Tory Burch, LLC v. Zurich American Insurance Company

NOT FOR PUBLICATION WITHOUT THE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-1566-21

TORY BURCH, LLC,

Plaintiff-Appellant,

v.

ZURICH AMERICAN
INSURANCE COMPANY,

Defendant-Respondent.
___________________________

Submitted November 9, 2023 – Decided December 6, 2023

Before Judges Currier and Firko.

On appeal from the Superior Court of New Jersey, Law
Division, Union County, Docket No. L-0829-21.

Blank Rome LLP, attorneys for appellant (Stephen M.
Orlofsky, Michael Ray Darbee, Lisa M. Campisi and
Helen K. Michael (Blank Rome LLP) of the District of
Columbia and Maryland bars, admitted pro hac vice, on
the briefs).

Edward M. Pinter (Ford Marrin Esposito Witmeyer &
Gleser, LLP), Jon R. Grabowski (Ford Marrin Esposito
Witmeyer & Gleser, LLP), Jeffrey R. Babbin (Wiggin
and Dana LLP) of the Connecticut and District of
 Columbia bars, admitted pro hac vice, and David R.
Roth (Wiggin and Dana LLP) of the Connecticut and
New York bars, admitted pro hac vice, attorneys for
respondent (Edward M. Pinter, Jon R. Grabowski,
Jeffrey R. Babbin and David R. Roth, on the brief).

Flynn Watts, LLC, attorneys for amicus curiae Medical
Society of New Jersey (Michael A. Moroney, on the
brief).

Kevin Vincent Small (Hunton Andrews Kurth, LLP)
attorney for amicus curiae United Policyholders.

PER CURIAM

Plaintiff Tory Burch, LLC, an American women's fashion brand with over

300 stores globally and three located in New Jersey, appeals from a January 6,

2022 order granting defendant Zurich American Insurance Company's motion to

dismiss. We affirm.

I.

Plaintiff purchased an all-risk insurance Policy (Policy) from defendant

for the Policy period December 31, 2019, to December 31, 2020, and a renewal

Policy for the Policy period December 31, 2020, to December 31, 2021. The

Policy provisions are the same in both Policies. The Policies insure against

"direct physical loss of or damage to" plaintiff's property. However, the Policies

only contemplate certain kinds of losses.

The Policies provide for coverage as follows:

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A. INSURING AGREEMENT

The Covered Cause of Loss provision states:

This Policy Insures against direct physical loss of or
damage caused by a Covered Cause of Loss to
Covered Property, at an Insured Location described in
Section II-2.01, all subject to the terms, conditions and
exclusions stated in this Policy.

No coverage can be provided in violation of any U.S.
economic or trade sanctions laws or regulations. Such
coverage, which may be in violation of any U.S.
economic or trade sanctions laws and regulations, shall
be null and void and the Company shall not be liable to
make any payments or provide any defense under this
policy.

Each Policy defines "Covered Cause of Loss" as "all risks of direct

physical loss of or damage from any cause unless excluded" and define "Covered

Property" as follows:

This Policy insures the following property, unless
otherwise excluded elsewhere in this Policy, located at
an Insured Location or within 1,000 feet thereof or as
otherwise provided for in this Policy.

The Insured's interest in buildings (or structures)
including new construction, additions, alterations, and
repairs that the Insured owns, occupies, leases or rents.

The Insured's interest in Personal Property, including
Improvements and Betterments.

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 Property of Others will not extend any Time Element
Coverage provided under this Policy to the owner of the
property and is limited to property:

In the Insured's care, custody or control;

In which the Insured has an insurable interest or
obligation;

For which the Insured is legally liable; or

For which the Insured has agreed in writing prior
to any loss or damage to provide coverage.

Personal Property of officers and employees of
the Insured.

B. EXCLUSIONS

The Policies exclude several types of risk from coverage due to

contamination, stating:

This Policy excludes the following unless it
results from direct physical loss or damage not
excluded by this Policy.

Contamination, and any cost due to
Contamination including the inability to
use or occupy property or any cost of
making property safe or suitable for use or
occupancy, except as provided by the
Radioactive Contamination Coverage of
this Policy.

Changes in size, color, flavor, texture or
finish.

