Wawa, Inc. v. Starr Surplus Lines 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NOT FOR PUBLICATION WITHOUT THE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-3820-21

WAWA, INC.,

Plaintiff-Appellant,

v.

STARR SURPLUS LINES

INSURANCE COMPANY,

CONTINENTAL CASUALTY

COMPANY, CRUM &

FORSTER SPECIALTY

INSURANCE COMPANY,

EVEREST INDEMNITY

INSURANCE COMPANY,

BEAZLEY SYNDICATES AFB

FOR AND ON BEHALF OF

LLOYD'S UNDERWRITER

SYNDICATE NO. 2623 AFB,

LONDON, ENGLAND AND

LLOYD'S UNDERWRITER

SYNDICATE NO. 0623 AFB,

LONDON, ENGLAND, HISCOX

SYNDICATES FOR AND ON

BEHALF OF LLOYD'S

UNDERWRITER SYNDICATE

NO. 0033 HIS, LONDON,

ENGLAND, XL CATLIN FOR

AND ON BEHALF OF XL

CATLIN INSURANCE COMPANY

UK LIMITED, LIRMA C7509,

CONVEX INSURANCE UK

LIMITED (& AFFILIATE CONVEX

RE LTD) FOR AND ON BEHALF

OF CONVEX INSURANCE UK

LIMITED, LIRMA C9800, NEON

UNDERWRITING LIMITED FOR

AND ON BEHALF OF LLOYD'S

UNDERWRITER SYNDICATE NO.

2468 NEO, LONDON, ENGLAND, and

ANTARES SYNDICATE FOR AND

ON BEHALF OF LLOYD'S

UNDERWRITER SYNDICATE NO.

1274 AUL, LONDON, ENGLAND,

Defendants-Respondents.

____________________________

Argued November 15, 2023 – Decided January 5, 2024

Before Judges Currier, Firko, and Vanek.

On appeal from the Superior Court of New Jersey, Law

Division, Camden County, Docket No. L-0688-21.

Lisa M. Campisi argued the cause on behalf of

appellant (Blank Rome LLP, attorneys; Stephen M.

Orlofsky, Lisa M. Campisi, Michael Ray Darbee, and

Helen K. Michael (Blank Rome LLP) of the District of

Columbia and Maryland bars, admitted pro hac vice, on

the briefs).

Peter G. Verniero argued the cause on behalf of

respondents Starr Surplus Lines Insurance Company,

Continental Casualty Company, Beazley Syndicates

AFB for and on behalf of Lloyd's Underwriter

Syndicate No. 2623 AFB, London, England, and

Lloyd's Underwriter Syndicate No. 0623 AFB, London,

England, Hiscox Syndicates for and on behalf of

A-3820-21

2

Lloyd's Underwriter Syndicate No. 0033 HIS, London,

England, XL Catlin Insurance Company UK Limited,

Neon Underwriting Limited for and on behalf of

Lloyd's Underwriter Syndicate No. 2468 Neo, London,

England, and Antares Syndicate for and on behalf of

Lloyd's Underwriter Syndicate No. 1274 AUL, London,

England (Sills Cummis & Gross, PC and Mound Cotton

Wollan & Greengrass LLP, attorneys; Peter G.

Verniero, Michael S. Carucci, Costantino P. Suriano,

Pejman Nassi, and Benjamin R. Messing, of counsel

and on the briefs).

Gary Scott Kull argued the cause on behalf of

respondent Crum & Forster Specialty Insurance

Company (Kennedys CMK LLP, attorneys, join in the

brief of respondents Starr Surplus Lines Insurance

Company, Continental Casualty Company, Beazley

Syndicates AFB for and on behalf of Lloyd's

Underwriter Syndicate No. 2623 AFB, London,

England, and Lloyd's Underwriter Syndicate No. 0623

AFB, London, England, Hiscox Syndicates for and on

behalf of Lloyd's Underwriter Syndicate No. 0033 HIS,

London, England, XL Catlin Insurance Company UK

Limited, Neon Underwriting Limited for and on behalf

of Lloyd’s Underwriter Syndicate No. 2468 Neo,

London, England, and Antares Syndicate for and on

behalf of Lloyd's Underwriter Syndicate No. 1274

AUL, London, England).

