonexcluded risk." Ibid. The Court concluded

that "direct physical loss of or damage to" property requires "distinct ,

demonstrable, physical alteration of the property," noting that "[e]very appellate

court that has been asked to review COVID-19 insurance claims has agreed with

this definition for this language or its equivalent." Id. at 1275.

      In addressing the plaintiffs' contention that there was a difference between

"loss" and "damage" described in the policy coverage, the court stated that "loss"

is considered "a different scope that does not rely on physical alteration of the

property and can include broader concepts, such as loss of use or loss of

function." Ibid. However, it found this distinction to be irrelevant to the issue

                                                                           A-0714-20

                                         30
at hand because the contention "ignore[d]" the fact that the relevant coverage

provisions provided that "the loss itself must be a 'direct physical' loss, clearly

requiring a direct, physical deprivation of possession."        Id. at 1277.    The

plaintiffs were not deprived of possession of their properties and indeed

continued to inhabit and use them for other purposes. Although they could not

use their properties for indoor dining but only for takeout services, "[w]ithout

any physical alteration to accompany it, this partial loss of use does not amount

to a 'direct physical loss.'" Ibid. (alteration in original) (citing Sandy Point, 20

F.4th at 334).

      Unsurprisingly, given the devasting impact of COVID-19 and state

governments' efforts to curb the pandemic, there have been scores of federal and

state appellate-level courts that have addressed the same issues raised in this

appeal. The overwhelming majority of them have granted defendant insurers'

motions to dismiss complaints seeking insurance coverage for business losses

due to government orders barring or curtailing their operations in an effort to

curb the COVID-19 pandemic because the losses were not due to physical loss

or damage to their insured premises. See Inns-by-the-Sea v. Cal. Mut. Ins. Co.,

71 Cal. App. 5th 688, 699-705 (Cal. Ct. App. 2021), rev. denied, 2022 Cal.

LEXIS 1412 (Cal. Mar. 9, 2022); Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am.,

                                                                             A-0714-20

                                        31
15 F.4th 885, 889-893 (9th Cir. 2021); Bradley Hotel Corp. v. Aspen Specialty

Ins. Co., 19 F.4th 1002, 1006 (7th Cir. 2021); Oral Surgeons, P.C. v. Cincinnati

Ins. Co., 2 F.4th 1141, 1144-1145 (8th Cir. 2021); Estes v. Cincinnati Ins. Co.,

23 F.4th 695 (6th Cir. 2022); Brown Jug, Inc. v. Cincinnati Ins. Co., 27 F.4th

398, 402-04 (6th Cir. 2022); 10012 Holdings, Inc. v. Sentinel Ins. Co., 21 F.4th

216, 219-21 (2nd Cir. 2021); Santo's Italian Café LLC v. Acuity Ins. Co., 15

F.4th 398, 406-407 (6th Cir. 2021); Goodwill Indus. of Cent. Okla., Inc. v. Phila.

Indem. Ins. Co., 21 F. 4th 704, 710-12 (10th Cir. 2021); Terry Black’s Barbecue,

L.L.C. v. State Auto. Mut. Ins. Co., 22 F.4th 450, 455 (5th Cir. 2022); Lee v.

State Farm Fire & Cas. Co., __ N.E.3d __ (Ill. App. Ct. 2022) (slip op. at 11-12);

Sanzo Enters., LLC v. Erie Ins. Exch., 182 N.E.3d 393, 401-06 (Ohio Ct. App.

2021).

      B. Civil Authority

      Plaintiffs contend their business losses were covered by their insurance

policies' "Civil Authority" clauses, which provided that defendants would "pay

for the actual loss of Business Income" each plaintiff sustained that was "caused

by action of civil authority that prohibit[ed] access to" its premises. To trigger

civil authority coverage, plaintiffs' policies required that: (1) damage be done

to other property within a certain distance of the insured premises; (2) this

                                                                           A-0714-20

                                       32
damage resulted from a "Covered Cause of Loss"; (3) the civil authority

prohibited access to the insured premises because of the damage; and (4) the

civil authority's action was taken in response to dangerous physical conditions

resulting from the damage or the continuation of the covered cause of loss or to

ensure civil authority's unimpeded access to the damaged area.