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 Loss or damage arising from the
enforcement of any law, ordinance,
regulation or rule regulating or restricting
the construction, installation, repair,
replacement, improvement, modification,
demolition, occupancy, operation or other
use, or removal including debris removal
of any property.

This Policy excludes:

Loss or damage arising from delay, loss of
market, or loss of use.

Indirect or remote loss or damage

Contamination (Contaminated) is defined as "[a]ny condition of property due to

the actual presence of any foreign substance, impurity, pollutant, hazardous

material, poison, toxin, pathogen or pathogenic organism, bacteria, virus,

disease causing or illness causing agent, Fungus, mold or mildew."

Contaminant(s) is defined as "[a]ny solid, liquid, gaseous, thermal or other

irritant, pollutant or contaminant, including but not limited to smoke, vapor,

soot, fumes, acids, alkalis, chemicals, waste (including materials to be recycled,

reconditioned or reclaimed), asbestos, ammonia, other hazardous substances,

Fungus or Spores."

C. TIME ELEMENT COVERAGE

The Time Element provisions state in pertinent part:

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 The Company will pay for the actual Time Element loss
the Insured sustains, as provided in the Time Element
Coverages, during the Period of Liability. The Time
Element loss must result from the necessary
Suspension of the Insured's business activities at an
Insured Location. The Suspension must be due to direct
physical loss of or damage to Property (of the type
insurable under this Policy other than Finished Stock)
caused by a Covered Cause of Loss at the Location,
or as provided in Off Premises Storage for Property
Under Construction Coverages.

These Time Element coverages are subject to exclusions—like the

Contamination Exclusion—and are limited to a "Period of Liability," which is

the period of time necessary to "repair" or "replace" lost or damaged property

and resume operations. The provision states:

For building and equipment: The period starting from
the time of physical loss or damage of the type insured
against and ending when with due diligence and
dispatch the building and equipment could be repaired
or replaced, and made ready for operations under the
same or equivalent physical and operating conditions
that existed prior to the damage. The expiration of this
Policy will not limit the Period of Liability.

In March 2020, in response to the COVID-19 pandemic, Governor Phil

Murphy declared a state of emergency and issued Executive Orders (EOs),

which suspended non-essential business operations, including retail stores. See

EO No. 103 (Mar. 9, 2020), 52 N.J.R. 549(a) (Apr. 6, 2020); EO No. 107 (Mar.

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21, 2020), 52 N.J.R. 554(a) (Apr. 6, 2020) (hereinafter collectively referred to

as the "EOs").

As a result, plaintiff was forced to close its businesses to the public from

March to May 2020. Plaintiff alleged it suffered a substantial loss of business

and income when the EOs were in effect. Plaintiff sought coverage through its

insurance Policies with defendant. However, defendant declined coverage

because it alleged the Policies did not cover the COVID-19 related losses. In

addition, defendant alleged coverage was barred by the Policies' Contamination

Exclusion.

In response, plaintiff brought suit for a declaratory judgment and to

compel defendant to provide insurance coverage to plaintiff (1) for property

damage and business interruption due to the COVID-19 virus and pandemic; and

(2) for breach of contract.

Defendant moved to dismiss the complaint under Rule 4:6-2(e), arguing

the plain language of the Policies did not cover the losses at issue. Following

argument, the trial court granted the motion and dismissed plaintiff's amended

declaratory complaint 1 with prejudice, finding there was no direct physical loss

1
The record does not contain the original declaratory judgment complaint and
no explanation is given for the amended pleading being filed.
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of or damage to plaintiff's property, and the Contamination Exclusion applied

because the Governor issued the EOs in response to the COVID-19 virus. The

trial court found the Contamination Exclusion "was clear and unambiguous and

excluded coverage for [c]ontamination and any cost due to [c]ontamination

including the ability to use or occupy property or any cost of making property

safe or suitable for use or occupancy."

On appeal, plaintiff argues the usage limitations imposed by the EOs

constituted physical loss or damage to its properties, and that the Policies

provide for such coverage under the Covered Cause of Loss provision. Plaintiff

avers the trial court erred by improperly discounting its allegations that COVID -

19 caused physical alterations to its insured premises. Plaintiff contends the

Contamination Exclusion does not bar coverage because the EOs, not the virus

itself, caused the closures. Plaintiff also argues that even if the Contamination

Exclusion did apply, the doctrine of regulatory estoppel bars defendant from

asserting it. We granted leave to the Medical Society of New Jersey to file an

amicus curiae brief, which supports plaintiff's contentions and to the United

Policy Holders to file an amicus curiae brief, which supports defendant's

contentions.

