On December 15, 2020, Judge Lorna Schofield of the United States District Court for the Southern District of New York dismissed a Manhattan art gallery’s claims for insurance coverage for losses suffered as a result of the gallery’s suspension of business operations during the COVID-19 pandemic.[1]  The decision—one of the first to address an insurance coverage claim under New York law for losses resulting from governmental shutdowns in the midst of the COVID-19 pandemic—suggests an uphill battle for New York art institutions seeking insurance relief.

As reported previously on this blog, art institutions across the globe have turned to their business interruption policies to seek refuge from unprecedented losses caused by COVID-19.  In general, business interruption insurance is a type of property insurance that replaces the lost income of businesses when they are unable to operate due to factors outside their control.[2]  These policies typically include language specifying that coverage is limited to business interruption caused by “physical loss or damage” to the insured’s property.  Business interruption insurers have overwhelmingly denied coverage for COVID-19-related claims, citing the “physical loss or damage” requirement typical in such policies.

In 10012 Holdings, Inc. v. Sentinel Insurance Company, Ltd., the Manhattan-based Guy Hepner Gallery (the “Gallery”), brought claims for reimbursement under the “Business Interruption,” “Extra Expense” and “Civil Authority” provisions of its business property insurance policy issued by Sentinel Insurance Company, Ltd., a subsidiary of Hartford Fire Insurance Co., for losses the Gallery sustained when it was forced to shut its doors in March 2020 pursuant to executive orders issued by Governor Andrew M. Cuomo and Mayor Bill de Blasio during the pandemic (together, the “Executive Orders”).[3]

Applying tried-and-true principles of New York contract interpretation, and citing a line of New York cases interpreting substantially identical business interruption coverage provisions in a variety of factual contexts, Judge Schofield found that the Gallery’s business interruption coverage was limited to losses involving physical loss of, or damage to, the Gallery’s property.[4]  Accordingly, the Court dismissed the Gallery’s claim for business interruption coverage, as the Complaint was devoid of any allegation that the COVID-19 pandemic and resulting Executive Orders created a physical loss or damage to the Gallery’s property, “regardless of how the public health responses to the virus may have affected business conditions” for the Gallery.[5]

Judge Schofield also rejected the Gallery’s claims for relief under its business property insurance policy’s “Extra Expense” coverage[6] and “Civil Authority” coverage,[7] as those provisions also required direct physical loss or damage.  With respect to its claim for Civil Authority coverage, the Court found that the Gallery failed to plead (1) losses sustained because the Executive Orders prohibited access to the Gallery’s premises and (2) that such prohibition was a direct result of a risk of direct physical loss to property in the immediate area of the Gallery’s premises.[8]  The Court noted that while “[i]t is plausible that the risk of COVID-19 being physically present in neighboring properties caused state and local authorities to prohibit access to those properties . . . the Complaint does not plausibly allege that the potential presence of COVID-19 in neighboring properties directly resulted in the closure of [the Gallery’s] properties; rather, it alleges that closure was the direct result of the risk of COVID-19 at [the Gallery’s] property.”[9]

While Judge Schofield’s recent decision in 10012 Holdings, Inc. v. Sentinel Insurance Company, Ltd. is not encouraging—particularly given the devastating losses arising from government shutdowns necessitated by the COVID-19 pandemic—we nevertheless expect to see more New York art institutions bringing litigation in effort to obtain business interruption coverage.


On April 5, 2021, the Gallery appealed to the United States Court of Appeals for the Second Circuit, asking the court to certify to the New York Court of Appeals the question of whether business interruption policies should be interpreted to cover losses caused by shutdown orders in response to the COVID-19 pandemic.[10]  In its Second Circuit brief, the gallery argued that the question is “of significant importance to the thousands of businesses in New York that were shuttered or limited in response to COVID-19,” and that at least eight cases in New York “have hinged on the interpretation of the ‘direct physical loss of or damage to’ language at issue.” [11]  The Gallery also argued that the language of “direct physical loss” at issue in its insurance policy covers “all losses in business income resulting from the loss, i.e., the loss of possession and/or deprivation” of the Gallery.[12]  The responding brief is due May 7, 2021.

[1]      10012 Holdings, Inc. v. Sentinel Insurance Company, Ltd., No. 20 CIV. 4471 (LGS), 2020 WL 7360252, at *1 (S.D.N.Y. Dec. 15, 2020).

[2]      Do I Need Business Interruption Insurance?,” Insurance Information Institute.  As explained in a previous post on this blog, in the archetypal example, a business seeks coverage from such a policy when it is prevented from operating as a result of structural damage to its facilities, or forced closure by a civil authority as a result of damage elsewhere.  Historically, insurance companies designed these policies to protect manufacturers against crippling economic loss in the event their factories were forced to shut down due to broken equipment or other physical damage.  Leslie Scism, “Companies Hit by Covid-19 Want Insurance Payouts. Insurers Say No,” Wall Street Journal, June 30, 2020.

[3]      10012 Holdings, Inc., 2020 WL 7360252, at *1.

[4]      Id. at *4.  The insurance policy at issue provided business interruption coverage for loss of “Business Income” sustained due to “necessary suspension” of operations, where such suspension was caused by “direct physical loss of or physical damage to property.” The policy defined “Business Income” as income that the Gallery would have earned “if no direct physical loss or physical damage had occurred.”  Id.

[5]      Id. at *5.

[6]      “Extra Expense” coverage applied to “reasonable and necessary Extra Expense[s] you incur during the ‘period of restoration’ that you would not have incurred if there had been no direct physical loss or physical damage to property at the ‘scheduled premises.’”  Id. at *1.

[7]      “Civil Authority” coverage applied “to the actual loss of Business Income you sustain when access to your ‘scheduled premises’ is specifically prohibited by order of a civil authority as the direct result of a Covered Cause of Loss to property in the immediate area of your ‘scheduled premises.’” Id.

[8]      Id. at *7.

[9]      Id. at *4.

[10] 10012 Holdings, Inc. v. Hartford Ins. Co., No. 21-80 (2d. Cir. Apr. 5, 2021).

[11] Id.

[12] Id.