Victoria Kraft Pagos (Zelle LLP), Matthew Gonzalez

(Zelle LLP) of the New York bar, admitted pro hac

vice, and Eric Caugh (Zelle LLP) of the Minnesota bar,

admitted pro hac vice, attorneys for respondents

Convex Insurance UK Ltd. and Everest Indemnity

Insurance Company (Victoria Kraft Pagos, Matthew

Gonzalez and Eric Caugh, of counsel and on the brief).

A-3820-21

3

Michael S. Levine (Hunton Andrews Kurth LLP) of the

District of Columbia, Massachusetts, New York, and

Virginia bars, admitted pro hac vice, argued the cause

on behalf of amicus curiae United Policyholders (Kevin

Vincent Small (Hunton Andrews Kurth LLP), Michael

S. Levine and Lorelie S. Masters (Hunton Andrews

Kurth LLP) of the District of Columbia and New York

bars, admitted pro hac vice, attorneys; Kevin Vincent

Small, Michael S. Levine and Lorelie S. Masters, on the

brief).

Flynn Watts, LLC, attorneys for amicus curiae Medical

Society of New Jersey (Michael A. Moroney, on the

brief).

PER CURIAM

In this insurance coverage dispute based on claims arising out of the

COVID-19 pandemic and the Executive Orders (EO or EOs) issued in response

to the pandemic, plaintiff Wawa, Inc. (Wawa) appeals from the June 30, 2022

order dismissing its first amended complaint with prejudice against defendants

Starr Surplus Lines Insurance Company (Starr), Continental Casualty Company

(Continental), Crum & Forster Specialty Insurance Company, Everest Indemnity

Insurance Company (Everest), Beazley Syndicates AFB for and on behalf of

Lloyd's Underwriter Syndicate No. 2623 AFB, London, England, and Lloyd's

Underwriter Syndicate No. 0623 AFB, London, England (Beazley), Hiscox

Syndicates for and on behalf of Lloyd's Underwriter Syndicate No. 0033 HIS,

London, England (Hiscox), XL Catlin for and on behalf of XL Catlin Company

A-3820-21

4

UK Limited, Lirma C7509 (XL Catlin), Convex Insurance UK Limited (&

Affiliate Convex RE LTD) for and on behalf of Convex Insurance UK Limited,

Lirma C9800 (Convex), Neon Underwriting Limited for and on behalf of Lloyd's

Underwriter Syndicate No. 2468 NEO, London, England (Neon) and Antares

Syndicate for and on behalf of Llyod's Underwriter Syndicate No. 1274 AUL,

London, England (Antares).

Wawa sought a declaration that defendants should pay the lost business

income and extra expenses for losses suffered due to the global coronavirus

pandemic and related governmental actions across several states, including New

Jersey, pertaining to stay-at-home and business closure orders. Wawa

contended defendants breached their policies by denying coverage.

Wawa argues it suffered a direct physical loss of damages to its properties,

triggering coverage under the Real and Personal Property, Business Interruption,

Extra Expense, Expenses to Reduce Loss, and Contingent Business Interruption

for Attraction Properties provisions of its Policies. Wawa also contends the

Contamination Exclusion and Mold, Mildew and Fungus Clause and

Microorganism Exclusion provisions in its Policies do not apply and are

violative of New Jersey public policy. The trial court rejected those arguments

relying on this court's decision in Mac Prop. Grp., LLC v. Selective Fire & Cas.

A-3820-21

5

Ins. Co., 473 N.J. Super. 1 (App. Div. 2022), in which we found similar claims

were not covered under almost identical insurance policies.

We granted leave to Medical Society of New Jersey and United

Policyholders to file amici curiae briefs, which support Wawa's contentions.

Because our holdings and reasonings in Mac Property apply to Wawa's Policies,

we affirm the order dismissing Wawa's first amended complaint with prejudice.