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 II.

Our review of a Rule 4:6-2(e) motion to dismiss for failure to state a claim

upon which relief can be granted is de novo. Baskin v. P.C. Richard & Son,

LLC, 246 N.J. 157, 171 (2021) (citing Dimitrakopoulos v. Borrus, Goldin,

Foley, Vignuolo, Hyman & Stahl, P.C., 237 N.J. 91, 108 (2019)). We "must

examine 'the legal sufficiency of the facts alleged on the face of the complaint,'

giving the plaintiff the benefit of 'every reasonable inference of fact.'" Ibid.

(quoting Dimitrakopoulos, 237 N.J. at 107). To determine the adequacy of a

pleading, we must determine "whether a cause of action is 'suggested' by the

facts." Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746

(1989) (quoting Velantzas v. Colgate-Palmolive Co., 109 N.J. 189, 192 (1988)).

When "interpreting insurance contracts, we first examine the plain

language of the policy and, if the terms are clear, they 'are to be given their plain,

ordinary meaning.'" Pizzullo v. N.J. Mfrs. Ins. Co., 196 N.J. 251, 270 (2008)

(quoting Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595 (2001)). The policy

must "be enforced as written when its terms are clear" so the "expectations of

the parties will be fulfilled." Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010).

If an insurance policy is ambiguous, courts will construe the terms in favor

of the insured. Mac Prop. Grp. LLC & The Cake Boutique LLC v. Selective

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Fire & Cas. Ins. Co., 473 N.J. Super. 1, 18 (App. Div. 2022) (quoting Oxford

Realty Grp. Cedar v. Travelers Excess & Surplus Lines Co., 229 N.J. 196, 208

(2017)). This doctrine only applies if there is a genuine ambiguity in the

contract, and "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 Pittsburgh, 224 N.J. 189, 200 (2016)

(quoting Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 274 (2001)).

III.

Plaintiff argues it suffered a covered loss or damage because of the EOs

mandating business closures during the COVID-19 pandemic. Plaintiff first

asserts the trial court erred in granting the motion to dismiss. Plaintiff argues

the verbiage "physical loss of or damage to" found in the Policies provides

coverage for either "physical loss" or "damage," and the trial court erred when

it determined "direct physical loss or damage" required "physical alteration" of

plaintiff's properties.

Plaintiff contends the provision must be construed to provide coverage for

either a (1) material loss of use or diminution in the use of the insured's

properties for its insured purpose, or (2) material harm to such property.

Plaintiff contends the actual and threatened presence of the coronavirus caused

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physical loss of or damage to its property requiring it to "implement costly

protective measures" and restricted or completely suspended its operations.

Plaintiff's arguments are virtually identical to those of the claimants in

Mac Property. In Mac Property, several businesses sought insurance coverage

for lost business based on policies, which contained the language "direct

physical loss of or damage to covered property" after the COVID-19 EOs

required non-essential businesses to close. 473 N.J. Super. at 12-16. We

rejected their theory, holding the term "direct physical loss of or damage to"

covered property was "not so confusing that average policyholders . . . could not

understand that coverage extended only to instances where the insured property

has suffered a detrimental physical alteration . . . or there was a physical loss of

the insured property." Id. at 21-22.

While New Jersey has "adopted a broad notion of the term 'physical[,]'"

when the word is paired with another term, the resulting phrase means

"'detrimental alteration[],' or 'damage or harm to the physical condition of a

thing.'" Id. at 20 (second alteration in original) (quoting Phibro Animal Health

Corp. v. Nat'l Union of Fire Ins. Co., 446 N.J. Super. 419, 437-38 (App. Div.

2016)). In Mac Property, we found it significant there was no damage to any of

the equipment or property of the businesses. Id. at 23. In addition, we rejected

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the notion that use of the words "loss" and "damage" required a distinction. Id.

at 26. We also found the distinction argued by the claimants in that case to be

"irrelevant . . . because the contention 'ignore[d]' the fact that the relevant

coverage provisions provided that 'the loss itself must be a "direct physical" loss,

clearly requiring a direct, physical deprivation of possession.'" Id. at 26

(alteration in original) (citing Verveine Corp. v. Strathmore Ins. Co., 184 N.E.3d

1266, 1277 (Mass. 2022)).