      Plaintiffs maintain that because other nearby businesses were ordered to

partially or completely close by the EOs, a "logical reading" of their complaints

established that property other than their premises sustained damage due to a

covered cause of loss and that the government prevented access to their premises

due to that damage.      They argue their policies did not require that the

government prevent all access to covered property, and that a prohibition on

access by their customers for certain purposes was enough to trigger coverage

under the civil authority clause.

      There are no published New Jersey cases interpreting civil authority

coverage provisions in an insurance policy. We, however, find guidance in

Verveine and federal court rulings.

      In Verveine, the Massachusetts Supreme Court directly addressed whether

the plaintiffs were entitled to coverage under their insurance policies' "civil

authority" clauses, which allowed for recovery of their business losses and

                                                                          A-0714-20

                                       33
expenses when an "action of civil authority . . . prohibits access to the described

premises" due to "damage to property other than property at the described

premises." 184 N.E.3d at 1278. The Court determined the clauses did not

provide coverage, rejecting the plaintiffs' argument that the governor's orders

"prohibited public access to their restaurants and were the result of damage to

properties within one mile." Id. at 1278-1279. The Court ruled:

            [f]or the same reasons that the presence of the
            COVID-19 virus at the restaurants themselves did not
            cause damage to property under the business
            interruption coverage forms, the virus did not cause
            "damage" to the properties within one mile of the
            restaurants. Furthermore, the term "loss" is absent,
            precluding any argument that coverage can be based on
            the loss of possession or use of the surrounding
            buildings.

            [Ibid. (citation omitted).]

      The Fifth Circuit Court of Appeals in Dickie Brennan & Co. v. Lexington

Insr. Co. held that a civil authority clause did not apply where the plaintiff

incurred business losses when an evacuation order mandated the closure of its

New Orleans premises in advance of a hurricane's expected landfall. 636 F.3d

683, 685-86 (5th Cir. 2011). The plaintiff's business and those of its neighbors

were undamaged by the storm, but the plaintiff argued that its insurance policy's

civil authority coverage applied because the evacuation order was issued in

                                                                            A-0714-20

                                          34
response to prior property damage done on Caribbean islands by the hurricane.

Id. at 684-86. The Fifth Circuit rejected this argument and denied coverage

because nothing in the record demonstrated that the evacuation order was "due

to" physical damage to other property. Id. at 685-86. Instead, the evacuation

order was issued because of a "possible future storm surge, high winds, and

flooding" in areas in the storm's predicted path. Ibid.

      In United Air Lines, Inc. v. Insurance Co. of Pennsylvania, the Second

Circuit held that the plaintiff airline carrier's civil authority insurance coverage

did not apply to losses it sustained after Ronald Reagan Washington National

Airport was shut down following the September 11, 2001 terrorist attacks. 439

F.3d 128, 134-35 (2nd Cir. 2006). Although the airport was within the required

distance from the Pentagon, which was damaged, the plaintiff could not show

that it was closed "as a direct result of damage to" that property since there was

already a government order in place halting flights due to concern of further

attacks before the Pentagon was struck by a hijacked plane. Id. at 134. The

court found that the government's decision to halt operations at the airport was

"based on fears of future attacks" rather than on any nearby property damage

that had already occurred. Ibid.

                                                                             A-0714-20

                                        35
      Likewise, in Philadelphia Parking Authority v. Federal Insr. Co., another

case stemming from the September 11 attacks, the Southern District of New

York found there was no civil authority coverage for the plaintiff's loss of

income from its parking lot at an airport after all flights to and from the airport

were canceled by government order. 385 F. Supp. 2d 280, 289 (S.D.N.Y. 2005).

The court reasoned that civil authority coverage was properly denied by

defendant carrier because the order did not "prohibit access to" the plaintiff's

property but dealt only with the grounding of airplanes. Ibid.

