546 F.Supp.3d 354
E.D. Pa.2021Background:
- Boscov’s operated department stores and had an "all-risk" property policy with American Guarantee & Liability Insurance Co. (AGLIC) covering "direct physical loss of or damage" to covered property (June 2019–June 2020).
- In March 2020 Boscov’s closed stores in response to COVID-19 and government shutdown orders and submitted a business-interruption/time-element claim to AGLIC.
- AGLIC denied the claim on the ground it was not caused by "direct physical loss of or damage" to property; Boscov’s sued for breach of contract, declaratory relief, and bad faith.
- Boscov’s sought coverage under general property/time-element provisions and several endorsements (accounts receivable, civil/military authority, contingent time element, protection/preservation).
- AGLIC invoked a Contamination (virus) exclusion and state-specific endorsement language; Boscov’s sought judicial notice of industry materials and argued regulatory estoppel and broader meanings for "physical loss."
- The court denied AGLIC’s motion to strike, granted AGLIC’s Rule 12(c) motion, held Boscov’s failed to plead "direct physical loss or damage," found the virus exclusion unambiguous, rejected regulatory estoppel, and denied leave to amend as futile.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID-19 closures allege "direct physical loss of or damage" to insured property | Boscov’s: loss of use from virus threat and government orders suffices as "direct physical loss" | AGLIC: phrase requires tangible, physical alteration or loss of use tied to a physical condition | Held: Requires nexus to physical condition; Boscov’s pleaded only economic loss/loss of use untethered to physical alteration — no coverage |
| Applicability of special/time-element coverages (accounts receivable, civil authority, contingent time element, protection/preservation) | Boscov’s: these provisions cover losses from pandemic and shutdowns | AGLIC: each requires physical loss/damage (or proximate physical loss/damage to nearby properties) not alleged here | Held: All fail for same reason; civil/contingent provisions also require physical damage to other property within specified radius — not alleged |
| Virus/Contamination exclusion and effect of Louisiana amendatory endorsement | Boscov’s: Louisiana endorsement removes "virus" from contamination definition, so exclusion may not apply to its policy; industry materials show different usages | AGLIC: Contamination Exclusion unambiguously includes viruses; the Louisiana endorsement is state-specific and does not erase the exclusion for non-Louisiana locations | Held: Contamination exclusion unambiguous and covers COVID-19; state-specific endorsement does not nullify the exclusion for the whole policy |
| Bad faith and duty of good faith and fair dealing | Boscov’s: AGLIC acted in bad faith and failed to investigate | AGLIC: denial was legally reasonable because coverage is not triggered; no bad faith where denial has reasonable basis | Held: Bad faith claim dismissed because insurer had a reasonable basis to deny coverage; no factual basis for bad-faith inference |
Key Cases Cited
- Port Authority of New York & New Jersey v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2002) (defines "physical damage" and holds mere presence/threat of contaminants insufficient for first-party coverage)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (establishes plausibility standard for pleadings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim to survive dismissal)
- State Farm Fire & Casualty Co. v. Estate of Mehlman, 589 F.3d 105 (3d Cir. 2009) (insured bears initial burden to show coverage; insurer must prove exclusions)
- Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575 (3d Cir. 2009) (contract language given plain meaning; ambiguity construed against insurer)
- Sapa Extrusions, Inc. v. Liberty Mut. Ins. Co., 939 F.3d 243 (3d Cir. 2019) (policy must be read as whole and given effect to all provisions)