Valleybrook Country Club, LLC v. Hallmark Specialty Ins. Co.

1

VALLEYBROOK COUNTRY CLUB, LLC, et al, Plaintiffs, v. HALLMARK SPECIALTY INSURANCE COMPANY, et al, Defendants.

No. CAM-L-003124-20

Superior Court of New Jersey, Appellate Division

January 26, 2022

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE COMMITTEE ON OPINIONS

William M. Tambussi, Esquire, Sean P. O'Brien, Esquire Brown & Connery, LLP, Counsel for Plaintiffs.

Jordan M. Rand, Esquire, William A. Harvey, Esquire (pro hac vice) Klehr Harrison Harvey Branzburg LLP, Attorneys for Plaintiffs.

Courtney E. Murphy, Esquire, Kevin Lahm, Esquire (pro hac vice), David Walker, Esquire (pro hac vice), Robert Arnold, Esquire (pro hac vice), Hinshaw & Culbertson, LLP, Counsel for Defendants, Certain Underwriters at Lloyds of London, HDI Global SE, General Security Indemnity Company of Arizona, Crum & Forster Specialty Insurance Company, Western World Insurance Company and Safety Specialty Insurance Company.

Jonathan R. MacBride, Esquire, Meredith C. Schilling, Esquire, Matthew L. Gonzalez, Esquire (pro hac vice), Jennifer A. Hoffman, Esquire (pro hac vice), Zelle, LLP, Counsel for Defendants, Arch Specialty Insurance Company, Axis Surplus Insurance Company, Everest Indemnity Insurance and RSUI Indemnity Company.

Sarah E. Kalman, Esquire, Michael P. O'Day, Esquire (pro hac vice), A. Neill Thupari, Esquire (pro hac vice), DLA Piper LLP (US), Counsel for Defendants, Aviva Insurance Limited, a Member of Certain Underwriters at Lloyd's of London.

Peter E. Doyle, Esquire, Timothy M. Strong, Esquire (pro hac vice), Dickinson Wright PLLC, Counsel for Defendant, Evanston Insurance Company.

Patricia M. Henrich, Esquire, Margaret M, Jenks, Esquire, Reilly, McDevitt & Henrich, P.C., Counsel for Defendant, Homeland Insurance Company of Delaware.

Jeremiah L. O'Leary, Esquire, Finazzo Cossoiini O'Leary, Counsel for Defendant, Ironshore Specialty Insurance Company.

Robert M, Cavalier, Esquire, Lucas and Cavalier, LLC, Counsel for Defendant, Hallmark Specialty Insurance Company.

OPINION

STEVEN J. POLANSKY, P.J.Cv.

INTRODUCTION

Multiple defendants have filed the present Motion to Dismiss the Complaint pursuant to Rule 4:6-2.

Defendants, Arch Specialty Insurance Company, Axis Surplus Insurance Company, Everest Indemnity Insurance Company, Iron Shore Specialty Insurance Company, RSUI Indemnity Company, West Chester Surplus Lines Insurance Carrier, and Homeland Insurance Company of Delaware, have jointly filed a Motion to Dismiss the Complaint for failure to state a claim. Defendant Everest Insurance Company separately files a Motion to Dismiss the Complaint for Failure to State a Claim and joins in the motion filed by co-defendants.

Defendants Certain Underwriters at Lloyds of London (Unique Market Reference B123019AWS1637), HDI Global SE, General Security Indemnity Company of Arizona, Crum & Foster Specialty Insurance Company, Western World Insurance Company and Safety Specialty Insurance Company, identifying themselves as second layer excess insurers, also cross move to dismiss plaintiffs Second Amended Complaint for failure to state a claim upon which relief can be granted.

PLAINTIFF'S SECOND AMENDED COMPLAINT

Plaintiffs allege that they own or manage 21 hotel, resort and recreation destinations in multiple jurisdictions, including New Jersey. They assert a loss in excess of $10, 000, 000 allegedly resulting from the Covid-19 pandemic. The aggregate coverage available is alleged to be $500, 000, 000, The properties at which losses are alleged to have occurred include the States of New Jersey, Pennsylvania, North Carolina, Maryland, Florida, Colorado and West Virginia. It is claimed that the policy of insurance issued by Hallmark Specialty Insurance Company is part of the lead primary layer of $ 10, 000, 000 in coverage.

Plaintiffs assert they are entitled to coverage under the Hallmark policy for business interruption, extra expense, order of civil/military authority, contingent time element coverage, extended period of indemnity coverage, booking reservation interruption coverage, decontamination costs and professional fees. They claim that all other insurance policies follow the terms of the Hallmark policy.

