BOWLERO CORPORATION v. AIG SPECIALTY LINES INSURANCE COMPANY (2025)

Order, Supreme Court, New York County (Andrew Borrok, J.), entered April 18, 2023, which granted the motion of defendants AIG Specialty Lines Insurance Company, Everest Indemnity Insurance Company, Landmark American Insurance Company, and Starr Surplus Lines Insurance Company to dismiss the complaint, unanimously modified, on the law the motion denied as to Landmark and the complaint reinstated as against it, and otherwise affirmed, without costs.

Plaintiff failed to state a cause of action as against AIG, Everest, and Starr.  As to those defendants, plaintiff relies on a civil authority coverage extension, asserting that the extension does not require physical loss but only an imminent loss by a peril insured.  Furthermore, plaintiff argues that the special time element coverage for a contagious disease outbreak does not require a physical loss and is a peril insured sufficient to satisfy the civil authority extension requirement.  We disagree.  Plaintiff's reading renders any exclusion or sublimit to the special time element meaningless and “violates basic rules of contract construction” (Century 21 Dept. Stores, LLC v. Starr Surplus Lines Ins. Co., 226 A.D.3d 532, 533, 207 N.Y.S.3d 510 [1st Dept. 2024]).  Similarly, we reject plaintiff's argument that Starr's amendatory endorsement did not exclude the special time element extension.

However, plaintiff stated a cause of action as against Landmark, as the complaint sufficiently alleges that the special time element coverage extension in the Landmark policy was triggered by the COVID–19 pandemic.  Furthermore, the additional pathogenic materials exclusion in Landmark's insurance policy, which will negate coverage in the event of pathogenic material “discharge, dispersal, seepage, migration, release, escape or application,” does not act to negate coverage here, as the terms of the exclusion do not clearly and unmistakably apply.  To interpret this exclusion as broadly as Landmark argues for would render meaningless the provisions of the special time element that cover infectious or contagious disease (see C.J. Segerstrom & Sons v. Lexington Ins. Co., 724 F.Supp.3d 1052, 1063–1064 [C.D. Cal., 2023]).  “Here the defendant could have deleted [those provisions], or expressly cancelled them in the indorsement or at least referred in some manner to [them]” (Birnbaum v. Jamestown Mut. Ins. Co., 298 N.Y. 305, 313, 83 N.E.2d 128 [1948]).  Common language was available and “could have been used to draft an unambiguous exclusion” (Vigilant Ins. Co. v. V.I. Tech., 253 A.D.2d 401, 403, 676 N.Y.S.2d 596 [1st Dept. 1998], lv dismissed 93 N.Y.2d 999, 695 N.Y.S.2d 744, 717 N.E.2d 1081 [1999]), yet Landmark chose “terms of art in environmental law” (Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377, 387, 763 N.Y.S.2d 790, 795 N.E.2d 15 [2003]).  Reading the policy “in light of ‘common speech’ and the reasonable expectations of a businessperson” and giving “a strict and narrow construction” (id. at 383, 763 N.Y.S.2d 790, 795 N.E.2d 15), the exclusion does not apply (see Westview Assoc. v. Guaranty Natl. Ins. Co., 95 N.Y.2d 334, 340, 717 N.Y.S.2d 75, 740 N.E.2d 220 [2000]).