Here, the disputed Policies state the period of liability "starts from the

time of physical loss or damage" and "end[s] when, with due diligence and

dispatch, the building and equipment could be repaired or replaced, and made

ready for operations under the same or equivalent physical and operating

conditions that existed prior to the damage."

The above language is similar to the policy language in Mac Property.

Plaintiff's Policies clearly and unambiguously require that suspension of a

claimant's business be "caused by direct physical loss of or damage to [the]

property." Applying the holding in Mac Property, it follows that the Policies

should be applied as they are written. We interpret the Policies' requirement of

physical loss of or damage to property to require "a direct, physical deprivation

of possession" of the property. Mac Property, 473 N.J. Super. at 26. The EOs

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barred plaintiff from operating its property for its intended purpose at full

capacity but did not physically deprive plaintiff from possessing it.

We note plaintiff cites Port Auth. of N.Y. & N.J. v. Affiliated FM Ins.

Co., 311 F.3d 226 (3d Cir. 2002), for the proposition that "New Jersey courts

have interpreted the physical loss or damage requirement broadly, holding that

the loss of use, loss of access, loss of value, or uninhabitability of property

constitutes physical loss or damage." Port Authority substantially predates our

decision in Mac Property, and in any event is not controlling.2

We next address the Contamination Exclusion in the Policies.

Exclusionary provisions in insurance contracts "are presumptively valid and will

be given effect if 'specific, plain, clear, prominent, and not contrary to public

policy.'" Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997) (quoting Doto

v. Russo, 140 N.J. 554, 559 (1995)). "Where the words of an exclusionary clause

2
In Port Authority, the Third Circuit held that an insured which owned a
building with "asbestos . . . present in the components of a structure, but . . . not
in such form or quantity as to make the [structure] unusable" had not suffered a
"loss" under the insured's all risk policy. Port Authority, 311 F.3d. at 236. Only
the actual release of the asbestos fibers or the "imminent threat" of such a release
could qualify as a "loss" under the all-risk policy. Ibid. The Third Circuit
recently affirmed this principle in Wilson v. USI Ins. Serv. LLC, 57 F.4th 13,
138 (3d Cir. 2023). We find in the record no imminent threat of a "release"
which would eliminate or destroy the functionality of plaintiff's property or
render it useless or uninhabitable. Id. at 142.

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are clear and unambiguous, 'a court should not engage in a strained construction

to support the imposition of liability.'" Aviation Charters v. Avemco Ins. Co.,

335 N.J. Super. 591, 594 (App. Div. 2000) (quoting Longobardi v. Chubb Ins.

Co. of N.J., 121 N.J. 530, 537 (1990)). "Where there are several interpretations

of an exclusion's meaning" a court "would tend to favor the one for coverage,"

however, this does not mean "that any far-fetched interpretation of a policy

exclusion will be sufficient to create an ambiguity requiring coverage."

Aviation Charters, 335 N.J. Super. at 594 (citations omitted).

Plaintiff contends the Contamination Exclusion in the Policies does not

apply because the proximate cause of plaintiff's loss was not COVID-19, but the

EOs. We addressed the same proximate cause argument in Mac Property and

held the EOs "were only issued to curb the COVID-19 pandemic, making the

virus the efficient proximate cause of plaintiffs' losses." Mac Property, 473 N.J.

Super. at 40. We concluded "the [EOs] were inextricably intertwined with

COVID-19" and "[b]ecause plaintiffs' business losses thus were 'caused by or

resulted from' [the] COVID-19 virus, their policies' endorsements bar

coverage." Ibid. The facts here are virtually identical and we find no reason to

deviate from the sound reasoning espoused in Mac Property.

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 We also reject plaintiff's argument that it is entitled to discovery and to

serve expert reports to show the coronavirus physically altered its property.

Defendant counters plaintiff never alleged that coronavirus was on its property ,

and plaintiff conceded it could not prove the coronavirus was present at its

commercial premises.