      Considering the plain language of the civil authority coverage as well as

the persuasive Massachusetts and federal court decisions, we agree with the

motion judges that plaintiffs' business losses were not protected by their policies'

civil authority coverage. See Brown Jug, 27 F.4th at 404-05; 10012 Holdings,

21 F.4th at 223; Inns-by-the-Sea, 71 Cal. App. 5th at 710-12; United Talent

Agency v. Vigilant Ins. Co., 77 Cal. App. 5th 821, 840-842 (2022); Sanzo

Enters., 182 N.E.3d at 406-08. First, the EOs neither prohibited access to

plaintiffs' premises nor prevented plaintiff owners from being on their premises,

but merely restricted their business activities. Indeed, Country Diner, Pearl,

FAFB, and MPG were permitted to have customers in their establishments, to

                                                                             A-0714-20

                                        36
have staff on their premises, and to prepare food for their customers' takeout

orders.

      Second, plaintiffs' premises were not selectively closed by the EOs due to

damage to nearby property. Instead, the EOs closed or restricted activities at

premises of certain types within the state all at once to curb the spread of the

COVID-19 cases. There is no merit to plaintiffs' contention that because other

businesses near them were closed by the EOs, the simultaneous closure or

placement of restrictions on their own businesses by the same EOs triggered

civil authority coverage.

      C. Regulatory Estoppel

      Plaintiffs assert that dismissal with prejudice was inappropriate because

the motion judges should have granted them leave to file amended complaints

to add a claim to bar the enforcement of the insurance policies' virus exclusions

and endorsements based on the doctrine of regulatory estoppel. They contend

the ensuing discovery would have enabled them to investigate the regulatory

history of the virus exclusion provisions to determine whether defendants'

representations to state regulators should prevent defendants from disclaiming

coverage for virus-related losses.    FAFB maintains the insurance industry

"misrepresented" to regulators that the proposed virus exclusion language in

                                                                          A-0714-20

                                       37
insurance policies was "only a clarification that coverage was barred under the

policies that existed at the time," when in fact that language "resulted in a

substantial reduction in coverage."

      Under the doctrine of regulatory estoppel, if an insurer makes

misrepresentations to a regulatory body regarding the meaning and effect of

language it has requested to include in its policies, the insurer may be prevented

from enforcing the otherwise clear and plain meaning of that language against

an insured. Morton Int'l v. Gen. Accident Ins. Co., 134 N.J. 1, 75-76 (1993). In

Morton, our Supreme Court refused to enforce a new pollution exclusion clause

as written because the Insurance Rating Board (IRB) had made misleading

statements to the New Jersey Department of Insurance when requesting

regulatory approval of the language. Id. at 75-78.

      The Court determined that the new clause would only cover pollution

damage if it resulted from a "sudden" or "accidental" event, a severe limitation

on coverage that was not previously present. Id. at 29-30. Noting the coverage

reduction was not accompanied by a commensurate reduction in the cost of

policies containing the new pollution exclusion language compared with those

that did not contain it, the Court stressed that the IRB's contemporaneous

statements to regulators and the public about the new clause only suggested that

                                                                           A-0714-20

                                       38
its purpose was to deny coverage to "intentional polluters," making it likely that

"the typical commercial insured" would have had "little, if any, awareness" that

its insurance coverage had been drastically lessened. Id. at 73, 77.

      Applying principles of equity, the Court held, "the insurance industry

should be bound by the representations of the IRB, its designated agent, in

presenting the pollution-exclusion clause to state regulators." Id. at 75-76. The

Court therefore concluded the pollution exclusion should be "construed to

provide coverage identical with that provided under the prior occurrence -based

policy," with the only change being that it would be interpreted to exclu de

coverage in cases where the insured intentionally discharged a known pollutant.

Id. at 78.

