516 F.Supp.3d 450
E.D. Pa.2021Background:
- Plaintiff Frank Van's Auto Tag, a non-essential auto title/tag/registration business in the Philadelphia area, closed temporarily after Pennsylvania Governor Wolf's March 2020 COVID-19 shutdown orders and claimed economic losses.
- Frank Van's held an "all-risk" commercial property policy issued by Selective Insurance covering Business Income, Extended Business Income, Extra Expense, and Civil Authority losses, effective through April 2021.
- Selective denied the claim, asserting (a) no "direct physical loss of or physical damage" to the premises occurred and (b) the Policy's Virus Exclusion (and potentially an Ordinance or Law exclusion) bars coverage.
- Frank Van's sued as a putative class representative seeking declaratory relief; Selective moved to dismiss under Rule 12(b)(6).
- The court evaluated policy language (including "period of restoration" and Civil Authority conditions), precedent on "direct physical loss or damage," and exclusions; it dismissed without prejudice but granted leave to amend within 60 days to plead reasonable expectations or additional facts.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID-19 shutdown orders caused a "direct physical loss of or physical damage" sufficient to trigger Business Income/Extra Expense coverage | Loss of use/access to premises constitutes "physical loss" (functional impairment) | Policy requires a tangible/physical alteration or condition at the premises; shutdowns caused only economic loss | Court: No. Alleged loss was economic only; plaintiff pleaded no physical alteration or damage, so coverage not triggered |
| Whether Civil Authority coverage is triggered by Governor Wolf's closure orders | Orders prohibited access and thus triggered Civil Authority coverage | Civil Authority requires (1) access prohibited due to (2) covered physical damage to nearby property causing dangerous physical conditions | Court: No. Plaintiff failed to allege covered physical damage to nearby property or that orders responded to dangerous physical conditions from such damage |
| Whether the Policy's Virus Exclusion bars coverage for COVID-related losses | Proximate cause was government orders, not the virus; exclusion should not apply | Virus Exclusion precludes loss "directly or indirectly" caused by any virus and contains anti-concurrent-causation language | Court: Exclusion unambiguous and would bar coverage because it precludes loss directly or indirectly caused by a virus; plaintiff's proximate-cause argument fails on pleadings |
| Whether Ordinance or Law exclusion/Endorsement affects coverage; and whether reasonable-expectations doctrine rescues the claim | Endorsement or reasonable expectations could cover shutdown losses or limit the exclusion | Exclusion bars loss from enforcement/compliance with laws regulating "use"; endorsement covers physical repair/upgrade costs tied to ordinance compliance | Court: Doubtful the Exclusion applies to temporary health orders as regulating construction/use in that sense; endorsement covers only physical repair-compliance costs. Court did not find endorsement helps here; allowed leave to amend to plead reasonable expectations |
Key Cases Cited
- Port Auth. of New York & New Jersey v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2002) (physical damage requires distinct, demonstrable physical alteration; mere continued functionality negates physical loss)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard governs Rule 12(b)(6) motions)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions disregarded; plausibility review clarified)
- Phila. Parking Auth. v. Fed. Ins. Co., 385 F. Supp. 2d 280 (S.D.N.Y. 2005) ("direct physical loss or damage" construed to require physical nature)
- United Air Lines, Inc. v. Ins. Co. of State of Pa., 439 F.3d 128 (2d Cir. 2006) (civil-authority coverage not triggered where orders were based on fear of future attacks rather than physical damage)
- UPMC Health Sys. v. Metro. Life Ins. Co., 391 F.3d 497 (3d Cir. 2004) (doctrine of reasonable expectations and how courts assess an insured’s expectations)