Burlington Stores Inc. has lost its $750 million lawsuit against Zurich American Insurance Co. over pandemic-related business interruption losses, after a New Jersey federal judge ruled that the retailer failed to meet the policy's requirement of demonstrating direct physical loss or damage to its property.

In a 15-page decision Tuesday, U.S. District Judge Karen M. Williams dismissed Burlington’s claims with prejudice, finding that the presence of COVID-19 virus particles on surfaces within its stores did not qualify as a physical alteration of property under the terms of the insurance policy.

Court Rejects Burlington's Argument

Burlington argued that the virus physically altered surfaces and objects, transforming them into "vectors of disease." However, Judge Williams dismissed this claim as a semantic stretch.

To illustrate her reasoning, Judge Williams compared two door handles: one contaminated with virus particles and one without. She noted that the contaminated handle retained its material, shape, and function, showing no fundamental physical alteration.

Aligning with Nationwide Precedents

Judge Williams’ decision mirrors a wave of rulings favoring insurers in COVID-19 business interruption cases. Central to these cases is the interpretation of the policy phrase “direct physical loss of or damage.”

The ruling cited two key precedents:

1. Rhonda Wilson v. USA Insurance Co. (Third Circuit): Held that neither the virus nor government-mandated shutdown orders constituted physical loss or damage.
2. AC Ocean Walk LLC v. American Guarantee and Liability Insurance Co. (New Jersey Supreme Court): Found that a property must be physically destroyed or altered to qualify for coverage, denying pandemic claims from an Atlantic City casino.

Judge Williams emphasized that the AC Ocean Walk ruling involved the same policy language as Burlington’s, effectively resolving the issue under New Jersey law.

Background and Implications

Burlington filed its lawsuit in May 2021, claiming Zurich ignored its requests for coverage of pandemic-related losses. Zurich moved the case to federal court and sought dismissal, arguing courts consistently reject claims that the virus causes direct physical loss or damage.

The dismissal eliminates Burlington's ability to pursue additional claims on this issue. It reinforces the legal consensus that pandemic-related shutdowns do not meet the standard for property insurance coverage.