      In a situation identical to the present matter, the District Court of New

Jersey rejected the insured's claim of regulatory estoppel related to a claim for

coverage for business losses due to COVID-19. In Delaware Valley Plumbing

Supply, Inc. v. Merchants Mutual Insr. Co., the court granted the defendant

insurance carrier's motion to dismiss plaintiff's complaint for failure to state a

claim upon which relief can be granted pursuant to Federal Rule of Civil

Procedure 12(b)(6). 519 F. Supp. 3d 178, 186 (D.N.J. 2021). The plaintiff

sought to recover income losses it incurred when the COVID-19 EOs issued by

                                                                           A-0714-20

                                       39
Governor Murphy and Pennsylvania Governor Tom Wolf required plaintiff to

close its businesses. Id. at 180. The court found that the plaintiff "entirely failed

to point to" a misrepresentation made by any insurer or its representative to any

regulatory agency regarding its insurance policy's virus exclusion clause. Id. at

185. The plaintiff also failed to demonstrate how the defendant's interpretation

of the clause was inconsistent with any prior representations made by the

insurance industry to regulators. Ibid. Instead, the court found the industry's

filings with regulators "ma[d]e clear that the virus exclusion clause would bar

coverage for loss or damages caused by a virus like COVID-19." Id. at 186. As

a result, it concluded that further discovery on the topic of regulatory estoppel

was "unnecessary" and dismissal of the complaint with prejudice was fitting.

Ibid.

        Other federal courts have rejected regulatory estoppel arguments in the

context of insurance claims for COVID-19 business losses, finding that Insured

Service Offices, Inc.'s (ISO) 7 statements about proposed virus exclusion

7
   Insurance Services Office, Inc. "is an influential [nonprofit] organization
within the insurance industry that promulgates standard form insurance policies,
including [commercial general liability] policies, that insurers across the
country use to conduct their business." Christopher C. French, Construction
Defects: Are They 'Occurrences'?, 47 Gonz. L. Rev. 1, 5 n.7 (2011/2012) (citing
U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 879 n.6 (Fla.2007)). "Most
                                                                              A-0714-20

                                         40
language did not mislead regulators in the same manner as the IRB did in

Morton. See, e.g., Robert E. Levy, D.M.D., LLC v. Hartford Fin. Servs. Grp.

Inc., 520 F. Supp. 3d 1158, 1168-69 (E.D. Mo. 2021) (holding even if Missouri

adopted regulatory estoppel, it would not apply because ISO told regulators the

policies were not meant to cover virus damage and defendants took the same

position); Border Chicken AZ LLC v. Nationwide Mut. Ins. Co., 501 F. Supp.

3d 699, 706-07 (D. Ariz. 2020) (finding the unadopted doctrine of regulatory

estoppel would not apply because ISO's circular was "clear that the [v]irus

[e]xclusion is meant to exclude losses caused by pandemics" and if regulators

relied on it they "would have been aware of [the exclusion's] effect on future

coverage"); Brian Handel D.M.D., P.C. v. Allstate Ins. Co., 499 F. Supp. 3d 95,

100-01 (E.D. Pa. 2020) (ISO and defendant took the same position, so regulatory

estoppel did not apply).

      We agree with the reasoning expressed by the federal courts and thus

reject plaintiffs' regulatory estoppel arguments. Allowing plaintiffs to amend

their complaints to add regulatory estoppel claims would not result in a different

[commercial general liability] insurance policies in the United States are written
on standard forms developed by ISO and made available with state insurance
regulators." Cypress Point Condo. Ass'n v. Adria Towers, L.L.C., 226 N.J. 403,
409 n.5 (2016).
                                                                           A-0714-20

                                       41
outcome. Their claims would eventually fail because defendants have not taken

a position regarding the interpretation of the virus exclusions that is any

different from ISO's representations to regulators as set forth in the federal court

rulings. ISO told regulatory bodies in 2006 that the new virus exclusion would

bar all coverage for virus-related damage and losses.