I.

The facts are largely derived from Wawa's sixty-three-page first amended

complaint. Wawa owns and operates a chain of more than 900 convenience

retail stores, over 600 offering gasoline, located in New Jersey, Pennsylvania,

Delaware, Maryland, Virginia, Florida, and Washington, D.C. Most locations

are open twenty-four hours a day, 365 days each year. Wawa stores offer fresh

and packaged food, built-to-order and ready-made items, beverages, and snacks.

Wawa purchased high-end, all risk commercial liability Master Policies

(Policies) from defendants for the period from January 1, 2020, to January 1,

2021. Defendants provided coverage to Wawa on a quota-share basis. 1 The

1

A "quota share program" is a type of reinsurance where the reinsurer and

ceding insurer enter a contract to share a prearranged proportionate percentage

of any loss sustained on the insured property. See 7 Daniel W. Gerber et al.,

New Appleman on Insurance Law Library Edition § 71.02[4][a] (2023 ed.);

A-3820-21

6

Policies contain nearly identical provisions and amendatory endorsements. The

Covered Cause of Loss provision reads:

Loss or Damage Insured 2

This policy insures against all risk of direct physical

loss or damage to property . . . .

The Real and Personal Property provisions insure:

All real and personal property while such property is

located anywhere within the territorial limits of this

policy . . . including the Insured's liability for such

property and including the costs to defend any

allegations of liability for loss or damage to such

property. . . .

The Policies provide coverage for Business Interruption and Extra

Expense:

Business Interruption

1. Loss due to the necessary interruption of business

conducted by the Insured, including all

interdependencies between or among companies owned

or operated by the Insured resulting from loss or

damage insured herein and occurring during the term of

this policy to real and/or personal property. . . .

Cent. Nat'l Ins. Co. v. Devonshire Coverage Corp., 426 F. Supp. 7, 11 n.5 (D.

Neb. 1976).

2

References in bold are in the original.

A-3820-21

7

Extra Expense

1. Extra Expense incurred by the Insured in order to

continue as nearly as practicable the normal operation

of the Insured's business following loss or damage

insured herein and occurring during the term of this

policy to real and/or personal property. . . .

With respect to expenses to reduce loss coverage, the Policies provide:

Expense to Reduce Loss:

This policy also insures such expenses as are

necessarily incurred for the purpose of reducing any

loss under this policy, even though such expenses may

exceed the amount by which the loss under this policy

is thereby reduced.

The Starr and Continental Policies adopt the Policies' Contingent Business

Interruption provision at 8.A.1., which in relevant part provide:

Extensions of Coverage

A. Contingent Business Interruption/Contingent

Extra Expense, Service Interruption/Off Premises

Power, Impounded Water

This policy insures loss resulting from or caused by loss

or damage insured herein to the following:

1. Contingent Business Interruption/ Contingent

Extra Expense: Property, including Attraction

Properties, that directly or indirectly prevents a

supplier (including suppliers of any tier) of goods

and/or services to the Insured from rendering their

goods and/or services, or property that prevents

customers (including customers of any tier) of goods

A-3820-21

8

and/or services from the Insured from accepting the

Insured's goods and/or services.

Attraction Properties is defined as:

Properties, not owned or operated by the Insured, which

attract potential customers to the vicinity of the

Insured's location.

However, the Hiscox, Beazley, XL Catlin, Antares, and Neon policies amended

the Master Policies' Contingent Business Interruption provision at 8.A.1. to

remove the Attraction Property coverage. The provision at 8.A.1, as amended

by Endorsement 3, provides as follows:

Extensions of Coverage

A. This policy insures loss resulting from or caused by

loss or damage insured herein to the following:

1. CONTINGENT TIME ELEMENT: If direct

physical loss or damage to the real or personal

property of: (1) the Insured's Tier 1 supplier or

the Insured's Tier 2 supplier or (2) the Insured's

Tier 1 customer or the Insured's Tier 2

customer, is damaged by a Cause of Loss, not

otherwise excluded, under this Policy, and such

damage:

a. wholly or partially prevents the Insured's

Tier 1 supplier from supplying their goods

and/or services to the Insured,

or

A-3820-21

9

b. wholly or partially prevents the Insured's

Tier 1 customer from accepting the

Insured's goods and/or services; then this

Policy is extended to cover the actual loss

sustained by the Insured during the Period

of Interruption with respect to such real or

personal property. The property of any

supplier or any customer which sustains

loss or damage must be of the type of

property which would be Insured Property

under this Policy.

