FUEL UNIVERSITY CITY, LLC D/B/A FUEL RECHARGE v. AMCO INSURANCE COMPANY, 2:20-cv-04478

Plaintiff Fuel University City, LLC (a Philadelphia delicatessen) purchased an "all-risk" commercial policy covering Business Income, Extra Expense, and Civil Authority losses for "direct physical loss of or damage to" covered property.
COVID-19 pandemic and Pennsylvania closure orders in March 2020 caused Plaintiff to suspend or reduce operations; Plaintiff claimed substantial business losses and submitted a claim.
Defendants Allied/Nationwide denied the claim, asserting COVID-19 and the closure orders are not a "Covered Cause of Loss" and that a Virus or Bacteria exclusion bars coverage.
Plaintiff sued for declaratory relief and breach of contract; Defendants moved to dismiss under Rule 12(b)(6).
The court applied Pennsylvania insurance-contract principles and federal pleading standards, found Plaintiff failed to plead covered "direct physical loss of or damage to" property and that the Virus or Bacteria exclusion unambiguously barred coverage.
The amended complaint was dismissed with prejudice as amendment would be futile.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether COVID-19/closure orders caused "direct physical loss of or damage to" the insured property (Business Income/Extra Expense)	COVID-19 contaminated surfaces and made property unsafe/uninhabitable, eliminating use	No distinct, demonstrable physical alteration; loss from community contagion not remediable by repair or replacement	Dismissed — allegations insufficient: no direct physical alteration and loss not the sort remedied during the policy's "period of restoration"
Whether Civil Authority coverage applies to governor's closure orders	Orders prohibited access and thus triggered civil authority coverage	Orders were issued to address community spread, not in response to damage to a nearby property	Dismissed — orders not taken "in response to" damage to nearby property; no coverage
Whether the Virus or Bacteria exclusion bars coverage	Exclusion should not apply (regulatory estoppel); exclusion limited to "loss or damage," so extra expenses may survive	SARS-CoV-2 is a virus causing the loss; exclusion expressly bars loss caused by viruses	Held — exclusion unambiguous and bars Plaintiff's claims; regulatory estoppel fails; extra expenses are financial losses caused by the virus and excluded
Whether dismissal should be with prejudice / leave to amend	Plaintiff implicitly sought leave to amend	Defendants argued amendment would be futile	Held — dismissal with prejudice; amendment would be futile

Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (standard for pleading factual plausibility)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must allege enough facts to state a plausible claim)
Port Auth. of N.Y. & N.J. v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2002) ("direct damage to" requires distinct, demonstrable physical alteration)
Motorists Mut. Ins. Co. v. Hardinger, [citation="131 F. App'x 823"] (3d Cir. 2005) (contamination can cause physical loss where property is rendered unusable)
401 Fourth St. v. Inv. Ins. Co., 879 A.2d 166 (Pa. 2005) (policy interpretation and insured's reasonable expectations)
Ramara, Inc. v. Westfield Ins. Co., 814 F.3d 660 (3d Cir. 2016) (ambiguities in policy language construed for the insured)
Toppers Salon & Health Spa, Inc. v. Travelers Prop. Cas. Co. of Am., 503 F. Supp. 3d 251 (E.D. Pa. 2020) (definition of "loss" as financial detriment caused by property damage)