By Daphne Zhang

Law360 (May 4, 2021, 9:12 PM EDT ) The owners of hotel and restaurant franchises including Wendy's, TGI Friday's, Marriott and Hilton can't ask the court to vacate its order dismissing their suit seeking $40 million in COVID-19-related losses, a Zurich unit has told a New Jersey federal judge.

American Guarantee and Liability Insurance Co. asked the court on Monday to reject the franchise owners' bid to vacate its March order tossing the suit, saying the group's assertion that the court committed an error is "absurd." The carrier said the owners failed to show the court made any errors, and that any disagreements should be resolved at the appellate level.

In the brief, the carrier said the court correctly held that the policy's contamination exclusion bars all virus-related losses. The policy's "Louisiana endorsement," which the policyholders said removed "virus" from the contamination exclusion, is not triggered, the insurer said. The endorsement is only applicable in Louisiana and the owners failed to allege any Louisiana properties in their insurance claims, it added.

In March, U.S. District Judge Susan D. Wigenton ruled that business interruption losses for the owners of over 120 franchises caused by the coronavirus pandemic and government shutdown orders didn't trigger coverage because the businesses hadn't sufficiently shown there was any physical loss or damage to their properties.

The franchise owners, known collectively as the Briad Group, sued American Guarantee in October, saying the insurer wrongfully denied coverage for losses tied to the government shutdown and stay-at-home orders.

The businesses have claimed that the COVID-19 virus was present on the surfaces and in the air at the franchise properties, but the judge ruled that isn't enough to show a loss or damage under the American Guarantee insurance policy.

Judge Wigenton has said the restaurants did not lose access to their property because they were considered "essential" businesses that could remain open. The franchise owners wouldn't be able to recover their losses from the insurer because the policy has a contamination exclusion barring coverage for the virus, the judge added.

On Monday, American Guarantee said the court's March ruling is supported by the policy language and "every district court opinion in the Third Circuit addressing similar business interruption insurance claims" stemming from the pandemic and government closure orders.

"The Third Circuit has held that, under New Jersey law, the mere presence of a potentially toxic substance or the general threat of future damage from its presence does not equate to 'direct physical loss or damage to' property as required under the insuring language of a property insurance policy," the carrier said.

The federal district courts in the Third Circuit and the "overwhelming majority of courts across the country'' have routinely ruled that a virus's mere presence at an insured's property doesn't cause direct physical loss or damage as required under commercial property policies, the insurer added.

Counsel for the parties could not be immediately reached for comment Tuesday. 

The franchise companies are represented by Joshua L. Mallin and Dennis T. D'Antonio of Weg & Myers PC and Philip Rosenbach of Berman Rosenbach LLC.

American Guarantee is represented by Susan M. Kennedy and Michael Menapace of Wiggin & Dana LLP.

The suit is Manhattan Partners LLC et al. v. American Guarantee and Liability Insurance Co., case number 2:20-cv-14342, in the U.S. District Court for the District of New Jersey.

--Additional reporting by Shawn Rice. Editing by Bruce Goldman.

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