Valley Health Sys. v. Zurich Am. Ins. Co.

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VALLEY HEALTH SYSTEM INC., VALLEY HOSPITAL FOUNDATION, INC., THE VALLEY HOSPITAL, INC., VALLEY HOME CARE, INC., VALLEY PHYSICIAN SERVICES, P.C. AND VALLEY PHYSICIAN SERVICES, P.C., N.Y., Plaintiff, v. ZURICH AMERICAN INSURANCE COMPANY, Defendants,

No. BER-L-1907-21

Superior Court of New Jersey, Law Division, Bergen

October 18, 2021

NOT TO BE PUBLISHED WITHOUT THE APPROVAL OF THE COMMITTEE ON OPINIONS

Argued: August 27, 2021

Lynda A. Bennet, Esq. appearing on behalf of plaintiff (from Lowenstein Sandler LLP)

Edward M. Pinter, Esq. appearing on behalf of defendant (from Ford Marrin Esposito Witmeyer & Gleser, L.L.P.)

OPINION

Honorable Robert C. Wilson, J.S.C.

FACTUAL BACKGROUND

THIS MATER arises out of a dispute between plaintiffs Valley Health System Inc., Valley Hospital Foundation, Inc. The Valley Hospital, Inc., Valley Home Care, Inc., Valley Physician Services, P.C. and Valley Physician Services, P.C. N.Y. (collectively the "Plaintiffs") and defendant Zurich American Insurance Company (the "Defendant") regarding a dispute over coverage of an insurance policy due to the Covid-19 Pandemic.

Plaintiffs are healthcare providers that operate a hospital and other healthcare facilities throughout northern New Jersey and New York. Plaintiffs allege that they have suffered substantial financial losses because of the Covid-19 pandemic and the resulting actions and orders of federal, state, and local civil authorities. Plaintiffs claim they lost revenue because, in accordance with CDC guidance, New Jersey issued orders to limit person-to-person contact to curb the further transmission of the coronavirus. These orders cancelled or postponed all elective surgeries or invasive procedures beginning on March 27, 2020, until they were permitted to resume on May 26, 2020.

Plaintiffs allege that their property has been damaged by the presence of the coronavirus at their locations and that a number of their employees and patients tested positive Covid-19. Plaintiffs submitted an insurance claim to Defendant for their alleged business interruption losses. Following an investigation, Defendant agreed to pay the limits of the Interruption by Communicable Disease coverage under the policy, which extends certain limited coverage for certain losses from a government order due to the threat of the spread of communicable disease, without a showing of direct physical loss or damage. Defendant denied coverage under all the other provisions of the policy. Plaintiffs allege that Defendant has breached its contract and seek a declaratory judgment for coverage under its insurance policy.

The Policy

Defendant issued a Zurich EDGE Healthcare property insurance policy to Plaintiffs (the "Policy"). The Policy had an effective date of March 20, 2020, and a termination date of March 20, 2021. Plaintiffs allege that they are entitled to coverage under the following sections of the Policy: Time Element Coverage; Extra Expense Coverage; Civil or Military Authority Coverage; Contingent Time Element Coverage; and Protection and Preservation of Property Coverage. Each of these sections, condition coverage on there being direct physical loss or damage.

For the reasons set forth below, all the Defendants' Motions to Dismiss are hereby GRANTED.

MOTION TO DISMISS STANDARD UNDER RULE 4:6-2(e)

In considering a motion to dismiss under Rule 4:6-2(e), the Court must search the pleading in depth and with liberality to determine whether a cause of action is suggested by the facts, Printing Mart-Morristown v. Sharp Elec. Corp., 116 N.J. 739, 746 (1989). The Court must ascertain whether the fundament of a cause of action may be gleaned even from an obscure statement of a claim, opportunity being given to amend, if necessary. The essential test as set forth in Green v. Morgan Properties, 215 N.J. 431, 451 (2013), the Supreme Court decision governing a motion to dismiss is whether a cause of action is suggested by the facts. When addressing a motion to dismiss, the Court is permitted to review and consider documents identified in the pleadings. Myska v. New Jersey Manufacturers Insurance Co., 440 N.J.Super. 458, 42 (App. Div. 2015). Nevertheless, a pleading should be dismissed if it states no basis for relief and discovery would provide one. Camden County Energy Recovery Associates v. New Jersey Department of Environmental Protection, 320 N.J.Super. 59, 64-65, (App. Div. 1999) affirmed, 170 N.J. 246 (2001).

Questions of law are particularly suited for resolution through motion by the Court. Shields v. Ramslee Motors, 240 N.J. 479 (2020) and Badiali v. New Jersey Manufacturers Insurance Group, 220 N.J. 544, 555 (2015). Questions involving insurance coverage are always determined by the terms and conditions of a policy and the interpretation of an insurance contract is a question of law for the Court and can be often resolved by motions. Weedo v. Stone-E-Brink, Inc., 155 N.J.Super. 474, 479 (App. Div. 1977).