Notwithstanding the foregoing, this

Additional Time Element Coverage does

not apply to:

a. Any supplier of electricity, gas, fuel,

steam, water, refrigeration,

telecommunications or sewerage service,

or

b. The Insured's customers, if the Insured

is a supplier of electricity, gas, fuel, steam,

water, refrigeration, telecommunications

or sewerage service. . . .

The Policies' Loss Provisions define the duration of benefits available

under the Business Interruption, Extra Expense, and Contingent Business

Interruption coverage and provides

Loss Provisions

A. Period of Recovery

The length of time for which loss may be claimed is

referred to as the period of recovery and:

A-3820-21

10

1. shall commence with the date of such loss or

damage and shall not be limited by the date of

expiration of this policy;

2. shall not exceed such length of time as would

be required with the exercise of due diligence and

dispatch to rebuild, repair, or replace the property

that has been destroyed or damaged;

and

3. such additional length of time to restore the

Insured's business to the condition that would

have existed had no loss occurred, commencing

with the later of the following dates:

(a) the date on which the liability of the

Insurer for loss or damage would

otherwise terminate; or

(b) the date on which repair, replacement

or rebuilding of the property that has been

damaged is actually completed and the

Insured has resumed normal operations.

but in no event for more than three hundred

sixty-five (365) consecutive days

thereafter from said later commencement

date. . . .

B. If the Insured can reduce the loss resulting from the

interruption of business:

1. by a complete or partial resumption of

operations of the property insured, whether

damaged or not; or

A-3820-21

11

2. by making use of stock, merchandise, or other

property insured herein;

Such reduction shall be taken into account in

arriving at the amount of loss hereunder.

Wawa's claim also implicates three exclusions in the Policies. The first is

an Authorities Endorsement contained in the Starr Policy, which states:

Except as specifically stated in this policy or

endorsement attached thereto, the company [the

Insurer] shall not be liable for loss, damage, costs,

expenses, fines, or penalties incurred, sustained by or

imposed on the Insured at the order of any Government

Agency, Court, or other Authority arising from any

cause whatsoever.

The Hiscox, Beazley, XL Catlin, Antares, and Neon Policies each contain

two identical policy-specific exclusionary endorsements triggered by Wawa's

claim. The first one excludes coverage for Contamination as follows:

ADDITIONAL LIMITATIONS AND

CONDITIONS ENDORSEMENT (STANDARD)

...

III. SEEPAGE AND/OR POLLUTION AND/OR

CONTAMINATION EXCLUSION CLAUSE

Notwithstanding any provision to the contrary within

the Policy of which this Endorsement forms part (or

within any other Endorsement which forms part of this

Policy), this Policy does not insure:

1. any loss, damage, cost or expense; or

A-3820-21

12

2. any increase in insured loss, damage, cost or

expense; or

3. any loss, damage, cost, expense, fine, penalty or

other sum which is incurred, sustained or imposed by,

or by the threat of, any judgment, order, direction,

instruction or request of, or any agreement with, any

court, government agency, any public, civil or military

authority or any other person (and whether or not as a

result of public or private litigation);

which arises from any kind of seepage or any kind of

pollution and/or contamination, or threat thereof,

whether or not caused by or resulting from a peril

insured, or from steps or measures taken in connection

with the avoidance, prevention, abatement, mitigation,

remediation, clean-up or removal of such seepage or

pollution and/or contamination, or threat thereof.

