January 2022: New Jersey - Property Coverage - COVID-19 Virus Exclusion

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The District of New Jersey in Learning Experience Corp. v. Berkshire Hathaway Specialty Ins. Co., 2021 U.S. Dist. LEXIS 238576 (D.N.J. Dec. 14, 2021) found no coverage for business income, extra expense, and civil authority losses caused by COVID-19 closure orders on the basis of a virus exclusion, as “[t]here is near unanimous agreement in this district that virus exclusion provisions” apply to COVID-19 claims.


The Berkshire commercial property insurance policy issued to the Learning Experience Corp. covered lost business income and extra expense incurred during a necessary suspension of business operations “caused by direct physical loss of or damage” to Covered Properties. The policy also covered loss associated with actions of a civil authority taken in response to dangerous physical conditions to property not owned by the policyholder. The policy in addition contained an exclusion for Loss Due to Virus or Bacteria.

The Learning Experience Corp.’s early education and care centers were closed as a result of 2020 governmental stay-at-home and business shutdown orders caused by COVID-19. It sought coverage for business income, extra expense, and civil authority losses under the Berkshire policy, and Berkshire disclaimed on the basis of the Virus Exclusion. The Learning Experience Corp. then filed a coverage action against Berkshire in District Court, and Berkshire moved to dismiss.

The Parties’ Arguments

The Learning Experience argued that the Virus Exclusion is only applicable if it is the “efficient proximate cause” of the policyholder’s loss. It contended in turn that the relevant consideration is therefore whether the governmental closure orders -- rather than the COVID-19 virus -- were the “predominant cause” of the closures. Berkshire in response contended that several courts have addressed similar exclusions and held they barred coverage.

The District Court’s Decision

Berkshire made several additional arguments in its briefing, including that coverage is unavailable due to the absence of “Direct Physical Loss or Damage” involving the COVID-19 closures. Yet the Court observed that its “analysis begins and ends with the applicability of the Policy’s Virus Exclusion to Plaintiffs’ claim for coverage.”

In doing so, it cited three District of New Jersey decisions that found it unnecessary to address arguments concerning whether direct physical loss of or damage to property is present where the Virus Exclusion applies and bars coverage. See Benamax Ice, LLC v. Merchant Mutual Ins. Co., 529 F. Supp. 3d 350, 356 (D.N.J. 2021); Del. Valley Plumbing Supply Inc. v. Merchants Mut. Ins. Co., 519 F. Supp. 3d 178, 182 (D.N.J. 2021); T&L Catering, Inc. v. Hanover Ins. Grp., Inc., 2021 U.S. Dist. LEXIS 131057 (D.N.J. July 14, 2021).

The District Court rejected the Learning Experience Corp.’s “efficient proximate cause” position. It concluded that “Courts in this District have overwhelmingly rejected this argument by repeatedly recognizing ‘that the state Closure Orders are inextricably tied to the Covid-19 virus, and therefore, the predominant and proximate cause of Plaintiff’s business-related closures is the Covid-19 virus, not the Closure Orders that were issued in response to the virus.’” (citing T&L Catering, Inc., supra, 2021 U.S. Dist. LEXIS 131057 at *4).

As a result, the District Court granted Berkshire’s motion to dismiss, finding that the Learning Experience Corp.’s breach of contract, declaratory judgment, and bad faith claims were devoid of merit.


The District of New Jersey in Learning Experience Corp. made clear that Virus Exclusions apply to business income, extra expense, and civil authority losses associated with COVID-19. It reached that conclusion by citing to numerous District opinions that left no doubt on the matter.  In fact, one noted: “[t]here is near unanimous agreement in this district that virus exclusion provisions… apply to bar coverage for claims of losses resulting from the COVID-19 pandemic and associated civil authority orders.” Cedar Run Orthodontics, P.A. v. Sentinel Ins. Co., Ltd., 2021 U.S. Dist. LEXIS 210818 (D.N.J. Nov. 1, 2021).

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