      While it may have used the same "clarify" language that our Supreme

Court found misleading in Morton, that case is distinguishable. In Morton, 134

N.J. at 75-78, the IRB made false statements that coverage would continue for

the same types of pollution damage going forward, while here, with respect to

virus exclusion, the ISO plainly stated that there would be no coverage for any

virus-related claims, Delaware Valley Plumbing Supply, 519 F. Supp. 3d at 186.

And as noted, we conclude the motion judges properly dismissed plaintiffs'

complaints with prejudice because their business losses due to the EOs were not

covered under their policies with defendants, regardless of whether the virus

exclusions applied. Therefore, giving plaintiffs the opportunity to amend their

complaints would be futile, and dismissal with prejudice was proper. See Prime

Acct. Dep't v. Twp. of Carney's Point, 212 N.J. 493, 511 (2013).

                                        IV.

                                                                             A-0714-20

                                        42
      Since we have concluded that plaintiffs were not entitled to insurance

coverage provided by defendants because their business losses were not due to

physical loss of or damage to their properties, nor due to actions by civil

authority, we need not consider defendants' contentions that their policies

contain provisions stating there would be no coverage for losses due to a virus,

which includes COVID-19. Each motion judge agreed with defendants. Yet,

for the sake of completeness, it is important to address the exclusion.8

      The policies of two plaintiffs—MPG and FAFB—had exclusion sections

stating the insurer would not "pay for loss or damage caused directly or

indirectly by any" of a list of several causes. One of the listed exclusions was

for loss or damage caused by "[a]ny virus, bacterium or other microorganism

that induces or is capable of inducing physical distress, illness or disease."

MPG's and FAFB's exclusions sections contained anti-concurrent and

anti-sequential causation language stating that damage caused by one of the

excluded perils was not covered "regardless of any other cause or event that

contributes concurrently or in any sequence to the loss." As a result, if a virus

in any way contributed to MPG's and FAFB's losses of business income, those

8
  We note that the motion judge dismissed Mattdogg's complaint with prejudice
because he found that the virus exclusion applied and did not address whether
Mattdogg had alleged a "direct physical loss" sufficient to trigger coverage .
                                                                           A-0714-20

                                       43
losses were not covered. Additionally, FAFB's policy contained an "advisory

notice" notifying it of the virus exclusion.

      The policies of the four other plaintiffs––Country Diner, Pearl, Mattdogg,

and Precious Treasures––did not include a virus exclusion in their excluded

coverage sections. However, the policies contained endorsements stating that

damage "caused by or resulting from" a virus, bacterium, or other

microorganism was not covered. 9 An "endorsement alters the policy only to the

extent set forth in the text of the endorsement. In other words, the terms and

conditions of the basic policy form remain in full force and effect, except to the

extent they are expressly altered by the endorsement." 3 Jeffrey E. Thomas,

New Appleman on Insurance Law Library Edition, § 21.01 (2013). The anti-

concurrent and anti-sequential causation language in the base policies' exclusion

sections thus did not apply. Therefore, to disclaim coverage in these plaintiffs'

cases, the relevant defendants needed to show that their respective plaintiffs'

losses of income were "caused by or resulted from" the coronavirus, as stated in

the express language of the endorsements.

9
  In addition, Mattdogg's policy contained an "advisory notice to policyholders"
stating there was "no coverage" for losses or damage "caused by or resulting
from" viruses, bacteria, or other microorganisms.
                                                                           A-0714-20

                                        44
      Exclusions in insurance contracts "are presumptively valid and will be

given effect if 'specific, plain, clear, prominent, and not contrary to public

policy.'" Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997) (quoting

Doto v. Russo, 140 N.J. 544, 559 (1995)). However, they "must be narrowly

construed," and "the burden is on the insurer to bring the case within the

exclusion." Ibid. Accordingly, an insured is "entitled to protection to the full

extent that any reasonable interpretation of [exclusionary clauses] will permit."

S.N. Golden Ests., Inc. v. Cont'l Cas. Co., 293 N.J. Super 395, 401 (App. Div.

1996).

      Where a particular exclusion "requires a causal link," a judge must

"consider its nature and extent because evaluating that link will determine the

meaning and application of the exclusion." Flomerfelt v. Cardiello, 202 N.J.

