On February 15, 2024, the New York Court of Appeals unanimously upheld the Appellate Division, First Department decision affirming dismissal of restaurant operator Consolidated Restaurant Operations, Inc.’s (CRO) complaint against Westport Insurance Corp. seeking COVID-19 business interruption coverage.

The Court’s affirmance continues New York’s well-settled approach to contract interpretation, which demands that all contracts – including insurance agreements – be interpreted and enforced according to their plain language. New York’s time-honored precedents in this field will now include the CRO v. Westport decision.

Justice Caitlin J. Halligan, writing for the Court, explained CRO’s allegation that COVID-19 was present in its restaurants is insufficient to state a claim for “direct physical loss or damage,” as that phrase is used in the policy. Direct physical loss or damage, the Court held, “requires a material alteration or a complete and persistent dispossession of insured property,” which CRO had not alleged.

Because the Court concluded the policy does not cover CRO’s claims, it declined to consider whether any exclusions in the policy would have barred coverage.

New York law consistently adheres to the parties’ intent as expressed in the plain language of their contracts. This strict approach to contract interpretation is consistent with New York’s role as a leading commercial center – which demands reliability in the enforcement of business agreements. The Court’s decision in CRO comports not only with decades of New York law regarding the standard for pleading direct physical loss or damage, but also honors New York’s rich history and reputation for resisting the temptation to rewrite contracts to reach what might be considered a less harsh or more equitable result, and faithfully interpreting insurance policies as written and agreed.

The case is Consolidated Restaurant Operations Inc. v. Westport Insurance Corp., index number 450839/21, in the Court of Appeals of the State of New York.