517 F.Supp.3d 315
M.D. Pa.2021Background
- Plaintiffs (a restaurant, Mauldin’s) purchased an all-risk commercial policy from Pennsylvania National; business closed in March 2020 after South Carolina COVID-19 advisories and orders and submitted a claim for business-income losses; insurer denied the claim on March 31, 2020.
- Plaintiffs filed a putative class action alleging breach of contract, bad faith, and declaratory relief; defendant moved to dismiss the Amended Complaint.
- Relevant Policy provisions: Business Income (covers actual loss from necessary suspension caused by “direct physical loss of or damage to property” during a defined “period of restoration”); Civil Authority (covers loss caused by civil authority that prohibits access due to direct physical loss or damage to other property); and a Virus Exclusion (excludes loss caused by any virus).
- Plaintiffs argued “direct physical loss” is ambiguous and can include loss of use/function; they also challenged application of the Virus Exclusion and raised regulatory-estoppel arguments.
- The court applied Pennsylvania law, evaluated the pleadings under Twombly/Iqbal standards, and concluded the insurer properly denied coverage; it granted the motion to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Business Income: whether COVID-19-related closure triggers “direct physical loss of or damage to property” | “Direct physical loss” is ambiguous; loss of use/function (inability to host patrons) qualifies | Term requires tangible, physical alteration or contamination of the insured premises | Court: Unambiguous — requires physical alteration or contamination; economic loss alone insufficient; coverage denied |
| Civil Authority: whether government orders prohibiting access trigger Civil Authority coverage | State orders prohibiting indoor dining effectively prohibited access and triggered coverage | Civil Authority requires civil action prompted by direct physical loss/damage to other nearby property | Court: No allegation of physical loss/damage to nearby property caused the orders; provision not triggered |
| Virus Exclusion: whether exclusion bars COVID-19 losses and/or is subject to regulatory estoppel | Exclusion inapplicable or estopped because insurer/ISO told regulators it would only clarify coverage | Exclusion expressly precludes loss caused by viruses, including COVID-19 | Court: Did not decide definitively (coverage already lacking), but noted persuasive authority within the Circuit holds the Virus Exclusion bars COVID-19 losses |
Key Cases Cited
- Port Auth. of N.Y. & N.J. v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2002) (distinguishes physical damage/loss that renders a building unusable from mere economic loss or contamination that does not eliminate utility)
- Kurach v. Truck Ins. Exch., 235 A.3d 1106 (Pa. 2020) (apply ordinary-contract interpretation principles to insurance policies)
- 401 Fourth St., Inc. v. Invs. Ins. Grp., 879 A.2d 166 (Pa. 2005) (ascertain parties’ intent from policy language)
- Motorists Mut. Ins. Co. v. Hardinger, [citation="131 F. App'x 823"] (3d Cir. 2005) (Port Authority principle applies where unseen contaminants allegedly reduce property use)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must be plausible to survive motion to dismiss)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (Twombly pleading standard and two-pronged analysis)