Fashion firm Ralph Lauren Corp. is suing its insurer to recoup what it says has been a huge drop of two-thirds of its revenues in the first quarter alone due to the pandemic.
Ralph Lauren Corp. (RLC) maintains that Factory Mutual Insurance Co., also known as FM Global, should pay up despite a contamination exclusion in its “all risks” insurance policy that includes viruses in its definition of contamination.
The fashion giant’s complaint, filed in U.S. District Court in New Jersey on Aug. 7, seeks a declaratory judgment and damages against the insurer for allegedly improperly investigating and refusing to pay its claims in what RLC argues are violations of the New Jersey Consumer Fraud Act.
The policyholder argues that the insurer has attempted to “wrongfully shoehorn Ralph Lauren Corp.’s claim into a narrow and limited grant of coverage” to deny the claim rather than recognizing other clauses it says apply and honoring its sales promises to “focus on finding coverage instead of exclusions” and “[f]air and prompt payment of losses.”
RLC claims its losses fall under its policy covering “all risks of physical loss or damage to property” resulting from any cause not excluded, as well as the time element and extra expense coverages. The complaint declares that RLC suffered “direct physical loss and/or damage to its property” due to COVID-19 and stay-at-home orders.
The apparel and housewares company maintains that the coronavirus is a “communicable disease” and that it is present in its properties where it has caused direct physical damage, thereby triggering civil authority coverage.
The policy defines “contamination” as, among other things, a “virus” but, according to RLC’s interpretation of coverage set forth in the complaint, the “contamination” exclusion does not exclude coverage for loss caused by “communicable disease.”
The FMIC policy provides up to $700 million in coverage.”FM Global is unable to discuss the topic in the news media because of the legal nature of the matter.”
As a non-essential business, Ralph Lauren said it complied with stay-at-home orders requiring it to close many of its 1,000 stores. The restrictions and limitations on its operations have caused “substantial damage,” it said, citing a 66% drop in revenues in the first quarter. In North America, brick-and-mortar stores sales fell 77% while wholesale business plummeted 93%.
It claims that the policy’s coverage for communicable disease response voids application of the policy’s contamination exclusion because it covers “the reasonable and necessary costs incurred” for the “cleanup, removal and disposal of communicable diseases from insured property.” In this way, the policy expressly acknowledges that communicable disease causes “insured physical loss or damage,” according to RLC.
RLC claims its extra expense cover is triggered because COVID-19 has caused it to “incur reasonable and necessary extra expenses to temporarily continue as nearly normal as practicable the conduct” of its business.
It further argues that the COVID-19 is present at its locations and that presence has caused physical damage that in turn “directly resulted in the issuance of orders from civil authorities restricting and/or prohibiting access” to RLC locations.
At best, RLC argues, the policy is ambiguous and thus should be construed in its favor.
The complaint details its filing of its claim on March 30 through its insurance broker, Willis Towers Watson.
“FM Global is unable to discuss the topic in the news media because of the legal nature of the matter,” Assistant Vice President Steven Zenofsky said in an email.
The case is Ralph Lauren v. Factory Mutual.
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