By Bill Wichert

Law360 (February 9, 2021, 3:40 PM EST) -- A New Jersey federal judge has nixed a proposed class action against Twin City Fire Insurance Co. from an eye care practice challenging the insurer's refusal to cover its losses related to the COVID-19 pandemic, finding that a policy's virus exclusion barred such coverage.

In granting Twin City's motions, U.S. District Judge Kevin McNulty on Monday dismissed with prejudice the individual and class claims from the Eye Care Center of New Jersey, which sought to recoup the losses it incurred when the practice stopped conducting non-emergency medical procedures due to government restrictions aimed at curbing the spread of the coronavirus.

The judge concluded that Twin City, a subsidiary of the Hartford Financial Services Group Inc., properly denied Eye Care's claim based on the exclusion barring "coverage for losses 'caused directly or indirectly by' the '[p]resence, growth, proliferation, spread or any activity of ... virus.'"

"Eye Care's losses were 'caused directly or indirectly' by COVID-19. Eye Care curtailed its operations in compliance with governmental COVID-based restrictions," Judge McNulty said in his written opinion. "But for the 'spread' of COVID-19, governments would not have issued closure orders, and Eye Care would not have stopped performing non-emergency procedures."

Other federal and state judges in the Garden State have made similar findings about virus exclusions in COVID-19 coverage cases, Judge McNulty noted.

In one matter, U.S. District Judge Susan D. Wigenton on Jan. 19 handed Arch Insurance Co. a win in a suit by several Minor League Baseball teams that claimed Arch wrongly denied coverage for COVID-19-related losses.

New Jersey Superior Court Judge Steven J. Polansky on Nov. 5 also found that a bakery's expectation for COVID-19 business loss insurance coverage is "not reasonable," since the policy's virus exclusion is "clear and unambiguous."

"The Third Circuit, New Jersey Supreme Court, and the Appellate Division have not spoken on this issue," Judge McNulty said. "In the meantime, opinions of this court and one trial-level New Jersey court provide strong persuasive authority."

The judge rejected Eye Care's arguments for why the virus exclusion does not apply to its claim.

Eye Care contended the provision requires that the virus be physically present at the business and its property was not contaminated by COVID-19, court documents state. But Judge McNulty said "there is no textual limitation indicating that the virus must be present at the property."

"Rather, the clause excludes coverage for losses caused by the spread of viruses generally, and adds that it extends to both direct and indirect causation," the judge said.

The ophthalmology practice further argued that its losses were caused by the orders issued by the state, not the coronavirus itself, court documents state.

The judge, however, noted the exclusion provides that "coverage does not apply if losses are caused 'directly or indirectly by' a virus" and that the provision "applies 'regardless of any other cause or event that contributes concurrently or in any sequence to the loss.'"

"Courts have read such language to mean that losses from COVID-19 closures are covered by the virus exclusion because COVID-19 could still be considered an indirect or sequential cause," Judge McNulty said. "I am persuaded by that reasoning, and see no reason to depart from the case-law consensus."

Since Eye Care "fails to state an individual claim, its claims on behalf of a class fail too," the judge added. In dismissing the case with prejudice, the judge said "the dismissal is based on the court's reading of the plain language of the policy" and thus "amendment would be futile."

Counsel for the parties did not immediately respond to requests for comment Tuesday.

Eye Care is represented by Samuel H. Rudman, Paul J. Geller and Stuart A. Davidson of Robbins Geller Rudman & Dowd LLP, Christopher A. Seeger and Stephen A. Weiss of Seeger Weiss LLP and James E. Cecchi and Lindsey H. Taylor of Carella Byrne Cecchi Olstein Brody & Agnello PC.

Twin City is represented by James L. Brochin, Sarah D. Gordon and Anna M. Stressenger of Steptoe & Johnson LLP and Alan E. Schoenfeld and Ryan M. Chabot of Wilmer Cutler Pickering Hale and Dorr LLP.

The case is The Eye Care Center of New Jersey PA v. Twin City Fire Insurance Co., case number 2:20-cv-05743, in the U.S. District Court for the District of New Jersey.

--Additional reporting by Daphne Zhang and Mike Curley. Editing by Janice Carter Brown.

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