AC Ocean Walk v. Am. Guarantee & Liab. Ins. Co.

• Docket Number: 087304
• Decision Date: 24 January 2024
• Citation: AC Ocean Walk v. Am. Guarantee & Liab. Ins. Co., 256 N.J. 294, 307 A.3d 1174 (N.J. 2024)
• Parties: AC OCEAN WALK, LLC, PLAINTIFF-APPELLANT, v. AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, AIG SPECIALTY INSURANCE COMPANY, AND INTERSTATE FIRE AND CASUALTY COMPANY, DEFENDANTS-RESPONDENTS, AND NATIONAL FIRE & MARINE INSURANCE COMPANY, DEFENDANT.
• Court: New Jersey Supreme Court

256 N.J. 294

307 A.3d 1174

AC OCEAN WALK, LLC, PLAINTIFF-APPELLANT, v. AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, AIG SPECIALTY INSURANCE COMPANY, AND INTERSTATE FIRE AND CASUALTY COMPANY, DEFENDANTS-RESPONDENTS, AND NATIONAL FIRE & MARINE INSURANCE COMPANY, DEFENDANT.

A-28 September Term 2022

087304

Argued September 27, 2023—Decided January 24, 2024

On certification to the Superior Court, Appellate Division.

Stephen M. Orlofsky argued the cause for appellant AC Ocean Walk, LLC (Blank Rome, attorneys; Stephen M. Orlofsky, Michael A. Iannucci, Michael R. Darbee, Justin F. Lavella of the District of Columbia and Virginia bars, admitted pro hac vice, and Alexander H. Berman of the District of Columbia and Virginia bars, admitted pro hac vice, on the briefs).

David R. Roth (Wiggin and Dana) of the Connecticut and New York bars, admitted pro hac vice, argued the cause for respondent American Guarantee and Liability Insurance Company (Ford Marrin Esposito Witmeyer & Gleser and Wiggin and Dana, attorneys; Edward M. Pinter, Jon R. Grabowski, Caroline McKenna, David R. Roth, and Jeffrey R. Babbin (Wiggin and Dana) of the Connecticut and District of Columbia bars, admitted pro hac vice, on the joint briefs).

Brett Solberg of the Texas bar, admitted pro hac vice, argued the cause for respondent Interstate Fire & Casualty Company (DLA Piper, attorneys; Michael D. Hynes, on the joint briefs).

Keith Moskowitz of the Illinois, New York, and Connecticut bars, admitted pro hac vice, argued the cause for respondent AIG Specialty Insurance Company (Dentons US, attorneys; Shawn L. Kelly, on the joint briefs).

Nicholas M. Insua argued the cause for amicus curiae United Policyholders (Reed Smith, Lite DePalma Greenberg & Afanador, and Hunton Andrews Kurth, attorneys; Nicholas M. Insua, Bruce D. Greenberg, Kevin V. Small, Lorelie S. Masters (Hunton Andrews Kurth) of the District of Columbia and New York bars, admitted pro hac vice, Michael S. Levine (Hunton Andrews Kurth) of the District of Columbia, New York, Massachusetts and Virginia bars, admitted pro hac vice, and Olivia G. Bushman (Hunton Andrews Kurth) of the District of Columbia, Virginia, and California bars, admitted pro hac vice, on the brief).

Sherilyn Pastor submitted a brief on behalf of amicus curiae Restaurant Law Center (McCarter & English, attorneys; Sherilyn Pastor and David R. Kott, of counsel and on the brief).

Daniel E. Bryer submitted a brief on behalf of amici curiae Insurance Council of New Jersey, American Property Casualty Insurance Association, and National Association of Mutual Insurance Companies (Robinson & Cole, attorneys; Daniel E. Bryer and Wystan ?. Ackerman of the Connecticut, New York, and Massachusetts bars, admitted pro hac vice, on the brief).

Michael A. Moroney submitted a brief on behalf of amicus curiae Medical Society of New Jersey (Flynn Watts, attorneys; Michael A. Moroney, on the brief).

Esther Berezofsky submitted a brief on behalf of amicus curiae New Jersey Association for Justice (Motley Rice New Jersey, attorneys; Esther Berezofsky, on the brief).

JUSTICE PATTERSON delivered the opinion of the Court.

In this insurance coverage action, plaintiff AC Ocean Walk, LLC (Ocean Walk) seeks coverage under its commercial property insurance policies for losses sustained during the pandemic caused by the SARS-CoV-2 virus (the COVID-19 pandemic).

Ocean Walk, which operates a casino and other entertainment facilities, alleged that it suspended its operations on the effective date of an executive order mandating the closure of facilities to the public because of the COVID-19 pandemic, and then resumed limited operations approximately three months later when another executive order lifted some of the restrictions. It claimed that by virtue of the presence of SARS-CoV-2 in its facilities and its government-mandated temporary suspension of operations, it had sustained a "direct physical loss" of or "direct physical … damage" to its property as those terms are used in the insurance policies issued by defendants. Ocean Walk also argued that an exclusion in the policies for certain claims based on "contamination" did not bar its coverage claims. It contended that it was therefore entitled to up to $50,000,000 in coverage under the policies.