432, 442-43 (2010). "The fact that two or more identifiable causes—one a

covered event and one excluded—may contribute to a single property loss does

not necessarily bar coverage." Simonetti v. Selective Ins. Co., 372 N.J. Super.

421, 431 (App. Div. 2004). Generally, "[i]n situations in which multiple events,

one of which is covered, occur sequentially in a chain of causation to produce a

loss," the New Jersey courts have found that "the loss is covered if a covered

cause starts or ends the sequence of events leading to the loss." Flomerfelt, 202

                                                                          A-0714-20

                                       45
N.J. at 447. Referred to as the "Appleman Rule," this principle means that if an

insured peril sets other causes in motion which ultimately produce a loss, the

insured peril at the start of the unbroken sequence is considered the proximate

cause of the entire loss and recovery is permitted even if excluded perils form

other links in that sequence. Search EDP, Inc. v. Am. Home Assur. Co., 267

N.J. Super. 537, 543 (App. Div. 1993).

      In contrast, "if the claimed causes, one covered and one not, combine to

produce an indivisible loss," the courts "have rejected claims for coverage

largely because of the allocation of the burden of proof on the insured to

demonstrate a covered cause for a loss." Flomerfelt, 202 N.J. at 447-48. The

definitive question is what predominantly caused the loss, meaning the efficient

proximate cause, not where in the sequence the alleged cause of loss occurred.

See Franklin Packaging Co. v. Cal. Union Ins. Co., 171 N.J. Super. 188, 191

(App. Div. 1979).

      An insurance policy clause containing "an anti-concurrent or anti-

sequential clause" has been interpreted to unambiguously bar coverage for

losses resulting in any manner from an excluded cause. Wear v. Selective Ins.

Co., 455 N.J. Super. 440, 454-55 (App. Div. 2018). Thus, coverage is excluded

for a loss attributable to a given cause "regardless of whether any other cause,

                                                                         A-0714-20

                                      46
event, material or product contributed concurrently or in any sequence" to that

loss. Id. at 454.

      Applying New Jersey law in cases like those before us, the District Court

of New Jersey has found that virus exclusions in insurance policies precluded

coverage for business income losses attributed to the EOs. In Delaware Valley

Plumbing Supply, the plaintiff plumbing fixture company's policy stated the

defendant insurer would not pay for loss or damage "caused directly or indirectly

by . . . any virus, bacterium or other microorganism that induces or is capable

of inducing physical distress, illness or disease." 519 F. Supp. 3d at 180. The

plaintiff's complaint alleged that its economic damages were caused by the EOs,

and the court found that the EOs in turn were issued "to mitigate the spread of

the highly contagious novel coronavirus." Id. at 182 (internal quotation marks

omitted). The court held that the plaintiff's losses were inextricably tied to the

virus and "the [v]irus [e]xclusion, by its specific, clear language, bar[red]

coverage" for the plaintiff's losses.   Ibid.   Thus, plaintiff's complaint was

dismissed with prejudice due to the policy's virus exclusion pursuant to the

Federal Rule of Civil Procedure 12(b)(6). Id. at 186. ---
                                                      See ----
                                                          also -------------
                                                               Mashallah, Inc.

v. W. Bend Mut. Ins. Co., 20 F.4th 311, 320-22 (7th Cir. 2021); Mudpie, Inc. v.

Travelers Cas. Ins. Co. of Am., 15 F.4th 885, 893-94 (9th Cir. 2021); Goodwill

                                                                           A-0714-20

                                        47
Indus. of Cent. Okla., Inc., 21 F. 4th at 712-14; Beniak Enters., Inc. v. Indem.

Ins. Co. of N. Am., 556 F. Supp. 3d 437, 443-45 (D.N.J. 2021); Nguyen v.

