Ocean Casino Loses Fight for Insurance Payments Over COVID-19 Losses

Article by : Erik Gibbs Jan 26, 2024

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In a decisive ruling on Wednesday, New Jersey’s Supreme Court concluded that an Atlantic City casino is not eligible for compensation from business interruption insurance for losses incurred during the COVID-19 outbreak.

The court held that the mere presence of the virus did not meet the criteria of “direct physical loss or damage” necessary for such a payout.

The focal point of the case was the Ocean Casino Resort’s claims against three insurance companies: AIG Specialty Insurance Co., American Guarantee & Liability Insurance Co. and Interstate Fire & Casualty Co.

These insurers predominantly rejected the casino’s claims, contending that the virus did not cause direct physical loss or damage to warrant a payout.

Despite the casino’s success in fending off an attempt by insurers to dismiss the case initially, the appellate court later overturned that decision. Subsequently, the casino opted to sue.

Acknowledging the critical legal question surrounding the definition of loss or damage, the high court stepped in to resolve the matter.

In a unanimous decision, the court clarified that, according to the explicit terms of the policies in question, demonstrating a “direct physical loss” or “direct physical damage” to the property required the parent company, AC Ocean Walk LLC, to establish that the property underwent destruction or alteration rendering it unusable or uninhabitable.

The court opinion highlighted that, at most, the casino contended it suffered a business loss during the government-mandated COVID-19 suspension, preventing normal property utilization.

It firmly asserted that the casino’s claims lacked the substantiation needed to warrant insurance coverage.

This verdict aligns with decisions in various state and federal courts nationwide, where similar denials occurred.

Instances include a chain of California movie theaters, a Los Angeles real estate firm, hotels in Pennsylvania and both hotels and a law firm in New Jersey, where payouts were declined.

The casino opted not to provide comments on the ruling when approached on Wednesday.

During the September arguments before the Supreme Court, Ocean’s lawyer, Stephen Orlofsky, outlined the casino’s proactive measures in response to the virus, encompassing the deployment of air filtration systems and the use of robust cleaning supplies.

Contrary to Ocean’s stance, David Roth, representing American Guarantee, contended that the policies necessitated actual physical damage to the property, a condition he asserted was absent in the casino’s situation.

Roth cited precedent, noting that 14 state Supreme Courts across the nation had ruled that the mere disruption of business activity during the pandemic did not meet the threshold for physical losses.

Ocean argued that beyond the three-and-half months of closure mandated by Democratic Gov. Phil Murphy in 2020, the casino also ceased operations due to the perceived threat the virus posed to the physical surfaces and air within the establishment.