Hunton Insurance Recovery Blog

The Northern District of New York recently awarded summary judgment to insurer Affiliated Factory Mutual Insurance Co. against Mohawk Gaming Enterprises, a casino and resort operated by the Saint Regis Mohawk Tribe located on the border of New York and Canada. Mohawk Gaming sued AFM seeking recovery of business income losses due to the COVID-19 pandemic. In granting the insurer’s motion, however, the court failed to consider all parts of the AFM policy, as required under New York law, and failed to afford meaning to specific language contained in the policy’s two communicable disease sections, each of which specifically contemplate that “communicable disease,” as defined and covered under the AFM policy, can cause loss and damage to property. Instead, the court followed other decisions from “numerous courts around the country,” each of which is based on inherently flawed reasoning (e.g., reliance on cases where no presence of virus was alleged or cases that clearly and broadly excluded loss caused by virus), to conclude that the presence of virus “is insufficient to trigger coverage when the policy’s language requires physical loss or physical damage.” In fact, a federal court in Texas recently rejected the very same reasoning employed in Mohawk Gaming after recognizing that the FM/AFM policy form “is much broader than [others] and expressly covers loss and damage caused by ‘communicable disease.’” See Cinemark Holdings, Inc. v. Factory Mut. Ins. Co., No. 4:21-cv-00011 (E.D. Tex. May 5, 2021).

On Wednesday, a federal judge in Texas denied Factory Mutual’s Rule 12(c) motion for judgment on the pleadings, finding that the plaintiffs adequately alleged that the presence of COVID-19 on their property caused covered physical loss or damage in the case of Cinemark Holdings, Inc. v. Factory Mutual Insurance Co., No. 4:21-CV-00011 (E.D. Tex. May 5, 2021). This is the third COVID-19-related business interruption decision from Judge Amos Mazzant since March, but the first in favor of a policyholder. Taken together, the three decisions have two key takeaways and provide a roadmap for policyholders in all jurisdictions.

On Wednesday, a federal judge in New York denied FM’s Rule 12(c) motion for judgment on the pleadings after finding the Contamination Exclusion in the Factory Mutual policy to be ambiguous as to whether it bars coverage for business interruption losses resulting from communicable disease.  The case is Thor Equities, LLC v. Factory Mutual Ins. Co., No. 20 Civ. 3380 (AT) (SDNY).  This is a critical decision under the Factory Mutual policy form, which is substantively the same as policies issued by Factory Mutual’s sister company, Affiliated FM Insurance Company.  Factory Mutual and Affiliated FM have maintained that the contamination coverages are “exceptions” to this exclusion, with the exclusion precluding coverage for communicable disease loss under other policy coverages.  But the ruling validates what policyholders have been arguing – that communicable disease “loss” is covered throughout the Factory Mutual policy, in addition to under the sublimited communicable disease emergency response coverages.

A New York trial court has ruled that TransCanada Energy USA Inc. (TransCanada) is entitled to recover $58 million from its property insurers for loss caused by a cracked generator turbine rotor.  The recovery encompasses approximately $7 million in property damage to the cracked turbine and more than $50 million in lost profits.