The term "any kind of seepage or any kind of pollution

and/or contamination" as used in this Endorsement

includes (but is not limited to):

1. seepage of, or pollution and/or contamination by,

anything . . . ; and

2. the presence, existence, or release of anything which

endangers or threatens to endanger the health, safety or

welfare of persons or the environment.

The second exclusionary endorsement contained in the Hiscox, Beazley,

XL Catlin, Antares, and Neon Policies concerns Microorganisms.

MOLD, MILDEW AND FUNGUS CLAUSE AND

MICROORGANISM EXCLUSION

(Time Limit and Sublimit)

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In consideration of the premium paid, and subject to the

Exclusions, Conditions and Limitations of the Policy to

which this Extension is attached, and also to the

following additional Exclusion, and specific

Limitations, this Policy is extended to insure physical

loss or damage to insured property by mold, mildew or

fungus only when directly caused by physical loss or

damage to insured property by a peril insured by this

Policy occurring during the period of this Policy.

Limitations

1. The said property must otherwise be insured under

this Policy for physical loss or damage by that peril. . . .

....

3. Regardless of circumstance or other Policy

provisions, the maximum amount insured and payable

under this Policy for all mold, mildew or fungus caused

by or resulting from such peril is USD 5,000,000 per

occurrence for all parts of any claim. This sublimit

applies to all sections or extensions of the Policy

combined under which any claim arises or is made and

shall be a part of and not in addition to the policy limit.

Exclusion

Except as set forth in the foregoing, this Policy does not

insure any loss, damage, claim, cost, expense or other

sum directly or indirectly arising out of or relating to:

mold, mildew, fungus, spores or other

microorganism of any type, nature, or

description, including but not limited to any

substance whose presence poses an actual or

potential threat to human health.

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This exclusion applies regardless whether there is (i)

any physical loss or damage to insured property; (ii)

any insured peril or cause, whether or not contributing

concurrently or in any sequence; (iii) any loss of use,

occupancy, or functionality; or (iv) any action required,

including but not limited to repair, replacement,

removal, cleanup, abatement, disposal, relocation, or

steps taken to address medical or legal concerns.

Beginning in early March 2020, Governor Murphy issued a series of EOs

to address the COVID-19 pandemic. EO 103, issued on March 9, 2020, declared

a public health emergency and state of emergency in New Jersey. Exec. Order

No. 103 (Mar. 9, 2020), 52 N.J.R. 549(a) (April 6, 2020). EO 104, issued on

March 16, 2020, among other things, limited the scope and hours of operation

for non-essential business operations. Exec. Order No. 104 (Mar. 16, 2020), 52

N.J.R. 550(a) (Apr. 6, 2020). Wawa was considered an essential business

operation. EO 107, which became effective March 21, 2020, implemented

"social mitigation strategies" requiring "every effort to reduce the rate of

community spread of the disease." Exec. Order No. 107 (Mar. 21, 2020) 52

N.J.R. 554(a) (Apr. 6, 2020).

As a result of the COVID-19 pandemic, Wawa sought coverage under

defendants' policies alleging it suffered a substantial loss of business and income

when the EOs were in effect. Wawa claimed its covered premises were rendered

nonfunctional and unusable for on-the-go food services, which deprived Wawa

A-3820-21

15

of the physical use intended for its premises. Wawa also averred that its covered

premises "suffered physical damage or the imminent threat of physical damage"

due to the impact the coronavirus had on the airspace and other physical

components of the premises.

Defendants declined coverage because they alleged the Policies did not

cover the COVID-19 related losses. In addition, defendants alleged coverage

was barred by the Policies' Contamination and Microorganism Exclusions.

In response, on March 8, 2021, Wawa brought a lawsuit against

defendants in the Law Division including counts for declaratory judgment and

breach of contract. On May 7, 2021, defendants moved to dismiss under Rule

4:6-2(e). On February 17, 2022, the trial court denied defendants' motion to

dismiss without prejudice.

On February 22, 2022, Wawa filed its first amended complaint, which is

the subject of the order under review, alleging the presence of COVID-19

rendered its premises nonfunctional for on-the-go food services for several

months. Wawa reiterated its allegations that its covered premises "suffered

physical damage or the imminent threat of physical damage" due to the impact

of the coronavirus on its airspace and other physical components of its premises.

