When a Manahawkin, N.J., dealership group asked its insurer to cover million-dollar-plus business losses caused by a pandemic-related state-ordered shutdown, the insurer said no.
Then, when Causeway Automotive asked a federal judge to order Zurich American Insurance to pay the claim, the judge said no.
Now, Causeway Automotive may ask the 3rd U.S. Circuit Court of Appeals to read its policy provision differently than Zurich American or U.S. District Judge Freda Wolfson did and to honor its claim, according to the dealership group's lawyer, Gary Ahladianakis, of Toms River, N.J..
Causeway operates Ford, Lincoln, Honda, Nissan and Hyundai franchises, and Ahladianakis said its shutdown-related losses have "reached easily into the seven figures" and are still accruing. An exact number wasn't available.
New Jersey Gov. Phil Murphy's executive order last March 21 shut down on-site sales at "nonessential" retail businesses as part of the state's response to the COVID-19 health emergency. Murphy authorized such sales to reopen May 21 after lobbying by the New Jersey Coalition of Automotive Retailers and other retailer advocacy groups.
NJCAR had argued to Murphy and the state's COVID-19 response team that showrooms are the "ultimate social distancing environment, typically providing 10,000-square-foot retail spaces with ample room to ensure the safety of employees and consumers."
Causeway filed its claim under the "civil authority coverage" section of its policy, seeking payment for lost income and extra expenses arising from Murphy's executive order. That policy provision refers to losses "caused by action of civil authority that prohibits access to the premises." The suit didn't specify an amount of lost income or additional expenses.
Zurich American denied the claim under its commercial business policy exclusion for "loss due to virus or bacteria."
In a Feb. 10 decision, Wolfson dismissed the case. It was the first time a court in New Jersey has ruled on the issue in a dealership case, but other Garden State judges rejected similar arguments in suits by an eye care company and a bakery.
A nearly identical case filed against Zurich American by Downs Ford, in Toms River, is pending before a different federal judge in New Jersey. The insurer has asked to have that suit tossed out, too. A Zurich American spokeswoman said the company doesn't comment on litigation.
It's unclear how widespread such pandemic-related tangles with insurers are for dealership groups. Several states in addition to New Jersey put similar orders into effect last spring as the coronavirus crisis unfolded. An NADA spokesman told Automotive News, "We do not know how many similar lawsuits may have been filed."
Wolfson, the judge in the Causeway case, held that the virus exclusion is unambiguous and that COVID-19 caused Causeway's alleged losses.
But the judge's interpretation is wrong, according to dealer lawyer Ahladianakis, who says it was Murphy's directive, not the coronavirus itself, that caused losses to Causeway Automotive and Downs Ford.
"If a local or state or federal agency causes you to close your business, that is covered," Ahladianakis said, adding that the virus exception was meant to apply only to damage and injury caused directly by a virus, such as a customer getting sick or contamination of the premises.
The dealerships he represents have the right to a trial to resolve that question, he said.
In her decision, Wolfson also rejected Causeway's argument that enforcement of the exclusion conflicts with New Jersey's public policy. The fact that lawmakers introduced a bill last year to require that insurance policies "be construed to include coverage for business interruption due to global virus transmission or pandemic" didn't create such a public policy because the bill didn't become law.
NJCAR President Jim Appleton said, "We're always disappointed when carriers revert to their go-to position, which is to deny coverage. It doesn't instill a great deal of faith in policyholders." The association isn't involved in the litigation.
Appleton said Congress or state legislatures are going to have to address the issue as a public policy matter.
The COVID-19 pandemic isn't the first and won't be the last such crisis, Appleton said, and "we have to ask the question of whether policy terms that exclude reasonably foreseeable business interruption are against public policy."
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