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Home / Insurance / Factory Mutual's exclusion of "contamination" is ambiguous; May not limit coverage for COVID-19 Loss of business interruption

Factory Mutual's exclusion of "contamination" is ambiguous; May not limit coverage for COVID-19 Loss of business interruption



On Wednesday, a federal judge in New York FM's Rule 12 (c) denied proposals to assess the submissions after finding that contamination was excluded from the factory's mutual policy is ambiguous if it prevents coverage for loss of business due to contagious disease. The case is Thor Equities, LLC v Factory Mutual Ins. Co. No. 20 Civ. 3380 (AT) (SDNY). This is a critical decision under the Factory Mutual form, which is essentially the same as policies issued by Factory Mutual's sister company, Affiliated FM Insurance Company. Factory Mutual and Affiliated FM have argued that the pollution cover is an "exception" to this exception, with the exception excluding cover for contagious loss of other insurance policies. But the decision validates what the policyholders have claimed ̵

1; that "loss" for infectious disease is covered throughout the Factory Mutual policy, in addition to the limited contingency diseases.

In his decision, Judge Torres stated that both parties argued that the exclusion of pollutants clearly favored their respective positions. Thor argued that the failure of the exclusion to mention any loss "due to contamination", while explicitly referring to "any cost due to contamination", indicates that the exclusion does not prevent coverage for Thor business interruption. Factory Mutual, on the other hand, argued that the pollution exclusion's mention of "inability to use or occupy property" unequivocally precludes losses due to pollution caused by COVID-19, including Thor's loss of rental income. Judge Torres considered that the exclusion was susceptible to more than a reasonable interpretation, as it was potentially compatible with either party's interpretation. Consequently, Judge Torres concluded that the exclusion was ambiguous as a matter of law.

The decision in Thor Equities is the first decision in any COVID-19 insurance dispute according to the Factory Mutual / Affiliated FM wording. to specifically address the unique language contained in these policies. Although another court recently issued a decision under the Affiliated FM version of the policy, the judge in Out West Restaurant Group Inc. v. Affiliated FM Ins. Co. failed to consider any of the unique wording of the policy and specifically avoided considering the policy's exclusion of contaminants or how policy affirmative action for communicable diseases affects the extent of coverage under that policy. The decision in Thor Equities therefore stands as the only statement due to Factory Mutual's unique policy formulation.


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