No Business Income Coverage for Art Gallery and Dealership

The United States Court of Appeals for the Second Circuit, applying New York law, affirmed the District Court’s dismissal of a claim for coverage made by a brick-and-mortar art gallery and dealership, holding that the art gallery suffered no direct physical harm as a result of New York’s statewide shutdown orders at the outset of the COVID-19 pandemic. The Second Circuit delineated between physical loss and loss of use, citing separate provisions in the same policy issued to the art gallery by Sentinel Insurance Company, and held that loss of use of the insured’s property was not a covered cause of loss that might trigger the policy’s business income and extra expense provisions. Additionally, the Second Circuit held that the policy’s civil authority provision was also inapplicable because the state government’s shutdown orders related to the risk of harm the COVID-19 pandemic posed to humans, not a risk of physical damage to property, which the provision requires. Finally, the Second Circuit declined to certify the question for the state appellate court, despite the fact that several similar cases are currently pending in the state court system. 10012 Holdings, Inc. v. Sentinel Ins. Co., Ltd., 21-80-CV, 2021 WL 6109961 (2d Cir. Dec. 27, 2021).