The insurers denied coverage under the provisions of the policies, except for coverage under an endorsement subject to a $1,000,000 sublimit. Ocean Walk filed an action for a declaratory judgment, damages, and other relief.

The trial court denied motions to dismiss for failure to state a claim filed by three of the insurers. The court concluded (1) that Ocean Walk’s alleged business losses constituted a "direct physical loss" of or "direct physical … damage" to its property, and (2) that those losses were not excluded from coverage under the policies’ contamination exclusion. The Appellate Division reversed as to both determinations.

We concur with the Appellate Division that Ocean Walk has not pled facts supporting a conclusion that its business losses were caused by a "direct physical loss" or "direct physical … damage" under the policy language. We further agree with the appellate court that even if Ocean Walk had pled facts supporting a finding of a covered "loss" or "damage," the losses it alleges are excluded from coverage by the policies’ contamination exclusion.

Accordingly, we affirm the Appellate Division’s judgment reversing the trial court’s denial of the defendant insurers’ motions to dismiss.

I.

A.

On June 28, 2018, Ocean Walk opened Ocean Casino Resort, located on the Atlantic City Boardwalk. The facility consisted of 138,000 square feet of casino and gaming space, including the largest virtual gaming suite in the United States; hotel accommodations; bars; cafés; restaurants; a nightclub; a beach club; meeting spaces; pools; spas; fitness centers; and a concert venue.

This appeal centers on three commercial insurance policies issued to Ocean Walk: a policy issued by defendant American Guarantee and Liability Insurance Company (AGLIC); a policy issued by defendant AIG Specialty Insurance Company (AIG); and a policy issued by defendant Interstate Fire & Casualty Company (IFCC). Ocean Walk alleges that, in combination with a policy issued by defendant National Fire & Marine Insurance Company (NFMIC), the AGLIC, AIG, and IFCC policies obligated the insurers to provide Ocean Walk up to $50,000,000 of primary policy limits per occurrence, in excess of any applicable deductible for the policy period.

The property insurance policies issued by AGLIC, AIG, and IFCC 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," subject to the terms, conditions, and exclusions stated in the policy. Each policy defined a "Covered Cause of Loss" to denote "[a]ll risks of direct physical loss of or damage from any cause unless excluded." Each policy defined "Covered Property" to include, among other categories of property, the insured’s interest in "buildings (or structures) including new construction, additions, alterations, and repairs that the [i]nsured owns, occupies, leases or rents," as well as the insured’s "interest in Personal Property, including Improvements and Betterments."

The policies issued by AGLIC, AIG, and IFCC contained an "Interruption by Communicable Disease" amendatory endorsement. Subject to a $1,000,000 sublimit, each insurer’s amendatory endorsement provided in part that the insurer

will pay for the actual Gross Earnings loss sustained by the Insured, as provided by this Policy, resulting from the necessary Suspension of the Insured’s business activities at an Insured Location if the Suspension is caused by order of an authorized governmental agency enforcing any law or ordinance regulating communicable diseases and that such portions of the location are declared uninhabitable due to the threat of the spread of communicable disease, prohibiting access to those portions of the Location.

Each policy contained a "contamination exclusion" providing in part that

[t]his Policy excludes the following 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 property or any cost of making property safe or suitable for use or occupancy, except as provided by the Radioactive Contamination Coverage of this Policy ….

The policies defined "contamination" as "[a]ny condition of [the] property due to the actual presence of any foreign substance, impurity, pollutant, hazardous material, poison, toxin, pathogen or pathogenic organism, bacteria, virus, disease causing or illness causing agent, Fungus, mold or mildew."

The insurance policies issued by AGLIC, AIG, and IFCC were in effect between January 4, 2020 and January 4, 2021.

B.

On March 9, 2020, Governor Philip D. Murphy issued Executive Order 103. The Executive Order identified COVID-19 as a "contagious, and at times fatal, respiratory disease caused by the SARS-CoV-2 virus." The order acknowledged the rapid growth of the COVID-19 pandemic and the occurrence of confirmed cases in New Jersey and nearby states, and declared that "a Public Health Emergency and State of Emergency exist in the State of New Jersey." Exec. Order No. 103 (Mar. 9, 2020), https://nj.gov/infobank/eo/056murphy/pdf/EO-103.pdf.

On March 16, 2020, Governor Murphy issued Executive Order 104, which, among other provisions, ordered that "casino gaming floors, including retail sports wagering lounges, and casino concert and entertainment venues" be closed to the public "for as long as this Order remains in effect." Exec. Order No. 104 (Mar. 16, 2020), https://nj.gov/infobank/eo/056murphy/pdf/EO104.pdf.

Five days later, Governor Murphy issued Executive Order 107, which superseded Executive Order 104’s operative paragraphs and closed to...