ROCKLEIGH COUNTRY CLUB, LLC v. HARTFORD INSURANCE GROUP (L-4013-20, BERGEN COUNTY AND STATEWIDE) ( 2022 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1826-21
ROCKLEIGH COUNTRY
CLUB, LLC,
Plaintiff-Appellant,
v.
HARTFORD INSURANCE
GROUP a/k/a THE HARTFORD
d/b/a HARTFORD FIRE
INSURANCE COMPANY,
STRATEGIC INSURANCE
PARTNERS, INC., PHILIP D.
MURPHY, in his capacity as
Governor of the State of New Jersey,
and STATE OF NEW JERSEY,
Defendants -Respondents.
______________________________
Argued May 9, 2022 – Decided June 21, 2022
Before Judges Sumners and Vernoia.
On appeal from an interlocutory order of the Superior
Court of New Jersey, Law Division, Bergen County,
Docket No. L-4013-20.
Gary S. Newman argued the cause for appellant
(Newman & Denburg, LLC, attorneys; Gary S.
Newman, of counsel and on the brief; David F. Scheidel
II, on the brief).
Jonathan M. Freiman (Wiggin and Dana, LLP) of the
Connecticut bar, admitted pro hac vice, argued the
cause for respondents Hartford Insurance Group
(Steptoe & Johnson, LLP, Jonathan M. Freiman, Sarah
D. Gordon (Wiggin and Dana, LLP) of the Virginia bar,
admitted pro hac vice, and Anjali S. Dalal, (Wiggin and
Dana, LLP) of the New York bar, admitted pro hac vice,
attorneys; James L. Brochin, Jonathan M. Freiman,
Sarah D. Gordon and Anjali S. Dalal, on the brief).
Carl A. Salisbury argued the cause for amicus curiae
United Policyholders (Bramnick, Rodriguez, Grabas,
Arnold & Mangan, attorneys; Carl A. Salisbury, on the
brief).
PER CURIAM
Plaintiff Rockleigh Country Club, LLC, owns and operates a facility that
conducts "pre-contracted for and pre-planned social events [such as] weddings."
In March 2020, Governor Philip D. Murphy issued Executive Order 107 (EO
107) in response to the COVID-19 pandemic. Exec. Order No. 107 (Mar. 21,
2020), 52 N.J.R. 554(a) (Apr. 6, 2020). In pertinent part, EO 107 "cancelled"
"[g]atherings of individuals, such as parties, celebrations, or other social
events," required the closure of "[t]he brick-and-mortar premises of all non-
essential retail businesses," and mandated the closure of "[a]ll recreational and
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entertainment business." In accordance with EO 107, plaintiff closed its venue
pending further orders from the Governor.
Plaintiff submitted a claim to defendant Hartford Insurance Company for
business interruption coverage under a one-year Special Multi-Flex Business
Insurance Policy (the policy) defendant issued to plaintiff on March 1, 2020.
Plaintiff sought coverage for business losses and expenses it incurred due to the
closure of its facility in response to EO 107's requirements and restrictions.
Defendant denied plaintiff's claim.
Plaintiff filed a complaint against defendant seeking damages, a
declaratory judgment and asserted fourteen causes of action, including breach
of contract, breach of the covenant of good faith and fair dealing, bad faith,
fraud, and others. Plaintiff also asserted causes of action, not relevant to this
appeal, against its insurance broker, defendant Strategic Insurance Partners,
Inc., and Governor Murphy.
By leave granted, plaintiff appeals from an order granting defendant
summary judgment on thirteen of the asserted claims, all of which are founded
on the contention defendant wrongfully denied coverage under the policy for
business losses plaintiff sustained, and expenses plaintiff incurred, as a result of
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the closure of its business pursuant to EO 107.1 Plaintiff also appeals from an
order denying its motion for summary judgment on three counts of its
complaint.2
Defendant offers the following arguments for our consideration:
POINT I
THE APPELLATE STANDARD OF REVIEW.
A. A grant or denial of summary judgment is reviewed
de novo.
B. Insurance ambiguity is always interpreted in favor of
the insured.
POINT II
THE LOSSES STEMMING FROM GOVERNOR
MURPHY'S EOS ARE A COVERED CAUSE OF
LOSS.
A. Long standing New Jersey precedent mandates
coverage for loss of use and function.
1
Plaintiff's complaint included fourteen separate counts asserting causes of
action against defendant. Defendant moved for summary judgment on thirteen
of the causes of action—those asserted in counts one through ten and eleven
through fourteen. Defendant did not move for summary judgment on count
eleven, which remains pending before the trial court.
