Penn Entertainment v. Zurich American Ins., 832 EDA 2024

Background

Penn Entertainment, Inc. and its subsidiaries sought insurance coverage for economic losses from COVID-19-related business shutdowns under commercial property insurance policies.
Penn's policies, purchased from multiple insurers, contained a common provision requiring “direct physical loss or damage” for coverage to be triggered.
When Penn’s operations were shuttered due to state mandates and gaming control board orders in early 2020, insurers denied coverage, citing lack of “direct physical loss or damage.”
Penn sued for declaratory judgment, arguing the losses should be covered under various policy provisions, including endorsements for civil authority and gaming board orders.
The trial court granted summary judgment for all insurers, finding no coverage triggered and allowed certain policy reforms due to draft errors; Penn appealed.
During appeal, the Pennsylvania Supreme Court issued Ungarean v. CNA, ruling broadly against COVID-19 business loss claims under similar policy language.

Issues

Issue	Penn's Argument	Insurers' Argument	Held
Does “direct physical loss or damage” cover COVID-19 claims?	COVID-19 contaminated property, causing measurable physical impact; triggers coverage.	No physical alteration/structural damage; only economic loss due to shutdown.	No coverage; policy requires physical alteration.
Did the GCB endorsement provide COVID-19 coverage?	GCB coverage triggered by orders anticipating physical loss, not requiring actual damage.	Coverage requires anticipation of policy-defined physical damage, which was not shown.	No coverage; GCB endorsement still requires it.
Does the Time-Element provision cover business interruption?	“Loss” should include inability to use property, not just physical destruction.	Only triggers for direct physical loss/damage as defined; not mere loss of use.	No coverage; requires direct physical loss.
Should exclusion clauses be deemed inapplicable?	Exclusions shouldn’t apply to time-element claims; not meaningfully developed on appeal.	Not meaningfully addressed by Penn; should be waived.	Waived; not properly argued.
Was reformation of IFCC and ACE policies proper?	Mistake was unilateral and due to insurer negligence, not a mutual mistake.	Both parties intended a $5M sublimit; error was transcriptional, thus a mutual mistake.	Reformation proper; mutual mistake shown.
Was deeming certain admissions erroneous?	Requests were legal conclusions/non-factual, so should not have been deemed admitted.	Discovery responses deficient; court within discretion under Rule 4014; not material to ruling.	Harmless error; did not affect outcome.

Key Cases Cited

Ungarean v. CNA, 323 A.3d 593 (Pa. 2024) (insurance policies requiring "direct physical loss or damage" do not cover COVID-19 business shutdown losses absent physical alteration)
MacMiles, LLC v. Erie Ins. Exch., 286 A.3d 331 (Pa. Super. 2022) (economic losses from COVID-19 shutdowns do not trigger coverage without physical property alteration)
State Farm Mut. Auto. Ins. Co. v. Dooner, 189 A.3d 479 (Pa. Super. 2018) (summary judgment standard in Pennsylvania)
Zurich Am. Ins. Co. v. O'Hanlon, 968 A.2d 765 (Pa. Super. 2009) (standards for contract reformation due to mutual mistake)