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Yet another victim of Governor Phil Murphy's COVID shutdowns....

The New Jersey Appellate Division just dismissed an appeal brought by Wawa which sought to compel their insurance companies to pay the lost business income and extra expenses for losses suffered due to the COVID pandemic and related government-ordered shutdowns.

Wawa's policy stated they would be covered for "physical tangible alteration to their property." The court rejected Wawa's contention that respiratory particles - droplets and airborne aerosols - are physical substances that could have physically and tangibly altered its insured property.

Wawa purchased a high-end, all risk commercial liability Master Policy from a group of insurance carriers. This policy was in effect January 1, 2020 through January 1, 2021.

This policy included Contamination and Microorganism Exclusions.

The Contamination exclusion stipulates that the insurance policy does not insure any loss, damage, cost or expense.. which is incurred, sustained or imposed by, "any kind of seepage or any kind of pollution and/or contamination."

Seepage is defined to include: 1) seepage of, or pollution and/or contamination by, anything . . . ; and, 2) the presence, existence, or release of anything which endangers or threatens to endanger the health, safety or welfare of persons or the environment.

The Microorganism clause stipulates that the insurance policy does not insure any loss, damage, claim, cost, expense or other sum directly or indirectly arising out of or relating to: mold, mildew, fungus, spores or other microorganism of any type, nature, or description, including but not limited to any substance whose presence poses an actual or potential threat to human health.

This exclusion applies regardless whether there is (i) any physical loss or damage to insured property; (ii) any insured peril or cause, whether or not contributing concurrently or in any sequence; (iii) any loss of use, occupancy, or functionality; or (iv) any action required, including but not limited to repair, replacement, removal, cleanup, abatement, disposal, relocation, or steps taken to address medical or legal concerns.

When the pandemic and associated government-ordered shut downs broke out, Wawa was considered an essential business operation. However, they still incurred substantial loss of business and income as they were forced to temporarily close stores each time an employee tested positive for COVID-19, and nearly all of Wawa's stores had at least one employee test positive for COVID-19 during or after March 2020.

They filed a claim with their insurance carriers asserting that they were "rendered nonfunctional and unusable for on-the-go food services, which deprived them of the physical use intended for its premises." Wawa also averred that its covered premises "suffered physical damage or the imminent threat of physical damage" due to the impact the coronavirus had on the airspace and other physical components of the premises. 

The insurance carriers declined coverage because they alleged the policies did not cover the COVID-19 related losses. In addition, they contended that coverage was barred by the policies' Contamination Exclusion and Mold, Mildew and Fungus Clause and Microorganism Exclusion.

Wawa filed a lawsuit in New Jersey Superior Court in Camden County, contending that the insurance carriers breached their policies by denying coverage. 

Wawa argued it suffered a direct physical loss of damages to its properties, triggering insurance coverage.

On June 30, 2022, the trial court dismissed the complaint, finding that there was no direct physical loss of, or damage to Wawa's premises, and "no need to repair or replace property as required in calculating the time-period for any business interruption or extra expense claim."

Wawa appealed the decision.

In a written ruling just released, Appellate Division Judges Currier, Firko, and Vanek rejected these claims and affirmed the lower court's order.

The Appellate panel relied heavily on their earlier decision in Mac Prop. Grp., LLC v. Selective Fire & Cas. Ins. Co., in which the court found similar claims were not covered under almost identical insurance policies.

In Mac Property, several plaintiffs sought declaratory judgments enforcing Business Income and Civil Authority provisions to cover losses they incurred during the COVID-19 pandemic after being forced to shut down or restrict their operations. The court rejected their claim, holding the term "direct physical loss of or damage to" (which is the loss covered under their insurance policy)was "not so confusing that average policyholders . . . could not understand that coverage extended only to instances where the insured property has suffered a detrimental physical alteration . . . or there was a physical loss of the insured property."

In that matter, the court found that "the mere presence of the virus on surfaces [does] not physically alter the property, nor [does] the existence of airborne particles carrying the virus."

Wawa's arguments - and their policies exclusions - are almost identical to those of the claimants in Mac Property. The policies here require physical tangible alteration to property.

Thus, based on our holding in Mac Property, in which we already determined that coronavirus on surfaces does not satisfy the definition of physically altered property, we reject Wawa's contention that respiratory particles - droplets and airborne aerosols - are physical substances that could have physically and tangibly altered its insured property. Since 

Specifically, Wawa did not allege that COVID-19 was present on their properties, rendering them uninhabitable, nor did they suffer any "direct physical loss or damage" to its properties, rather their losses were due to "restrictions imposed by [EOs] to curb the COVID-19 pandemic."

However, like the plaintiffs in Mac Property, their policies clearly and unambiguously require a suspension of a claimant's business be caused by a physical tangible alteration to the property.

Wawa did not lose its physical capacity to operate. None of Wawa's properties required any repairs, rebuilding, or replacement due to damage. Further, there was no physical alteration making Wawa's covered properties dangerous to enter, and there was no "direct physical loss or damage." Therefore, the insurance carriers were not required to extend coverage under the Loss or Damage Insured and Real and Personal Property provisions of the Policies.

Importantly, there is one specific claim which Wawa put forth, and the court did even feel worthy of any response.

"Exclusions in insurance contracts 'are presumptively valid and will be given effect if [they are] "specific, plain, clear, prominent, and not contrary to public policy."'" Mac Property, quoting Princeton Ins. Co. v. Chunmuang.

Accordingly, Wawa contended that the Contamination Exclusion and Mold, Mildew and Fungus Clause and Microorganism Exclusion provisions in its Policies do not apply and are contrary to New Jersey public policy.

Essentially, Wawa's argument was that the problematic clauses of their own agreement should be stricken simply because it is "contrary to public policy."

Apparently, the court told them, "sorry, that just ain't how we do business here!"

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