2
Plaintiff sought summary judgment on counts: one, which sought a declaratory
judgment on plaintiff's business interruption coverage claim; two, which alleged
breach of contract; and five, which sought a declaratory judgment on plaintiff's
extra expense coverage claim.
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B. The terms "direct physical loss of" and "direct
physical damage to" must be interpreted to provide
[plaintiff] coverage for its loss of function to effectuate
the reasonable expectations of the insured.
POINT III
THE COURT BELOW ALSO ERRED BY FINDING
NO COVERAGE UNDER THE "CIVIL
AUTHORITY" POLICY PROVISIONS.
POINT IV
THE COURT BELOW ERRED BY RULING THAT
"LOSS OF FUNCTION" IS NOT THE EQUIVALENT
OF "DIRECT PHYSICAL DAMAGE" OR "DIRECT
PHYSICAL LOSS" VIOLATING [PLAINTFF]'S
REASONABLE EXPECTATIONS OF COVERAGE.
POINT V
STATE LAW MANDATES COVERAGE[] FOR
PLAINTIFF[] FOR LOSSES DUE TO GOVERNOR
MURPHY'S "SHUTDOWN ORDER" C[AU]SING
COMPLETE LOSS OF FUNCTION[.]
A. Policy Exclusions are narrowly construed to provide
coverage whenever possible.
B. "Virus" is NOT the cause of loss as there was
NEITHER "virus" AT the premises NOR has Hartford
demonstrated that it can be used as a sword to thwart
coverage.
C. Alternatively, application of the "Virus Exclusion"
DOES NOT apply because the cause for the Executive
Orders of Governor Murphy CANNOT exclude
coverage for an emergency situation which did not exist
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at the Plaintiff[]'s premises and is well beyond the
scope of the "virus exclusion[.]"
Unpersuaded by plaintiff's arguments, we affirm.
"We review de novo [a] grant of summary judgment." Branch v. Cream-
O-Land Dairy, 244 N.J. 567, 582 (2021). Similarly, where, as here, a motion
court's "decision . . . turns on its construction of a contract, appellate review of
that determination is de novo." Manahawkin Convalescent v. O'Neill, 217 N.J.
99, 115 (2014). Summary judgment is proper if the record demonstrates "no
genuine issue as to any material fact challenged and that the moving party is
entitled to a judgment . . . as a matter of law." Burnett v. Gloucester Cnty. Bd.
of Chosen Freeholders, 409 N.J. Super. 219, 228 (App. Div. 2009) (quoting R.
4:46-2(c)).
In determining the meaning of an insurance policy provision, a court must
"first look to the plain meaning of the language at issue." Oxford Realty Grp.
Cedar v. Travelers Excess & Surplus Lines Co., 229 N.J. 196, 207 (2017). The
parties' agreement must be "enforced as written when its terms are clear in order
that the expectations of the parties will be fulfilled." Flomerfelt v. Cardiello,
202 N.J. 432, 441 (2010). Thus, in the absence of a specific definition in a
policy, a word or term "must be interpreted in accordance with [its] ordinary,
plain and usual meaning." Daus v. Marble, 270 N.J. Super. 241, 251 (App. Div.
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1994). A court "should not 'engage in a strained construction to support the
imposition of liability' or write a better policy for the insured than the one
purchased." Chubb Custom Ins. Co. v. Prudential Ins. Co. of Am., 195 N.J. 231,
238 (2008) (quoting Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 272-73
(2001)). Thus, if there is no ambiguity in a policy's terms, those terms should
be enforced "as written." Zacarias v. Allstate Ins. Co., 168 N.J. 590, 597 (2001).
Alternatively, if a policy's language is ambiguous, a court may utilize
rules of construction beyond the four corners of the contract. Oxford Realty,
229 N.J. at 207. Courts usually "construe insurance contract ambiguities in
favor of the insured via the doctrine of contra proferentem." Id. at 208. This
allows for consideration of "the vast differences in the bargaining positions
between an insured and an insurance company in the drafting of an insurance
policy," therefore permitting interpretation of a contract against the drafter.
Villa v. Short, 195 N.J. 15, 23 (2008). Moreover, a court may consider the
insured's "reasonable expectations." Oxford Realty, 229 N.J. at 208. More
particularly, if the policy's language "fairly supports two meanings, one that
favors the insurer and the other that favors the insured, the policy should be
construed to sustain coverage." President v. Jenkins, 180 N.J. 550, 563 (2004).