An insurance policy is a contract enforced as written when its terms are clear in order that the expectations of the parties will be fulfilled. Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010). An insurance policy is interpreted by the Court in accordance with its plain and ordinary meaning. Memorial Properties, LLC v. Zurich American Insurance Co., 210 N.J. 412, 425 (2012). Courts cannot rewrite a policy's terms to find coverage where the policy plainly provides none. Pizzullo v. New Jersey Manufacturers Insurance Co., 196 N.J. 251, 270 (2008).

The plain language of a policy is unambiguous. Courts shall not engage in estranged construction to support the imposition of liability or write a better policy for the insured than the policy that was purchased. Oxford Realty Group Cedar v. Travelers Excess and Surplus Lines Co., 299 N.J. 196, 207 (2017). When the policy is clear and unambiguous, a Court is bound to enforce it. Longobardi v. Chubb Insurance Co., 121 N.J. 530, 537 (1990).

Lastly, a party seeking coverage under an insurance agreement bears the burden of demonstrating that the underlying claim falls within the coverage provisions of the insuring agreement. Hartford Accident and Indemnity Co. v. Aetna Life and Casualty Insurance Co., 98 N.J. 18. However, regarding exclusions of coverage under an insurance policy, the burden of proof is on an insured to prove that the exclusion applies. Generally, the insurance policy exclusions must be narrowly construed. The burden is on the insured to bring the case within the exclusion. Flomerfelt, supra, 202 N.J. at 442 (quoting American Motorist Insurance Co. v. LCA Sales Co., 155 N.J 29, 41 (1998). Where an exclusionary clause is involved, such clauses are narrowly tailored.

Indeed, it is the insurer's burden to establish the exclusion. Phribro Animal Health Corporation v. National Union Fire Insurance Co., 446 N.J. 419, 442-443 (App. Div. 2016). Courts must be careful, however, not to disregard the clear import and intent of a policy's exclusion. Far-fetched interpretations of a policy exclusion are insufficient to create ambiguity requiring coverage. Wear v. Selective Insurance Co., 455 N.J.Super. 440, 454 (App. Div. 2018).

Thus, in the absence of any ambiguity, Courts should not write for the insured a better policy of insurance than the one purchased, including the enforcement of an exclusion. Gibson v. Callahan, 158 N.J. 662, 670 (1999).

RULES OF LAW AND DECISION

New Jersey Interpretation of Insurance Policies

The interpretation of an insurance policy is a question of law. Sosa v. Mass. Bay Ins. Co., 458 N.J.Super. 639, 646 (App. Div. 2019). Under New Jersey law, "the basic rule is to determine the intention of the parties from the language of the policy, giving effect to all of its parts so as to accord a reasonable meaning to its terms." Stone v. Royal Ins. Co., 226 N.J Super. 246, 248 (App. Div. 1986). Courts read the contract as a whole "in a fair and common-sense manner." Cypress Point Condominium Ass'n, Inc. v. Adria Towers L.L.C., 226 N.J. 403, 415 (2016). An insurance policy should be enforced as written when its terms are clear. Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010). Although New Jersey courts generally read policies in favor of the insured, they "should not write for the insured a better policy . . . than the one purchased." Port Auth. Of New York & New Jersey v. Affiliated FM Ins. Co., 311 F.3d 226, 235 (3d Cir. 2002) (citing Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517 (1989)); President v. Jenkins, 180 N.J. 550, 562 (2004) ("If the policy terms are clear, courts should interpret the policy as written and avoid writing a better insurance policy than the one purchased.").

As such, courts interpret policy language according to its plain and ordinary meaning. Jenkins, 180 N.J. at 562. "Rules of construction favoring the insured cannot be employed to disregard the clear intent of the policy language." Stone, 211 N.J.Super. At 249. As stated by the New Jersey Supreme Court, "In attempting to discern the meaning of a provision in an insurance contract, the plain language is ordinarily the most direct route. If the language is clear, that is the end of the inquiry." Chubb Custom Ins. Co. v. Prudential Ins. Co. of Am., 195 N.J. 231, 238 (2008). A Court should not engage in a strained construction to find coverage. Longobardi v. Chubb Ins. Co. of New Jersey, 121 N.J. 530, 537 (1990). Exclusionary clauses are presumptively valid and are enforced if they are specific, plain, clear, prominent, and not contrary to public policy. Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997).

There is No Direct Physical Loss of or Damage to any Covered Property

To state a viable claim for coverage, the insured bears the initial burden of demonstrating that its...