By Hailey Konnath

Law360 (May 12, 2021, 9:18 PM EDT) -- Ralph Lauren Corp. isn't entitled to coverage for pandemic-related losses under its $700 million property insurance policy with Factory Mutual Insurance Co., a New Jersey federal judge ruled Wednesday, finding that the fashion giant hadn't specifically alleged physical loss or damage to its properties.

In her order, U.S. District Judge Susan D. Wigenton granted Factory Mutual's cross-motion for judgment on the pleadings and rejected Ralph Lauren's motion for partial judgment. In particular, the judge shot down Ralph Lauren's contention that stay-at-home orders and occupancy restrictions forced the shuttering of stores and reduced operations because of COVID-19, saying, "these allegations are insufficient."

"Nor does the alleged 'presence' of the virus in or around plaintiff's stores equate to actual or imminent physical loss or damage of any sort," she said. "Consistent with other courts' contractual interpretations in similar COVID-19-related insurance disputes, plaintiff's allegations are not enough."

Ralph Lauren had argued that the direct physical loss or damage requirement in the policy was satisfied by its loss of the ability to use its properties because of the presence of the virus. The company said the virus has presumably been present at its properties at some point because of the sweeping nature of the pandemic.

But Factory Mutual called that a "conclusory" statement, arguing that Ralph Lauren must point to specific evidence that COVID-19 was detected at the properties. The insurer also noted that in similar cases, Judge Wigenton has repeatedly ruled that other businesses' financial losses due to Garden State stay-at-home orders didn't fulfill the physical loss or damage requirement.

In Wednesday's order, Judge Wigenton said that even if Ralph Lauren had pled the existence of actual or imminent physical loss or damage, its claim is defeated by the policy's contamination exclusion.

The judge also noted that the clothing company didn't allege that any of its on-site customers or employees had COVID-19, nor did it provide any other reason to conclude that COVID-19 was present at its locations.

"Undoubtedly, the COVID-19 pandemic has altered the way in which businesses operate to prevent the Virus's spread," Judge Wigenton said. "Although this court is sympathetic to the very real losses businesses have suffered, it cannot grant plaintiff the relief it seeks under the policy's unambiguous terms."

Ralph Lauren lodged its suit in August, telling the court that the pandemic has forced its stores worldwide to shut down and caused the complete closure of its U.S. stores. The clothing company said that, despite efforts to sell online, its revenues slid 66% for the first quarter, its North American store sales fell 77%, and its wholesale sales dropped 93% from the previous year.

Ralph Lauren went after partial judgment on the pleadings in December, arguing that it is entitled to coverage under all of the policy provisions it invoked, not just the two communicable disease provisions. It also contended that the policy's contamination exclusion — which includes viruses among its list of contaminants — does not apply in this situation because it would "eviscerate" the coverage provided by the communicable disease provisions.

Meanwhile, Factory Mutual asserted that Ralph Lauren's coverage — if any — would be capped at a $1 million sublimit for costs associated with removing a "communicable disease," provided it can show the coronavirus was actually present on one or more of its properties. The insurer said Ralph Lauren had failed to demonstrate the direct physical loss or damage required by seven other policy provisions and, even if it had, recovery under those provisions would separately be barred by a number of exclusions, including one for losses attributable to "contamination."

Factory Mutual also scoffed at Ralph Lauren's suggestion that the contamination exclusion would erase the policy's sub-limited communicable disease coverage. According to the insurer, the communicable disease coverage provisions — which involve a different coverage trigger than the other provisions invoked by Ralph Lauren — are not affected by the contamination exclusion.

Counsel for the parties didn't immediately return requests for comment late Wednesday.

Ralph Lauren is represented by Kevin V. Small, Walter J. Andrews, Michael S. Levine, Scott P. DeVries and William Sowers of Hunton Andrews Kurth LLP.

Factory Mutual is represented by Robert F. Cossolini of Finazzo Cossolini O'Leary Meola & Hager LLC and Harvey Kurzweil, Kelly A. Librera, George E. Mastoris and Kerry C. Donovan of Winston & Strawn LLP.

The case is Ralph Lauren Corp. v. Factory Mutual Insurance Co., case number 2:20-cv-10167, in the U.S. District Court for the District of New Jersey.

--Additional reporting by Jeff Sistrunk and Daphne Zhang. Editing by Ellen Johnson.

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