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A court must "read the policy in favor of the insured" if there is a "genuine
ambiguity" in the contract, meaning that "the phrasing of the policy is so
confusing that the average policyholder cannot make out the boundaries of
coverage." Templo Fuente De Vida Corp. v. Nat'l Union Fire Ins. Co. of
Pittsburg, 224 N.J. 189, 200 (2016) (quoting Progressive, 166 N.J. at 274).
Policy terms, like those in the policy we are required to consider on appeal here,
are "not ambiguous merely because two conflicting interpretations of it are
suggested by the litigants." Powell v. Alemaz, Inc., 335 N.J. Super. 33, 44 (App.
Div. 2000).
Because resolution of plaintiff's arguments on appeal is dependent on the
proper interpretation of the policy, we first summarize its pertinent provisions.
The policy includes a "PROPERTY CHOICE COVERAGE FORM[,]" defining
the terms and conditions of the coverage to which plaintiff claims entitlement.
Under the section entitled "COVERAGE," plaintiff is afforded coverage where
it suffers a "direct physical loss of or direct physical damage to . . . Covered
Property caused by or resulting from a Covered Cause of Loss." The policy
defines "Covered Cause of Loss" as a "direct physical loss or direct physical
damage . . . unless the loss or damage is excluded or limited." It also defines
"Covered Property" as plaintiff's buildings or structures, and business or
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personal property including fixtures and furniture. Thus, the policy provides
coverage for losses resulting from the "direct physical loss of or direct physical
damage" to plaintiff's event facility, as long as the cause of that loss is not
otherwise specifically excluded.
The policy also provides coverage under defined circumstances for loss
of business income and extra expense suffered because of "direct physical loss
of or direct physical damage to" plaintiff's property "caused by or resulting from
a Covered Cause of Loss." More specifically, in a section entitled "PROPERTY
CHOICE – BUSINESS INCOME AND EXTRA EXPENSE COVERAGE
FORM," the policy provides "business interruption" coverage
for the actual loss of [b]usiness [i]ncome [plaintiff]
sustain[s] and the actual, necessary[,] and reasonable
[e]xtra [e]xpense [plaintiff] incur[s] due to the
necessary interruption of [plaintiff's] business
operations during the Period of Restoration due to
direct physical loss of or direct physical damage to
property caused by or resulting from a Covered Cause
of Loss at "Scheduled Premises[.]"
[(Emphasis added).]
The policy further includes "Civil Authority" coverage for business
interruption losses for "the actual loss of [b]usiness [i]ncome" or an "actual,
necessary and reasonable [e]xtra [e]xpense" incurred when "access to
[plaintiff's] '[s]cheduled [p]remises' is specifically prohibited by order of a civil
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authority as the direct result of a Covered Cause of Loss to property in the
immediate area." (Emphasis added).
The policy also includes express exclusions from coverage, including the
provision plaintiff refers to as the virus exclusion. 3 The exclusion provision
states defendant "will not pay for loss or damage caused directly or indirectly
by . . . [the p]resence, growth, proliferation, spread or any activity of 'fungus,'
wet rot, dry rot, bacteria or virus." The policy also provides that "[s]uch loss or
damage is excluded regardless of any other cause or event that contributes
concurrently or in any sequence to the loss or damage." Furthermore, the virus
exclusion applies "whether or not the loss event results in widespread damage
or affects a substantial area."4
3
The exclusion is actually entitled "'Fungus,' Wet Rot, Dry Rot, Bacteria or
Virus" and is included in the "EXCLUSIONS" section of the "PROPERTY
CHOICE – COVERED CAUSES OF LOSS AND EXCLUSIONS FORM"
endorsement to plaintiff's policy.
4
Under the virus exclusion, "if direct physical loss or direct physical damage
to Covered Property by a 'Specified Cause of Loss' results," defendant agreed to
"pay for the resulting loss or damage caused by that 'Specified Cause of Loss.'"
