Insurers’ COVID-19 Notepad: What You Need to Know Now - Week of December 5, 2022

Courts Dismiss COVID-19 Business Interruption Claims

On November 30, 2022, the Superior Court of Pennsylvania reversed the trial court’s grant of summary judgment for a tavern and directed judgment on the pleadings for Erie Insurance Exchange on a COVID-19 business interruption complaint. The court held that the insurance policies do “not cover mere loss of use of commercial property unaccompanied by physical alteration or other condition immanent in the property that renders the property itself unusable or uninhabitable.” Order at 2. The court said the trial court’s decision presented a strained reading of the policy language when it held that “direct physical loss” includes loss of use. Id. at 16. The case is MacMiles, LLC v. Erie Insurance Exchange.

On November 30, 2022, the Superior Court of Pennsylvania affirmed the trial court’s grant of a dental practice’s motion for summary judgment on a COVID-19 business interruption class action complaint. The court found that the proposed class suffered a direct physical loss because of the coronavirus and resulting government shutdown orders. Order at 2. The court rejected the argument that “direct physical loss of or damage to property” requires a physical alteration to the insured property. Id. at 11–13. Instead, a reasonable interpretation could include loss of use, even without physical harm to the property. Id. at 11. Even though the court acknowledged, “this conclusion runs against the tide of cases,” it said the policy’s plain language, the principle that ambiguities are construed in favor of the insured, and the trial court’s analysis dictated the result. Id. at 26. The case is Ungarean v. CNA & Valley Forge Insurance Co.

On November 22, 2022, the district court for the Southern District of Mississippi granted State Auto Property and Casualty Insurance Company’s motion to dismiss an Italian restaurant’s COVID-19 business interruption claim. The court concluded that, under Mississippi law, “the meaning of ‘direct physical loss or damage’ to property is immediate, tangible deprivation of, physical damage to, or destruction of property.” Order at 6. Because the insured failed to allege “that anything physically happened to its property, or that it was physically deprived of its property in some way” but rather alleged only that it could not use its property for dine-in services, its allegations were “insufficient to allege an immediate tangible deprivation such that coverage applies.” Id. at 7. The case is Big Tomato LLC v. State Auto Prop. & Cas. Ins. Co.

On November 29, 2022 the district court for the Eastern District of Pennsylvania granted The Hartford’s motion to dismiss a restaurant owner and operator’s COVID-19 business interruption claim. The court held that the plaintiff’s limited virus coverages did not apply because the plaintiff failed to allege any of the specified causes of loss enumerated in the policy. Order at 3-4. The court also rejected the plaintiff’s claim for coverage under the more general provisions in its policy because, as recognized by “[n]umerous courts, applying Pennsylvania law,” the plaintiff’s virus exclusion unambiguously barred coverage. Id. at 2, 4. The case is Harvest Rest. Holdings, LLC v. The Hartford.