A-3820-21

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On March 24, 2022, defendants moved to dismiss Wawa's first amended

complaint with prejudice, arguing the plain language of the Policies did not

cover the losses at issue. Wawa opposed defendants' motions and argued it was

forced to suspend or reduce operations at its premises and contended the threats

and presence of coronavirus rendered its premises unsafe and unfit for its

essential functions. Wawa maintained it was forced to temporarily close its

stores each time an employee tested positive for COVID-19, and nearly all of

Wawa's stores had at least one employee test positive for COVID-19 during or

after March 2020, satisfying the pleading standard.

On June 23, 2022, the trial court conducted oral argument on defendants'

motions. Following argument, the trial court reserved decision. On June 30,

2022, the trial court granted defendants' motions to dismiss Wawa's first

amended complaint with prejudice and issued an order accompanied by a

comprehensive written opinion. The trial court found there was no direct

physical loss of or damage to Wawa's premises, "despite the semantics in the

language used in the [first amended] complaint."

The trial court found the pleading itself "fail[ed] to allege physical loss or

damage to covered property[,] which is a pre-condition to triggering coverage

under the insurance policies at issue in this case." The trial court concluded our

A-3820-21

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holding in Mac Property was dispositive of the issues presented; and that there

was "no need to repair or replace property as required in calculating the time -

period for any business interruption or extra expense claim." This appeal

followed.

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 decide "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. Inc., 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

A-3820-21

18

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)

(citations omitted).

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

of the insured. Mac Prop., 473 N.J. Super. at 18 (citation omitted). 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, 273-74 (2001)).

"Exclusions in insurance contracts 'are presumptively valid and will be

given effect if [they are] "specific, plain, clear, prominent, and not contrary to

public policy."'" Mac Property, 473 N.J. Super. at 35 (quoting Princeton Ins.

Co. v. Chunmuang, 151 N.J. 80, 95 (1997)). Further, exclusionary provisions

"containing 'an anti-concurrent or anti-sequential clause' ha[ve] been interpreted

to unambiguously bar coverage for losses resulting in any manner from an

excluded cause." Id. at 37 (quoting Wear v. Selective Ins. Co., 455 N.J. Super.

440, 454-55 (App. Div. 2018)). "Thus, coverage is excluded for a loss

attributable to a given cause 'regardless of whether any other cause, event,

A-3820-21

19

material or product contributed concurrently or in any sequence' to that loss."

Ibid. (quoting Wear, 455 N.J. Super. at 454).

III.

On appeal, Wawa contends: (1) the trial court's "physical alteration"

requirement disregards that the Policies insure against either "physical loss" or

"physical damage;" (2) the trial court disregarded the Policies' coverage for "all

risks of physical loss or damage;" and (3) the trial court improperly discounted

Wawa's allegations in its first amended complaint that coronavirus physically

altered its insured premises and was ultimately the cause of Wawa's losses.

Wawa's arguments are almost identical to those of the claimants in Mac

Property. In Mac Property, several plaintiffs sought declaratory judgments

enforcing Business Income and Civil Authority provisions to cover losses they

incurred during the COVID-19 pandemic after being forced to shut down or

restrict their operations. 473 N.J. Super. at 9-10. We rejected their claim,

holding the term "direct physical loss of or damage to" 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.

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We concluded the motion courts appropriately dismissed the plaintiffs'

complaints with prejudice under Rule 4:6-2(e). Id. at 40.

In reaching that determination, we noted there were

scores of federal and state appellate-level courts that

. . . addressed the issues raised by the plaintiffs and

[t]he overwhelming majority of them . . . granted

defendant insurers' motions to dismiss complaints

seeking insurance coverage for business losses due to

government orders barring or curtailing [the insureds']

operations . . . to curb the . . . pandemic because the

losses were not due to physical loss or damage to their

insured premises.

[Id. at 26-27.]