There is no coverage under this provision because, as we explain, plaintiff did
not suffer a "direct physical loss or direct physical damage to Covered Property"
under the policy. Additionally, the policy contains two exceptions to the virus
exclusion. The exclusion does not apply "[w]hen 'fungus,' wet rot, dry rot,
bacteria or virus results from fire or lightning," and, where, "coverage is
provided in the Additional Coverage(s) – 'Fungus,' Wet Rot, Dry Rot, Bacteria
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In its detailed written opinion granting defendant's summary judgment
motion and denying plaintiff's motion for summary judgment, the motion court
carefully considered and analyzed the pertinent policy provisions. The court
found there was no business income or extra expense coverage because plaintiff
did not establish that its "inability to use its premises to host large social
gatherings[] constitute[d] physical loss of or physical damage to its property. "
More particularly, the court found the policy provides business
interruption coverage only where business losses and extra expense are "due to
direct physical loss or direct physical damage to property caused by or resulting
from a Covered Cause of Loss" at the property. The court concluded that
because the closure of defendant's facility was the result of EO 107, and not any
actual physical loss of or damage to plaintiff's property, the business losses
resulting from closure were not covered under the policy's plain and
unambiguous language. The court rejected plaintiff's argument that a "loss of
use" alone constitutes "direct physical loss or direct physical damage." In other
words, the court found that absent some actual physical loss of or damage to the
or Virus – Limited Coverage with respect to loss or damage by a cause of loss
other than fire or lightning." Neither of the exceptions applies here.
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property—as opposed to plaintiff's inability to open its facility pursuant to EO
107—plaintiff did not suffer a covered loss under the policy.
The court also rejected plaintiff's claim that it was entitled to coverage
under the Civil Authority provision. The court noted there is coverage under
the provision where "access to" plaintiff's property "is specifically prohibited by
order of a civil authority as the direct result of a Covered Cause of Loss to
property in the immediate area." The court held "plaintiff's claim fails" because
plaintiff did not identify a "Covered Cause of Loss," meaning a "physical
damage or loss in or near the Premises," that prompted the governmental orders.
The court reasoned that a Covered Cause of Loss under the policy is defined as
actual physical damage to or loss of property, and the record lacks any evidence
plaintiff was denied use of its property under the EO 107 as "a direct result" of
any such damage in the immediate area of its property. To the contrary, to the
extent EO 107 denied plaintiff access to its property, the prohibitions and
limitations imposed by the order were based solely on the threat posed by the
COVID-19 pandemic.
The motion court further concluded the virus exclusion bars any claim for
coverage under the policy. The court rejected plaintiff's argument the virus
exclusion is inapplicable because it is limited to circumstances where a virus is
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present at the insured property. The court noted other policy exclusions are
conditioned upon circumstances being present on the insured property, but the
virus exclusion is not. The court further found EO 107 was clearly issued in
response to the threat posed by the COVID-19 virus, and, as such, any losses
plaintiff suffered as a result of the mandated closure were "caused directly or
indirectly by" the virus, and thus fell within the exclusion's plain language.
On appeal, plaintiff does not contend there are any genuine issues of
material fact that precluded the court's summary judgment award to defendant.
Instead, plaintiff reprises the arguments it made before the motion court and
contends the court erred as a matter of law in its interpretation of the policy.
Plaintiff claims it is entitled to coverage for the losses it suffered from the
closure of its business pursuant to EO 107 because the closure constituted a
"Covered Cause of Loss" under the policy. The argument is grounded in the
contention the court erred by interpreting "direct physical loss of or direct
physical damage to" its property to require actual physical damage or loss.
Plaintiff contends, as does amici United Policyholders, that the closure of
plaintiff's business pursuant to EO 107 constitutes a "direct physical loss of or
direct physical damage to" its property within the meaning of the business
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interruption and Covered Cause of Loss provisions of the policy and, for that
reason, it is entitled to coverage.
Plaintiff also argues it is entitled to coverage under the Civil Authority
provision because it is undisputed EO 107 constituted "an order of civil
authority" under the policy, and, by mandating closure of plaintiff's facility, the
order resulted in a direct physical loss of and direct physical damage to the
insured property. Moreover, Plaintiff contends the virus exclusion is
inapplicable because there is no evidence the virus was present on the property,
and the closure of its business operations was caused by EO 107 and not by the
COVID-19 virus.
We have carefully considered plaintiff's arguments, but it is unnecessary
that we address them in detail in this opinion. In the first instance, we affirm
the summary judgment orders substantially for the reasons set forth in the court's
thorough and thoughtful written opinion. In addition, in our opinion in
Mattdogg, Inc. v. Philadelphia Indemnity Insurance Company, we carefully
considered, exhaustively addressed, and rejected the identical arguments
plaintiff relies on in support of its appeal and amici contends support a reversal
of the court's summary judgment orders. ___ N.J. Super. ___, ___ - ___ (App.
Div. 2022) (slip op. at 22-52). Our reasoning and holdings in Mattdogg, Inc.
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apply with syllogistic precision here, and they support our determination the
court correctly granted defendant's motion for summary judgment and denied
plaintiff's motion for summary judgment.
Affirmed.
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