In Mac Property, we asserted that "the mere presence of the virus on

surfaces [does] not physically alter the property, nor [does] the existence of

airborne particles carrying the virus." Mac Property, 473 N.J. Super. at 24

(quoting Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327, 337 (7th

Cir. 2021)). Thus, based on our holding in Mac Property, we reject plaintiff's

contention that respiratory particles—droplets and airborne aerosols—are

physical substances that could have physically and tangibly altered its insured

property. Since the Policies here require physical tangible alteration to property,

and it has already been determined that coronavirus on surfaces could not

physically alter property, factual and expert discovery would be futile.

We also reject plaintiff's argument that the Policies cover the mere "risk

of" physical loss or damage regardless of whether the coronavirus was actually

present or caused harm to its store locations. As stated, the Policies provide

coverage for "direct physical loss or damage caused by a Covered Cause of Loss

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to Covered Property, at an Insured Location." In Mac Property, we addressed

that argument and concluded that a "Covered Cause of Loss" was defined as a

"Risk of Direct Physical Loss." Mac Property, 473 N.J. Super. at 25.

Plaintiff argues its "reasonable expectation" that the Contamination

Exclusion should be limited to "traditional environmental hazards" be construed

to warrant coverage. However, the Contamination Exclusion is clear and

unambiguous, and therefore, it is unnecessary for us to consider plaintiff's

subjective interpretation. See Passaic Valley Sewerage Com'rs v. St. Paul Fire

& Marine Ins. Co., 206 N.J. 596, 608 (2011) (stating an insured's reasonable

expectations are only considered when the court finds the relevant language

ambiguous).

Next, plaintiff argues that a "Virus Deletion Endorsement" removed the

words "virus" and "pathogen" from the Policies' definition of "contamination,"

and the Contamination Exclusion—as amended—does not bar coverage.

Plaintiff argues this "modification was not an accident" because it was required

by the Louisiana Department of Insurance. Plaintiff argues the "Amendatory

Endorsement – Louisiana" supersedes the Contamination Exclusion. We

disagree. Had defendant intended for state-titled endorsements using general

prefatory language to ignore geographical boundaries, then it would not use

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geographic identifiers with conflicting terms between endorsements unless the

endorsements were meant to be state-specific. See Couch on Insurance § 18.20

("[T]he policy [and its endorsement] must be considered as a whole and the

caption read in connection with the remainder of the contents.") If we adopted

plaintiff's interpretation of the Policies, it would render the geographic identifier

of all the state-title endorsement meaningless.

Moreover, the Federal District Court of New Jersey, as well as other

courts, have addressed the identical language in COVID-19 insurance actions

and have held the Louisiana Endorsement amending the Contamination

Exclusion is state-specific to Louisiana. See e.g., Manhattan Partners, LLC v.

Am. Guar. & Liab. Ins. Co., Civ. No. 20-14342, 2021 U.S. Dist. LEXIS 50461,

*4-6 n.3 (D.N.J. Mar. 17, 2021) ("Had the parties intended to remove 'virus'

from the Contamination provision, they could have done so with a general

endorsement that was not limited to a single state.") We therefore reject

plaintiff's argument.

Finally, plaintiff argues the Policies' Contamination Exclusion violated

the doctrine of regulatory estoppel, and the trial court should have barred

defendant from invoking the Exclusion. Plaintiff contends the insurance

industry misrepresented the scope of the Exclusion language as it sought

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approval of the Virus Exclusion from regulators by claiming the Exclusion

would not result in a reduction of coverage.

Regulatory estoppel applies when "an insurer makes misrepresentations

to a regulatory body regarding the meaning and effect of language it has

requested to include in its policies . . . ." Id. at 31. If an insured makes

misrepresentations regarding the scope of a particular clause, they "may be

prevented from enforcing the otherwise clear and plain meaning of that language

against an insured." Ibid.

In support of its argument, plaintiff cites a letter addressed to the Missouri

Department of Insurance, and a policy form submitted to another regulator in

Louisiana, to illustrate the alleged misrepresentations. As the trial court

correctly pointed out, "[the doctrine of regulatory estoppel] cannot serve to estop

the [E]xclusion based on what [defendant] represented to another sovereign."

The record here is devoid of any evidence of a false statement or

misrepresentation to a regulatory body regarding the scope of the virus

exclusions.

Any arguments raised by plaintiff and the Medical Society of New Jersey

and not addressed here lack sufficient merit to warrant further discussion in a

written opinion. R. 2:11-3(e)(1)(E).

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Affirmed.

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