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

when the word is paired with another term, such as "physical injury," the

resulting phrase means "'detrimental alteration,' or 'damage or harm to the

physical condition of a thing.'" Id. at 20 (alteration in original) (quoting Phibro

Animal Health Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 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.

Specifically, none of the plaintiffs alleged COVID-19 was present on their

properties, rendering them uninhabitable. Ibid. Instead, their losses were due

to "restrictions imposed by [EOs] to curb the COVID-19 pandemic." Id. at 41.

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Citing Verveine Corp. v. Strathmore Ins. Co., 184 N.E.3d 1266, 1277

(Mass. 2022), we noted the distinction between "loss" and "damage" argued by

the claimants in that case was "irrelevant . . . because the contention 'ignored'

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." Mac Property, 473 N.J. Super. at 26 (alteration in original). We

adopt the same rationale here.

Wawa did not suffer any "direct physical loss or damage" to its properties.

Like the plaintiffs in Mac Property, Wawa did not lose its physical capacity to

operate. None of Wawa's properties required any repairs, rebuilding, or

replacement due to damage. Further, there was no physical alteration making

Wawa's covered properties dangerous to enter. Therefore, defendants were not

required to extend coverage under the Loss or Damage Insured and Real and

Personal Property provisions of the Policies as there was no "direct physical loss

or damage."

While we did not specifically address the language in the plaintiffs' Extra

Expense provision in Mac Property, 473 N.J. Super. at 22, the coverage is

inapplicable here for two reasons. First, the Extra Expense provision also

requires a "direct physical loss of or damage to property," which did not occur

A-3820-21

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here, as discussed above, and also references coverage during restoration

periods. Second, our analysis in Mac Property relied, in part, on a Massachusetts

Supreme Court case, which examined similar Business Income and Extra

Expense provisions and determined that coverage was not triggered because

there was no physical loss or damage to the plaintiffs' properties. Mac Property,

473 N.J. at 25-27.

Here, Wawa's Policies clearly and unambiguously require a suspension of

a claimant's business be caused by a physical tangible alteration 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. Id. The EOs may have barred Wawa from

providing certain limited food services, but the stores remained open during the

pandemic and Wawa was not physically deprived of possession.

We note Wawa instead contends "physical alteration" is not required and

"physical loss or damage" could encompass an insured property's loss of

functionality. Wawa cites Port Authority 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

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

constitutes physical loss or damage." However, Port Authority substantially

predates the decision in Mac Property, and in any event is not controlling. 3

The "physical alteration" requirement is further supported by the Policies'

"period of restoration" language. The Policies state the recovery period

concludes on "the date on which repair, replacement or rebuilding of the

property that has been damaged is actually completed and the Insured has

resumed normal operations." This demonstrates a "direct physical loss of or

damage" to property means a physical alteration that can be fixed through

"repair" or "replacement." As we held in Mac Property, the period of restoration

would be "meaningless if the plaintiff were allowed to recover for purely

economic losses in the absence of any such damage or destruction." Mac

Property, 473 N.J. Super. at 23.

3

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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Wawa contends the loss provision that states, "if the Insured can reduce

the loss resulting from the interruption of business: by a complete or partial

resumption of operations of the property insured, whether damaged or not

[. . .] such reduction shall be taken into account in arriving at the amount of loss

hereunder" confirms that recoverable losses include operating expenses that

have impaired utility. But this provision does not eliminate the physical

alteration requirement; it merely discusses mitigation of damages.

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

expert reports to show the coronavirus physically altered its property.

Defendants counter Wawa never alleged that coronavirus was on its property,

and the trial court was not required to accept as true Wawa's theory about the

"adulteration of airspace and attachment to surfaces causing physical damage"

because no expert opinion or scientific study could overcome the lack of

physical damage to its convenience stores.

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 Wawa's

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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 we have determined that coronavirus on surfaces does not satisfy the

definition of physically altered property, factual and expert discovery would be

futile.

