New Jersey Supreme Court set to rule on Ocean Casino Resort's pandemic insurance exclusions

New Jersey's Supreme Court convened on Wednesday to deliberate on a pivotal case that could set a precedent for business interruption insurance claims related to pandemic-induced losses. The case revolves around Ocean Casino Resort in Atlantic City, which had $50 million in business interruption insurance coverage prior to the COVID-19 pandemic.

The Ocean Casino Resort's claim for coverage was contested by three insurers: AIG Specialty Insurance Co., American Guarantee & Liability Insurance Co., and Interstate Fire & Casualty Co. These insurers largely rejected the casino's claim, asserting that the casino had not suffered direct physical loss or damage due to the virus, the Associated Press (AP) reported.

Despite an initial legal victory for the casino against the insurers' attempt to dismiss the case, an appellate court later reversed that decision.

“This case presents a generational legal dispute that this court should resolve in order to provide needed clarity to hundreds of thousands of affected New Jersey policyholders and their insurers regarding the scope of coverage for losses arising from the pandemic,” Ocean wrote in court papers, as per the report.

Representatives for the insurance companies argued that their policies explicitly excluded viruses from coverage. They also contended that the casino failed to demonstrate steps taken to address or remove the virus, attributing the closure solely to an order issued by New Jersey Governor Phil Murphy on March 16, 2020, which mandated the closure of casinos until July 2 of the same year.

Stephen Orlofsky, legal counsel for Ocean Casino Resort, countered these claims, asserting that the casino had implemented measures in response to the virus, such as air filtration systems and the use of robust cleaning supplies.

However, David Roth, representing American Guarantee, emphasized that the policies necessitated physical damage to the property, which he argued did not occur at the casino. He cited rulings from 14 state Supreme Courts nationwide that determined that the mere interruption of business activity during the pandemic did not constitute physical losses, the AP report said.

Ocean Casino Resort maintained that, in addition to the governor's closure order, it shut down due to concerns about the virus affecting the physical surfaces and air quality within the casino.

Last year, the Supreme Court agreed to address key questions in the case, including whether a claim of physical damage caused by the coronavirus is sufficient to establish "direct physical loss of or damage to" insured property. Additionally, the court will consider whether insurers can legally restrict coverage for pandemic-related losses by including viruses in general pollution or "contamination" exclusions.

While the casino's primary claims were denied, it did receive $850,000 under a separate policy provision related to communicable diseases. As of the hearing, the Supreme Court has not issued a ruling, leaving the outcome of this crucial case pending.