The Connecticut Supreme Court recently held that, under New York law, a marine insurance policy did not afford coverage for the lost value of the insured’s excess shoe inventory sustained as a result of its retail customers cancelling their orders due to the COVID-19 pandemic. Hartford Fire Ins. Co. v. Moda, LLC, SC 20678, 2023 WL 1087510 (Jan. 27, 2023). 

The marine insurance policy at issue covered the insured’s shoe inventory while in transit by “insur[ing] against all risk of direct physical loss or direct physical damage to [i]nsured [p]roperty from any external cause.” The Supreme Court, citing Roundabout Theater Co. v. Continental Cas. Co., 302 App. Div. 2d 1 (1st Dept. 2009), held that, under New York law, the words “direct” and “physical” narrow the scope of coverage to physical damage to the property itself and foreclose the argument that the phrase “loss of” includes mere “loss of use” of the insured property. The Supreme Court further held, for the same reason, that the multi-flex business policy also at issue in Moda did not afford coverage for the insured’s unsold inventory. 

The insured alleged that its inventory suffered direct physical damage because it was contaminated with the virus, and that given the seasonal nature of the retail business, its excess inventory was effectively unsellable. The Supreme Court rejected this argument, citing to its decision in a companion case, Connecticut Dermatology, P.C. v. Twin City Fire Ins. Co., SC 20695, 2023 WL 1087214 (Jan. 27, 2023), in which it reached the same result under Connecticut law with respect to a commercial insurance policy. In Connecticut Dermatology, the Supreme Court held that the “virus is not the type of physical contaminant that creates the risk of a direct physical loss because, once a contaminated surface is cleaned or simply left alone for a few days, it no longer poses any direct physical threat to occupants.”  

In light of the Supreme Court’s reliance upon its reasoning in Connecticut Dermatology, Moda provides directly applicable precedent under both Connecticut and New York law that marine insurance policies insuring against “direct physical loss” or “direct physical damage” to insured property do not afford coverage for mere loss of value or use of property during the COVID-19 pandemic.