Ocean Casino Resort in Atlantic City won’t receive $50 million in property insurance coverage. The property’s parent company claimed it was owed for damages suffered during the COVID-19 pandemic.
The New Jersey Supreme Court this week ruled that three property insurers aren’t liable for paying Ocean Casino for operational losses it incurred during the coronavirus emergency. Ocean Casino is controlled by an entity called AC Ocean Walk, LLC. The LLC is fully owned by Luxor Capital Group and Ilitch Holdings.
The crux of the case was determining if Ocean Casino suffered “direct physical loss” or “direct physical damage” to its property from the virus infiltrating the Boardwalk property. In a unanimous ruling, the New Jersey Supreme Court ruled it did not.
No Physical Damage
New Jersey Supreme Court Justice Anne Patterson said Ocean Casino Resort attorneys failed to pinpoint how the presence of a virus led to physical damage.
“Ocean Walk was required to demonstrate that its property was destroyed or altered in a manner that rendered it unusable or uninhabitable,” Patterson wrote for a unanimous court.
Patterson explained that Ocean attorneys claimed the direct physical damage to the property was the “actual and/or threatened presence of coronavirus particles.” The judge said those claims “do not support a finding of a ‘direct physical loss.’”
It alleges that, in compliance with governmental directives, it was forced to close to the public in March 2020 and that it reopened in July 2020 with restricted or limited operations,” Patterson continued. “Here, absent the executive orders, Ocean Walk would have been able to use its property for casino and other entertainment functions with no suspension of its operations.”
AIG Specialty Insurance, American Guarantee & Liability Insurance, and Interstate Fire & Casualty sought to have the Ocean Casino property coverage lawsuit dismissed on claims the policies included contamination exclusions. A lower state court and Patterson agreed that the contamination exclusion didn’t apply because the condition primarily deals with radioactive contamination, not contamination from a “virus,” “pathogen,” or “pathogenic organism.”
Patterson said the contamination from a virus didn’t result in physical damage, and therefore, didn’t warrant property insurance coverage.
“The property insurance policies issued by defendants set forth identical base policy forms. Each policy provided that it insured ‘against direct physical loss of or damage caused by a Covered Cause of Loss to Covered Property, at an Insured Location.’ Each policy contained a ‘contamination exclusion’ providing in part that — ‘unless it results from direct physical loss or damage not excluded by this Policy’ — ‘Contamination, and any cost due to Contamination including the inability to use or occupy the property or any cost of making the property safe or suitable for use or occupancy’ is excluded,” Patterson concluded.
Insurers Not Responsible for COVID Losses
The New Jersey Supreme Court decision is the latest victory for insurers, which have largely won COVID-19 property damage cases.
Penn Law’s “Covid Coverage Litigation Tracker” shows that among the more than 1,000 cases filed against insurance companies for not paying out on business interruption policies caused by COVID-19, less than two dozen have gone in the plaintiff’s favor.
AIG, American Guarantee, and Interstate Fire did pay Ocean $850K for claims on separate property coverages for “Interruption by Communicable Disease.”
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