503 F.Supp.3d 251
E.D. Pa.2020Background
- Toppers Salon & Health Spa, Inc. operates several day-spa locations in PA, NJ, and DE and purchased a commercial property policy from Travelers (Oct. 2019) that includes Business Income and Civil Authority coverage.
- Business Income covers loss from suspension of operations “due to the necessary suspension ... during the period of restoration” caused by “direct physical loss of or damage to property.” Civil Authority covers loss when a civil authority prohibits access because of dangerous physical conditions caused by damage to other property within one mile.
- The Policy contains a broad Virus Exclusion: it excludes “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease,” and applies to all coverage.
- In March 2020 state shutdown orders (to address COVID-19) forced Toppers to suspend operations; Toppers claimed Business Income for continuing expenses and lost income. Travelers denied the claim, citing the Virus Exclusion and lack of covered physical loss/damage.
- Toppers sued for breach of contract and moved for partial summary judgment; Travelers moved for judgment on the pleadings. The court applied Pennsylvania law and granted Travelers’ motion while denying Toppers’ motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of the Virus Exclusion to COVID-19 losses | Exclusion does not cover continuing operating expenses because those are not a “loss” or “damage” | Exclusion is unambiguous and bars all virus-related losses, including lost income and continuing expenses | Exclusion unambiguous; applies to COVID-19 and bars coverage for Toppers’ claim |
| Business Income coverage — requirement of physical loss or damage | Loss of use from shutdown triggers Business Income; period of restoration covers suspension | Policy requires “direct physical loss of or damage” that is repairable; pandemic does not cause physical damage | No physical loss/damage; Business Income not triggered because period of restoration presumes repair/replacement |
| Civil Authority coverage | Government orders prohibiting access trigger Civil Authority coverage | Civil Authority requires damage to other property and dangerous physical conditions in the area; orders here applied to insured’s operations, not nearby damaged property | Civil Authority not triggered: orders were not in response to damage to nearby property causing dangerous conditions |
| Relief / procedural disposition | Toppers entitled to partial summary judgment | Travelers entitled to judgment on the pleadings | Court grants Travelers’ Rule 12(c) motion and denies Toppers’ partial summary judgment motion |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Scott v. Harris, 550 U.S. 372 (view facts and draw inferences in favor of nonmovant)
- Wolfington v. Reconstructive Orthopaedic Assocs. II PC, 935 F.3d 187 (Rule 12(c) analyzed like Rule 12(b)(6))
- Fed Cetera, LLC v. Nat'l Credit Servs., Inc., 938 F.3d 466 (standards for judgment on the pleadings)
- Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888 (Pennsylvania contract/policy interpretation principles)
- 401 Fourth St., Inc. v. Inv’rs Ins. Grp., 879 A.2d 166 (ambiguities in insurance policies construed for insured)
- Pa. Manufacturers’ Ass’n Ins. Co. v. Aetna Cas. & Sur. Ins. Co., 233 A.2d 548 (use plain meaning of policy terms)