The Northern District of New York recently awarded summary judgment to insurer Affiliated Factory Mutual Insurance Co. against Mohawk Gaming Enterprises, a casino and resort operated by the Saint Regis Mohawk Tribe located on the border of New York and Canada. Mohawk Gaming sued AFM seeking recovery of business income losses due to the COVID-19 pandemic. In granting the insurer’s motion, however, the court failed to consider all parts of the AFM policy, as required under New York law, and failed to afford meaning to specific language contained in the policy’s two communicable disease sections, each of which specifically contemplate that “communicable disease,” as defined and covered under the AFM policy, can cause loss and damage to property. Instead, the court followed other decisions from “numerous courts around the country,” each of which is based on inherently flawed reasoning (e.g., reliance on cases where no presence of virus was alleged or cases that clearly and broadly excluded loss caused by virus), to conclude that the presence of virus “is insufficient to trigger coverage when the policy’s language requires physical loss or physical damage.” In fact, a federal court in Texas recently rejected the very same reasoning employed in Mohawk Gaming after recognizing that the FM/AFM policy form “is much broader than [others] and expressly covers loss and damage caused by ‘communicable disease.’” See Cinemark Holdings, Inc. v. Factory Mut. Ins. Co., No. 4:21-cv-00011 (E.D. Tex. May 5, 2021).

Mohawk Gaming closed its casino to the public after an outbreak of COVID-19 was discovered at a college five miles away. It then filed a claim with AFM seeking to recover the business interruption losses that it incurred because of COVID-19. The AFM policy provides business interruption coverage for losses caused by “an order of civil or military authority [that] prohibits access to a location” if that order “is the direct result of physical damage of the type insured” at or within five miles of a covered location. Mohawk Gaming contended that COVID-19 caused “physical loss or damage” of the type insured by the policy and that, because COVID-19 was located within five miles of the casino, the business interruption coverage applied.

In granting summary judgment to AFM, the court ruled that the meaning of “physical damage” unambiguously does not cover the “mere presence or spread of the novel coronavirus.” But as recognized by the court in Cinemark, and as explained above, the Mohawk Gaming decision clearly did not honor the specific wording of the AFM policy and, instead, defaulted to what insurers have been championing as the “overwhelming majority” of decisions in their favor. In New York and elsewhere, however, insurance coverage is not determined based on a “scoreboard.” It is based on the words and phrases actually used by the parties. Here, the insurer chose all of the words and phrases.

Even more egregiously than most, the Mohawk Gaming decision raises significant issues for appeal. First, as noted, the court failed to afford meaning to the policy’s two express acknowledgments that “communicable disease” – a term defined by AFM – can cause “loss or damage” to property. Second, because the Mohawk Gaming court missed the express acknowledgment that communicable disease may cause loss or damage to property, the court failed to contemplate that such loss or damage is “loss or damage of the type insured,” which triggers the policy’s valuable Time Element coverage for loss of business income that results from the presence of communicable disease. Third, the court was wrong to defer to “the great majority of courts that have addressed” the issue. Indeed, no “great majority” of courts addressed the issue under the uniquely broad FM/AFM policy prior to the court in Mohawk Gaming and, to date, only the court in Cinemark has squarely reconciled the policy’s express communicable disease provisions with the policy’s generally used phrase “loss or damage” to property. The only other decision to squarely analyze policy wording from the FM/AFM policy form (as opposed to merely looking to the scoreboard) is Thor Equities, LLC v. Factory Mutual Insurance Co., No. 20 Civ. 3380 (AT), 2021 WL 1226983 (S.D.N.Y. Mar. 31, 2021), where a federal court in New York rejected the insurer’s strained interpretations of the policy’s contamination exclusion, finding that provision to be ambiguous and, thus, not applicable to losses caused by COVID-19.