Travelers Ins. Co. of Am., 541 F. Supp. 3d 1200, 1222-23 (W.D. Wash. 2021);

Diesel Barbershop, LLC v. State Farm Lloyds, 479 F. Supp. 3d 353, 360-62

(W.D. Tex. 2020); Humans & Res., LLC v. Firstline Nat'l Ins. Co., 512 F. Supp.

3d 588, 600-601 (E.D. Pa. 2021); Nail Nook, Inc. v. Hiscox Ins. Co., 182 N.E.3d

356, 361-62 (Ohio Ct. App. 2021); Border Chicken, 501 F. Supp. 3d at 704-05.

      Plaintiffs argue the motion judges should not have considered the virus

exclusions and endorsements when addressing a motion to dismiss under Rule

4:6-2(e) because the applicability of an exclusion in an insurance policy is an

affirmative defense that a defendant must plead in an answer. They also assert

that, in any event, defendants did not satisfy their burden of proving that

plaintiffs' claims were barred under the virus exclusions and endorsements.

      Generally, Rule 4:6-2(e) dismissals should not be granted based on an

affirmative defense because such defenses typically "must be pleaded." Prickett

v. Allard, 126 N.J. Super. 438, 440 (App. Div. 1974).           Rule 4:5-4 lists

affirmative defenses that a responsive pleading "shall set forth," such as fraud,

duress, estoppel, res judicata, statute of limitations, and waiver.           The

applicability of an exclusion clause in an insurance contract is not among these,

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                                       48
but the Rule states that its list is not exhaustive. Ibid. If, however, an affirmative

defense's applicability "appears on the face of the complaint," dismissal under

Rule 4:6-2(e) may be proper. Prickett, 126 N.J. at 440. In Prickett, the Court

found that dismissal for failure to state a claim was proper because the

applicability of a statute of limitations was clear from the complaint despite the

fact it was an affirmative defense. Ibid.

      Plaintiffs' complaints alleged breach of contract claims or sought

declaratory judgment that they were entitled to coverage for their business losses

related to COVID-19 EOs' restrictions. Not only were the policies referenced

in the complaints but copies, including the exclusion sections and endorsements,

were attached. The complaints specifically mentioned COVID-19 and attached

the EOs. The applicability of the policies' virus exclusions was presented on the

face of plaintiffs' pleadings. Hence, it was appropriate for the motion judges to

consider the virus exclusions and endorsements when deciding defendants'

motions to dismiss.

      In granting defendants' motions, it was appropriate for the judges to

consider COVID-19 a virus and, therefore, apply the virus exclusions and

endorsements in the insurance policies.         Contrary to plaintiffs' assertions,

COVID-19's status as a viral disease was not a contested fact and thus discovery

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                                         49
was unneeded to clarify the scientific basis of the EOs and to challenge the

insurers' contention that their claims were barred by the virus exclusions .

Plaintiffs' complaints cite the EOs, which discuss the nature of COVID-19 and

state that it is caused by a virus. Although the EOs are not scientific documents

issued by epidemiology experts, the EOs reference findings by the CDC and

WHO, agencies focused on the protection of public health and having expertise

in infectious diseases, pathogens, and other sources of illness. 10 The motion

judges were permitted to take judicial notice under N.J.R.E. 201(b) and (f),11

that COVID-19 is a viral disease, since scientists have stated that this is so since

10
    See Mission, Role and Pledge,
https://www.cdc.gov/about/organization/mission.htm (last visited June 13,
2022); Who We Are, https://www.who.int/about/who-we-are (last visited June
13, 2022).
11
  N.J.R.E. 201(b) provides that a judge may take judicial notice of certain types
of facts, including "such specific facts and propositions of generalized
knowledge as are so universally known that they cannot reasonably be the
subject of dispute," and "specific facts and propositions of generalized
knowledge which are capable of immediate determination by resort to sources
whose accuracy cannot reasonably be questioned."

   N.J.R.E. 201(f) provides judge may consult or use "any source of relevant
information" when deciding whether to take judicial notice of a fact, and the
rules of evidence generally do not apply.
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                                        50
shortly after it was first identified.12 We are unaware of, nor do plaintiffs cite,

any credible information that contradicts the widely-held knowledge that

COVID-19 is caused by a virus.

