Second Circuit Holds No Coverage For COVID-19 Business Interruption Losses

The Second Circuit has now joined the Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits in holding that no insurance coverage exists for business interruption losses caused by the Covid-19 pandemic and the associated government orders.

In 10012 Holdings Inc. v. Sentinel Insurance Co. Ltd., No. 21-80-cv, Slip. Op. (2d Cir. Dec. 27, 2021), the insured fine arts gallery and dealership in New York City sought coverage under three provisions of its insurance policy for losses and extra expenses incurred when it suspended its operations in accordance with government restrictions on non-essential businesses during the Covid-19 pandemic.

When the insurer denied coverage, the insured filed suit asserting claims for breach of contract and declaratory judgment. The United States District Court for the Southern District of New York dismissed the claims with prejudice, and the insured appealed to the United States Court of Appeals for the Second Circuit.

On appeal, the insured argued that it was entitled to coverage under the Business Income and Extra Expense provisions of its policy because the policy’s use of the term ‘direct physical loss,’ which appeared in both provisions and which the policy did not define, included circumstances where the insured was merely deprived of access to its business property.