539 F.Supp.3d 409
E.D. Pa.2021Background
- Plaintiff Hair Studio 1208, LLC operates an indoor hair salon and purchased a Business Owner’s Policy (Jan 1, 2020–Jan 2, 2021) with Business Income and Civil Authority endorsements and a Virus Exclusion.
- Policy covers "direct physical loss of or direct physical damage to Covered Property" and pays business income for suspension caused by such covered causes; Civil Authority coverage requires physical loss/damage to other property within one mile that leads a civil authority to prohibit access.
- Pennsylvania COVID-19 orders (March 2020) forced the salon to close on March 16, 2020; Hartford denied the claim citing the Virus Exclusion.
- Plaintiff sued for breach of contract and declaratory relief; Hartford moved for judgment on the pleadings under Rule 12(c).
- The court accepted the complaint’s factual allegations as true but concluded the complaint failed to plead a covered "direct physical loss or damage" or Civil Authority trigger and granted the defendant’s motion, dismissing the complaint.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Business Income endorsement is triggered by COVID-19 closures ("direct physical loss or damage") | Loss of use/access from closure orders is a "direct physical loss" that triggers coverage | No physical alteration or damage to premises; losses are economic and not covered | No — plaintiff failed to allege physical loss/damage; closures alone do not satisfy the policy's physical-loss requirement |
| Whether Civil Authority endorsement covers losses from state closure orders | Governor’s orders responded to pandemic-related physical loss/damage nearby and thus prohibit access | No allegation that other property within one mile suffered physical loss/damage; orders respond to public-health risk, not property damage | No — complaint lacks allegations of other-property physical loss and does not allege the requisite prohibited physical access |
| Applicability of the Virus Exclusion to COVID-19 losses | Exclusion should not apply or is ambiguous; plaintiff invoked regulatory-estoppel arguments | COVID-19 is a virus excluded by the policy; exclusion bars coverage | Court did not decide on exclusion (dismissed on coverage grounds) but noted many courts have found the Virus Exclusion bars such claims |
| Who bears burden on coverage under an "all-risk" policy | Plaintiff suggested "all-risk" shifts burden to insurer to show no coverage | Insured must first show a covered loss; insurer must then prove any exclusion applies | Court reaffirmed insured’s initial burden to plead a covered cause of loss despite the policy being "all-risk" |
Key Cases Cited
- Port Auth. of N.Y. & N.J. v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2002) (defines "physical loss or damage" and requires actual, demonstrable impairment of property use)
- Motorists Mut. Ins. Co. v. Hardinger, [citation="131 F. App'x 823"] (3d Cir. 2005) (applies Port Authority standard under Pennsylvania law; contamination requires near elimination of property utility)
- Philadelphia Parking Auth. v. Fed. Ins. Co., 385 F. Supp. 2d 280 (S.D.N.Y. 2005) (economic losses from reduced business post-9/11 are not "physical loss or damage")
- 401 Fourth St., Inc. v. Investors Ins. Grp., 879 A.2d 166 (Pa. 2005) (insurance contract interpretation is a question of law; give effect to policy language)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard requires more than labels and conclusions)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility pleading standard and courts may disregard conclusory allegations)
- Pacific Indem. Co. v. Linn, 766 F.2d 754 (3d Cir. 1985) (exclusions effective if clearly worded and conspicuously displayed)
- Betz v. Erie Ins. Exch., 957 A.2d 1244 (Pa. Super. Ct. 2008) (discussion of "all-risk" policies and burden-shifting after insured shows a loss)