The second amended complaint alleges in paragraph 88 that "Covid-19 is a highly contagious form of corona virus that spreads through respiratory droplets from infected individuals", and further alleges that "the virus can remain present for time periods ranging from several hours to multiple weeks" on contaminated surfaces. It is asserted that on January 31, 2020, President Donald Trump declared a public health emergency as a result of Covid-19. It is further alleged that on March 9, 2020, Governor Phil Murphy of New Jersey declared a State of Emergency and Public Health Emergency due to the pandemic. The New Jersey Stay-at-Home Order was issued March 21, 2020 by Governor Murphy banning all social gatherings and requiring the closure of all non-essential businesses until further notice.

The Complaint alleges that the other states involved issued either stay-at-home orders or closure orders between March 13, 2020 and April 7, 2020.

Plaintiffs allege that as a result of the pandemic and/or civil closure orders, they experienced a partial or total suspension of operations beginning March 16, 2020. Plaintiffs claim the following harm and damage was sustained:

98. The presence of the Covid-19 virus and/or the prospect of the Covid-19 virus is a risk of direct physical loss or damage and causes direct physical loss or damage to the Insured Properties.

99. The Covid-19 virus is capable of directly physically harming or damaging the Insured Properties by causing a physical, tangible, alteration that can seriously and detrimentally affect, impair, damage, or alter a property's value, usefulness, or normal function, rendering a property non-functional for its normal occupancy or use.

100. The presence of the Covid-19 virus physically alters a property and its existence on objects or surfaces renders a property unsafe or unusable for its normal purpose.

101. The Covid-19 virus has caused a direct physical loss or damage to the Insured Properties and the Covid-19 virus establishes a risk of direct physical loss or damage to the Insured Properties.

102. Insureds have sustained losses and extra expenses due to the necessary interruption of their business or the services provided because the ingress or egress to the Insured Properties has been prevented by the various Civil Closure Orders.

103. The various Civil Closure Orders were issued as a direct result of the Covid-19 virus and they prevented the ingress and egress to the Insured Properties and were a direct result of a loss covered by the Policies,

104. The Pandemic itself and the Civil Closure Orders caused many suppliers, attraction properties and customers of the Insureds to suspend or cease operations as well, resulting in considerable losses to the Insureds.

105. By way of example and not by way of limitation, the closure of theme parks in Orlando, Florida caused substantial losses at the proximate Insured Properties,

106. By way of further example and not by way of limitation, Plaintiff GFM derives fees based on a percentage of revenue generated by the Insured Properties that it manages, the partial or total closure of which caused GFM to incur substantial losses.

107. By way of further example and not by way of limitation, NPA derives revenue based on the volume of products purchased by the Insured Properties, the suspension or cessation of operations at which caused NPA to sustain substantial losses.

108. By way of further example and not by way of limitation, many of the Insured Properties rely on university events, large public events, corporate events and other large gatherings at or proximate to the Insured Properties that were suspended, closed or cancelled, thereby causing the Insureds to sustain substantial losses.

109. Certain of the Insured Properties experienced confirmed cases of Covid-19.

INSURANCE POLICIES

All of the policies contain a participating company endorsement which is identical in each policy. The endorsement reads as follows:

It is agreed this policy is a Participation policy. The participating Companies, hereafter referred to as Insurer(s) or Company(ies), agree to pay on behalf of an Insured the amount recoverable in accordance with the terms and conditions of this policy provided that:

(1)The collective liability of Participating Companies shall not exceed the Program Limit of Liability or any appropriate Sub-Limit of Liability including Annual Aggregate Limits.

(2)The liability of each of the Participating Companies shall not exceed the participation limit set against its name with the exception of loss adjustment and professional fees which cost shall be 100% assumed by the Companies on each applicable layer of insurance.

The designated lead/primary or controlling Company is Hallmark Specialty Insurance Company.

If a Company is designated as a lead/primary or controlling Company, then that Company's insurance policy shall be the policy that an excess Company(ies) will follow in their excess insurance policy, In the event of a quota share participation program, the lead/primary or controlling Company in a quota share layer will be the Company that other participating Companies in the same layer shall follow in the event of a coverage or claim management dispute. Subject to reasonable recommendations by Participating quota share Companies, the lead/primary or controlling Company shall lead the claim management process. Participating quota share Companies agree to act in good faith with the lead/primary or controlling Company.

All of the policies at issue on this motion, with the exception of the RSUI policy,...