Abruzzo Docg, Inc. v Acceptance Indemnity Insurance Company
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Attorneys and Parties
Brief Summary
Restaurant and hospitality businesses sought coverage under commercial all-risk property policies for COVID-19 shutdown-related losses and the cost of reconfiguring their premises to comply with government restrictions.
The Supreme Court, Kings County, granted the insurers' motions under CPLR 3211(a) [New York rule permitting dismissal of a pleading, including for failure to state a cause of action] and dismissed the first through sixty-third causes of action in the amended complaint as against each insurer.
The Appellate Division modified only the disposition of the first cause of action for declaratory relief. Rather than dismissing that claim, it directed that the motions be treated as seeking a declaration in the insurers' favor and remitted for entry of a judgment declaring no coverage. The remainder of the dismissal was affirmed.
The complaint alleged only operational and layout changes required by COVID-19 Executive Orders, such as takeout reconfiguration, barriers, altered floor plans, and moved entrances and exits. Those allegations did not amount to a material physical alteration or a complete and persistent dispossession of property, which is required for 'direct physical loss of or damage to' covered property under New York law. As to the California insured, California law led to the same result.
Background
The plaintiffs, owners of restaurants, bars, and dining establishments in New York City, alleged that they purchased commercial all-risk insurance policies covering 'direct physical loss of or damage to' their properties. They claimed that COVID-19 Executive Orders forced them to physically alter their premises to continue operations, including prioritizing takeout service, erecting barriers, reducing crowd density, and repositioning entrances and exits. After their insurers denied coverage, they sued for breach of contract and declaratory relief, contending the pandemic-related restrictions and resulting property changes triggered coverage.
Lower Court Decision
The Supreme Court, Kings County, granted the insurers' motions to dismiss the amended complaint under CPLR 3211(a). It dismissed the first through sixty-third causes of action insofar as asserted against each insurer, including the breach of contract claims and the declaratory judgment claim.
Appellate Division Reversal
The Appellate Division held that the lower court correctly dismissed the breach of contract claims because the alleged changes to the premises did not constitute 'direct physical loss of or damage to' property. Relying on Consolidated Restaurant Operations, Inc. v Westport Insurance Corp., the court explained that coverage requires either a material physical alteration perceptible in the property or an actual, complete, and persistent dispossession of the property, not merely impaired functionality or loss of use. The court also held that, for Global Dining, Inc., California law applied by agreement and likewise did not recognize the alleged injuries as physical loss or damage. The court modified the order only to convert dismissal of the declaratory judgment claim into a declaration in favor of the insurers and remitted for entry of judgment declaring that the insurers had no obligation to provide coverage.
Legal Significance
This decision reinforces that, in New York COVID-19 business interruption and property coverage litigation, government shutdown orders and compliance-driven alterations to restaurant operations do not satisfy the policy requirement of 'direct physical loss of or damage to' property. It also confirms the procedural rule that when a declaratory judgment claim presents only legal issues, a court should declare the parties' rights rather than merely dismiss the claim.
Restaurants cannot obtain property-policy coverage for pandemic restrictions simply by alleging that they rearranged or modified their spaces to comply with Executive Orders; absent a tangible material alteration or total, persistent dispossession of the premises, there is no covered direct physical loss or damage.