By Jeff Sistrunk

Law360 (February 11, 2021, 4:57 PM EST ) A New York state judge has ruled that a Great American Insurance unit doesn't have to cover a movie theater's losses due to COVID-19 shutdown orders, while also dismissing the theater's claim that its insurance brokers negligently purchased it a policy with insufficient coverage.

Judge Timothy S. Driscoll dismissed all of Port Washington-based Soundview Cinemas Inc.'s claims against Great American Insurance Co. of New York and the insurer's wholesale broker Jimcor Agency Inc., as well as those the theater leveled against its own insurance brokers, Five Star Coverage Corp. and Wilkinson & Krause Agency Inc.

Soundview had angled to put Great American on the hook for the substantial business interruption losses it says it has suffered since COVID-19 stay-at-home orders issued by New York Gov. Andrew Cuomo last year forced the theater to close. But the insurer refused, noting that the core coverage in Soundview's policy for lost business income is dependent on the existence of "direct physical loss of or damage to" insured property — which, according to Great American, is not satisfied by Soundview's mere loss of the ability to use its theater.

In his Feb. 8 order, Judge Driscoll agreed with the insurer that New York precedent has established that the direct physical loss or damage language at issue requires a tangible physical alteration to the policyholder's property, which did not occur here.

"While the court is sympathetic to the economic consequences resulting from the closure of plaintiff's movie theater, the court concurs with the majority view that loss of use of the premises due to COVID-19 related government orders does not constitute 'direct physical loss of or damage to the property' that would trigger business income coverage under the policy," the judge wrote.

The judge also rebuffed Soundview's bid for coverage under the "civil authority" prong of its policy. That provision extends to losses that the insured suffers if it is unable to access its property due to a government order issued in response to damage at another nearby property. Judge Driscoll said this coverage is also unavailable to Soundview because Cuomo did not issue his stay-at-home orders in response to any tangible damage to properties near the theater.

Soundview's claims against Five Star, Wilkinson and Jimcor fared no better. The theater sought to hold Five Star and Wilkinson liable for negligence for failing to procure it an insurance policy that would cover its pandemic-related losses. And it alleged that Jimcor could be held vicariously liable for those brokers' purported failures.

Judge Driscoll, however, found that Soundview's counts against Five Star and Wilkinson are not viable because the brokers did, in fact, purchase the Great American policy the theater had requested. Furthermore, he said, Soundview failed to point to any other policy available on the market that would have explicitly provided coverage for losses stemming from the pandemic.

"Plaintiff does not allege that it made any inquiries about specific insurance coverage that might apply to these unprecedented times, and certainly does not allege that it inquired about coverage for pandemic-related government closures," the judge wrote.

In the absence of any viable claims that Five Star and Wilkinson were negligent, Soundview's claims for vicarious liability against Jimcor necessarily fail as well, Judge Driscoll held.

Soundview's attorney, Steven Glassberg of Glassberg & Associates, told Law360 in an email that while "I disagree with" the decision, "I am not surprised by it."

In an emailed statement Thursday, Anthony J. Proscia of Kaufman Dolowich & Voluck LLP, who represents Five Star and Wilkinson, said "our client is extremely pleased with the court's decision." Proscia said the ruling "not only sided with the overwhelming majority of courts in the country by finding that there was no business interruption coverage available for the plaintiff arising from the government-ordered COVID-19 shutdowns," but also "quickly shot down the plaintiff's misguided attempt to blame its insurance agent for the denial of coverage."

"Hopefully, the swift dismissal of the action marks the end of any other attempt to impose liability on insurance agents for not securing coverage that simply did not exist in the general marketplace before the pandemic," he added.

Jimcor's counsel, Joseph M. Powell of Powell Kugelman & Postell LLC, said in an emailed statement that Judge Driscoll "provided all counsel with ample opportunity to fully address their arguments, showed a command of insurance law during oral presentations, was deliberate in his decision-making process and gave a well-reasoned opinion."

An attorney for Great American did not immediately respond to a request for comment. 

Soundview is represented by Steven Glassberg of Glassberg & Associates.

Great American is represented by Kevin F. Buckley of Mound Cotton Wollan & Greengrass LLP.

Jimcor is represented by Joseph M. Powell of Powell Kugelman & Postell LLC.

Five Star and Wilkinson are represented by Anthony J. Proscia and Brett Scher of Kaufman Dolowich & Voluck LLP.

The case is Soundview Cinemas Inc. v. Great American Insurance Group et al., case number 605985/20, in the Supreme Court of the State of New York, County of Nassau.

--Editing by Michael Watanabe.

Update: This article has been updated with comment from the plaintiff's counsel.

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