We also reject Wawa'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 "against all risk of direct physical loss or damage to property . . . except

as hereinafter excluded." Again, that language only becomes relevant if there

was a physical alteration to the property in the first place. We are unpersuaded

by Wawa's argument that "all risk" means "all loss" or "every risk" because such

an interpretation is inconsistent with the Policies taken as a whole.

Moreover, the Contamination Exclusion and Microorganism Exclusion

provisions in defendants' policies are unambiguous and apply to preclude

coverage Wawa is seeking. Although the trial court did not address these

exclusions, we may affirm on any basis supported by the record as long as the

opposing parties had an opportunity to be heard on the issue. N.J. Div. of Child

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Prot. and Perm., 444 N.J. Super. 325, 333-34 (App. Div. 2016) (quoting State v.

Adubato, 420 N.J. Super. 167, 176 (App. Div. 2011)). Here, defendants raised

these issues in their motions to dismiss, Wawa responded, and the parties' merits

briefs address the argument.

As we explained in Mac Property, "it is unequivocal that the virus was the

sole reason the [EOs] were issued." Id. at 40. The Policies, like some of those

in Mac Property, contained a Contamination Exclusion, which includes a virus

exclusion provision, "that included anti-concurrent and anti-sequential

causation language, undoubtedly barring coverage" because the COVID-19

virus allegedly contributed to plaintiffs' business losses. See Ibid.

The Policies here contain Contamination Exclusions for "any kind of

pollution and/or contamination, or threat thereof, whether or not caused by or

resulting from a peril insured." The Contamination Exclusions reject coverage

for "steps or measures taken in connection with the avoidance, prevention,

abatement, mitigation, remediation, clean-up, or removal of such seepage or

pollution and/or contamination."

Wawa 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

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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) (discussing how an insured's

reasonable expectations only matter when the court finds the relevant language

ambiguous).

Wawa posits that the Microorganism Exclusion is inapplicable because

the coronavirus is neither "mold," "mildew," "fungus," "spores," nor a

"microorganism," and the exclusions do not bar coverage for all substances

whose presence pose an actual or potential threat to human health. But courts

considering the exclusion have found the term "microorganism" may include the

coronavirus because the "relevant language is deliberatively broad, covering

microorganisms 'of any type, nature, or description,'" and applying generally to

"any substance whose presence poses an actual or potential threat to human

health," which encompasses coronavirus. See Crescent Plaza Hotel Owner, L.P.

v. Zurich Am. Ins., 20 F.4th 303, 310 (7th Cir. 2021). The plain language of the

Microorganism Exclusion is not ambiguous and bars Wawa's claims because it

clearly states the microorganism can be of "any type" including "any" substance

that poses a potential threat to human health.

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Finally, Wawa argues that the Authorities Exclusions contained in the

Starr and Everest Policies do not bar its claim for coverage because Wawa does

not rely on government orders to establish its claim for "direct physical loss or

damage" of covered property. The Starr Policy contains an Authorities

Endorsement, which precludes the insurer's liability "for loss [or] damage [. . .]

sustained by or imposed on the Insured at the order of any Government Agency,

Court, or other Authority arising from any cause whatsoever."

The plain language makes clear that losses are excluded when they are

sustained by or imposed on the Insured "at" the government's order "arising from

any cause." Although Wawa contends it does not rely on government orders to

support its claim, its first amended complaint asserts that Wawa is seeking

"losses suffered due to the pandemic and the related governmental actions

(including the various governmental stay-at-home and business closure orders)."

Therefore, Starr's Authorities Exclusion bars Wawa's claim.

Everest Policy's Authorities Exclusion bars coverage for "fines, penalties

and expenses directly attributable to such fines and penalties incurred or

sustained by or imposed on Insured at the order of any government agency, court

or other authority arising from any cause whatsoever." While Wawa correctly

notes that its claim is not barred under Everest Policy's Authorities Exclusion

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because there were no fines or penalties imposed, Wawa's claim is nevertheless

barred because there was no direct physical loss or damage to its covered

property.

We conclude Wawa's remaining arguments—to the extent we have not

addressed them—lack sufficient merit to warrant any further discussion in a

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

Affirmed.

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