In what appears to be the first decision of its kind in Pennsylvania, a federal district court in Philadelphia dismissed at the pleadings stage the plaintiff-insureds’ claims for insurance coverage based on COVID-19-related business interruption losses. In Wilson v. Hartford Cas. Co., No. 20-3384, 2020 U.S. Dist. LEXIS 179896 (E.D. Pa. Sept. 30, 2020), a Philadelphia attorney and her law firm filed a lawsuit against their insurer and broker seeking coverage for past and future business losses due to the Coronavirus and a myriad of associated state, city and court orders requiring the firm to close. The insureds claimed that coverage was available under their policy pursuant to the “civil authority”, “lost business income and extra expense”, “extended busines income”, “business income extension for essential personnel”, and “limited fungi, bacteria, or virus” provisions, the latter of which had a limit of $50,000. The insurer and broker both filed motions to dismiss the insureds’ amended complaint.
Many of the early COVID-related business income rulings around the country have hinged upon whether coverage was triggered through “direct physical loss” or damage to the property at issue. The court in this case, however, stated that it need not decide this threshold issue because the policy’s “virus exclusion” – which precludes coverage for “loss or damage caused directly or indirectly by … [p]resence, growth, proliferation, spread or any activity of ‘fungi’, wet rot, dry rot, bacteria or virus” -- clearly and unambiguously applied, as the plaintiffs “explicitly allege that their losses are caused by the Coronavirus.”
With respect to the “limited fungi, bacteria, or virus coverage” contained in the policy, the court stated that even assuming the insureds’ claims fell within the scope of coverage, the virus exclusion still applied, and that such claims did not fit within any “exemption” to that exclusion. The court noted that for the only potentially applicable exception to apply, the “virus” must have been the result of a “specified cause of loss” other than fire or lightning (i.e., explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, leakage from fire extinguishing equipment, sinkhole collapse, volcanic action, falling objects, weight of snow, ice, or sleet, water damage), or an “equipment breakdown accident.” As the court determined, there were no allegations in the amended complaint indicating that the virus was the result of any of the “specified cause[s] of loss” enumerated above, or an equipment breakdown.
The court also found that the virus exclusion precluded coverage under the “civil authority” provision in the policy, rejecting the insureds’ contention that the governmental orders requiring closure of the insured law firm constituted a separate cause of loss. In so doing, the court noted that both the civil authority coverage and virus exclusion were part of the same “special property coverage” form. The court also relied upon the “anti-concurrent causation” language in the virus exclusion, which provided that “[s]uch loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” Lastly, in contrast to some other recent Pennsylvania federal court rulings, the court rejected the insureds’ contention that the “unsettled” insurance coverage issues in this case should be decided by the Pennsylvania state courts.
The Wilson decision is in line with the majority of courts around the country to date which have found no business interruption coverage for COVID-19 losses. Since this court essentially punted on the critical threshold issue of whether the virus caused “direct physical loss” to property, it will be left for other Pennsylvania courts to determine whether that term means a material alteration/tangible damage to property, as insurers have argued, or merely a “loss of use” of the property, as policyholders have suggested. Regardless, this decision underscores the hurdles that insureds may have to overcome in order to secure coverage for COVID-19 business losses.
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