      Plaintiffs' claims were barred by the virus exclusions and endorsements in

their policies. Even though no plaintiff alleged the COVID-19 virus was present

at their premises, it is unequivocal that the virus was the sole reason the EOs

were issued to close or restrict plaintiffs' businesses.

      MPG and FAFB's policies contained virus exclusions that included

anti-concurrent and anti-sequential causation language, undoubtedly barring

coverage. COVID-19 contributed to their business losses, and therefore their

insurers satisfied their burden to show that the exclusions applied regardless of

whether the EOs were considered a concurrent or sequential cause.

      The endorsements in the policies of Mattdogg, Precious Treasures,

Country Diner, and Pearl did not contain anti-concurrent causation language but

required the insurers to show that their claims were "caused by or resulted from"

12
   See Identifying the source of the outbreak,
https://www.cdc.gov/coronavirus/2019-ncov/science/about-
epidemiology/identifying-source-outbreak.html (last visited June 13, 2022);
WHO Statement regarding cluster of pneumonia cases in Wuhan, China,
https://www.who.int/china/news/detail/09-01-2020-who-statement-regarding-
cluster-of-pneumonia-cases-in-wuhan-china (last visited June 13, 2022).
                                                                            A-0714-20

                                         51
the COVID-19 virus to disclaim coverage.         The phrases "caused by" and

"resulting from" have been interpreted as "clearly convey[ing] the idea of

proximate causation." Westchester Fire Ins. Co. v. Continental Ins. Cos., 126

N.J. Super. 29, 37-38 (1973). The EOs, which were not an excluded peril, were

the final step in the sequence that caused plaintiffs' businesses to shut down or

curtail their operations and suffer income losses.

      Yet, following the Appleman rule, the EOs were only issued to curb the

COVID-19 pandemic, making the virus the efficient proximate cause of

plaintiffs' losses. Therefore, like the district court held in Delaware Valley

Plumbing Supply, we conclude the EOs were inextricably intertwined with

COVID-19. Because plaintiffs' business losses thus were "caused by or resulted

from" COVID-19 virus, their policies' endorsements bar coverage.

                                       V.

      In sum, we conclude the motion judges were correct in dismissing

plaintiffs' complaints with prejudice under Rule 4:6-2(e) because plaintiffs'

business losses were not caused by physical loss or damage to their properties,

as required for coverage under their insurance policies with defendants, but by

restrictions imposed by EOs to curb the COVID-19 pandemic. We discern no

reason to depart from the persuasive reasoning expressed in East Coast

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                                       52
Entertainment of Durham, Verveine, and the scores of federal courts and other

state appeal courts that have rejected identical insurance claims seeking business

losses as a result of being forced to shut down or significantly limit their

operations due to the imposition of government orders to curb the COVID-19

pandemic.

      Allowing plaintiffs to amend their complaints to add claims of regulatory

estoppel would not overcome dismissal with prejudice because defendants have

not taken a position regarding the interpretation of the virus exclus ions that is

any different from its designated agent's representations to regulators. Plaintiffs'

business losses are not covered under their policies' civil authority clauses

because their businesses were not closed or limited by civil authority but by the

EOs intended to minimize the devastating impact of COVID-19. In addition,

the insurance policies' exclusions and endorsements barring coverage for viruses

preclude coverage for plaintiffs' insurance claims.

      We recognize that COVID-19 has caused overwhelming economic losses

to untold businesses and individuals dependent on those businesses in our state,

nation, and the world. Nevertheless, in the context of the issues presented in

this appeal, plaintiffs' insurance claims are restricted by the clear and plain

                                                                             A-0714-20

                                        53
meaning of their insurance policies, which we cannot rewrite to cover their

unfortunate losses.

      Affirmed.
                           I hereby certify that the foregoing
                           is a true copy of the original on
                           file in my office.   _\ \ ~

                               CLERK OF THE AP~TE DIVISION

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