Abruzzo Docg, Inc. v. Acceptance Indem. Ins. Co.

Summary

The Appellate Division, Second Department, affirmed dismissal of the plaintiffs' breach-of-contract claims arising from insurers' denial of COVID-19-related coverage under commercial all-risk policies. The court held that alleged reconfigurations and other operational changes did not constitute direct physical loss or material physical damage, and reached the same result under California law for one policy. It modified the order to treat dismissal of the declaratory-judgment claim as a declaration in the defendants' favor and remitted for entry of an appropriate judgment.

Holdings

1. A policy covering direct physical loss or damage requires either a material physical alteration of the property or a complete and persistent dispossession; impaired functionality, loss of use, and operational or layout changes alone do not satisfy that requirement.
2. Although a properly pleaded declaratory-judgment cause of action ordinarily should not be dismissed before an answer merely because the plaintiff may not ultimately prevail, the court may reach the merits and treat the motion as one seeking a declaration in the defendant's favor when no questions of fact are presented.
3. Under the agreed application of California law, the alleged COVID-19-related operational and physical changes likewise did not constitute physical loss of or damage to covered property.

Questions Presented

1. Whether the amended complaint adequately alleged direct physical loss of or damage to insured property under the commercial all-risk policies.
2. Whether changes to restaurant layouts and operations required by COVID-19 Executive Orders constituted a material physical alteration or complete and persistent dispossession of insured property.
3. Whether the declaratory-relief cause of action should be treated as seeking a declaration in the defendants' favor where no factual questions were presented and the plaintiffs were not entitled to coverage as a matter of law.
4. Whether California law produced a different result for the policy covering Global Dining, Inc.

Disposition

reversed_and_remanded