Insurance Coverage Granted for Restaurant’s Loss of Business Income Caused by COVID-19
By way of brief background, in response to the spread of COVID-19, the Pennsylvania Governor issued mandates and orders that required all non-life sustaining businesses in Pennsylvania to cease operations and close physical locations, and citizens to stay at home. Due to these mandates and the spread of COVID-19, the plaintiff, Macmiles, LLC D/B/A Grant Street Tavern (“MacMiles”), suspended its business operations and submitted a claim to the defendant, Erie Insurance Exchange (“Erie”), under an all-risk ultra plus commercial general liability policy, which provides coverage for any direct physical loss or damage, unless the loss or damage is specifically excluded or limited by the policy. Erie denied MacMiles’ claim and, in response, MacMiles commenced a lawsuit in the Court of Common Pleas of Allegheny County seeking, inter alia, declaratory judgment with respect to the policy’s business income protection, civil authority and extra expense provisions.
Subsequently, MacMiles filed a motion for partial summary judgment and, in response, Erie filed a cross-motion for judgment on the pleadings. After oral argument, the court granted, in part, MacMiles’ partial summary judgment motion and denied Erie’s cross-motion for judgment on the pleadings.
First, the court granted MacMiles’ motion for partial summary judgment with respect to MacMiles’ claim for declaratory judgment that MacMiles is entitled to coverage under the policy’s income protection provision. To make this determination, the court looked to the plain language of the policy and noted, to establish coverage under the provision, MacMiles must establish it suffered “direct physical loss of or damage to” its property. MacMiles argued a reasonable interpretation of the phrase “direct physical loss of . . . property” includes the loss of use of its property; whereas, in contrast, Erie argued this phrase requires some physical altercation of or demonstrable harm to MacMiles’ property. Focusing on the word “or”, the court reasoned the phrase “direct physical loss of” had a different meaning than the phrase “direct physical . . . damage to”.
With this in mind, the court conducted an in-depth analysis to determine the meaning of the terms “damage” and “loss” as the policy did not define every term in the phrase “direct physical loss of or damage to” property. Citing to their common usage and dictionary definitions – as considered through the context of the policy and specific facts of the case – the court concluded the term “loss” reasonably encompasses the act of losing possession and/or deprivation, which includes the loss of use of property absent any harm to property, while “damage” encompasses all forms of harm to property.
As such, the court held MacMiles’ loss of use of its property was “direct” and “physical” as the spread of COVID-19 had a close relationship to the way MacMiles utilized its property and physical space. In other words, the court held the spread of COVID-19 caused physical loss to MacMiles. In doing so, the court rejected Erie’s argument that the spread of COVID-19 merely imposed economic losses thereby clarifying that actual physical harm to property is not always required.
The court also rejected Erie’s argument that the policy’s Amount of Insurance Provision is inconsistent with the interpretation that “direct physical loss of . . . property” encompasses MacMiles’ loss of use of its property absent tangible damage. The court held the policy’s Amount of Insurance provision does not necessitate the existence of damaged or destroyed property or require repairs, rebuilding or replacement of damaged or destroyed property to entitle MacMiles to coverage. Rather, the provision merely imposes a time limit on the available coverage, which ends when MacMiles’ business is operating at normal capacity after any required rebuilding, repairs or replacements are completed, or twelve (12) months after the initial date of the loss.
In granting this component of MacMiles’ motion, the court also noted its disagreement with Erie’s argument that the policy’s compliance with laws and ordinance exclusion barred coverage as the court reasoned MacMiles’ sought coverage for losses suffered in relation to the COVID-19 pandemic and the civil authority orders. In doing so, the court also stated, in a footnote, this exclusion could not have been intended to exclude coverage under the policy’s civil authority provision as it would make any extended coverage for the actions of civil authority illusory.
Second, the court denied, without prejudice, MacMiles’ partial motion for summary judgment with respect to MacMiles’ claim for a declaration that the policy’s civil authority provision provides coverage for the losses MacMiles allegedly sustained as a result of the Governors’ orders to mitigate the spread of COVID-19. Specifically, the court determined, unlike the income protection provision, the policy’s civil authority provision does not provide coverage for the loss of use of property other than MacMiles’ property. As such, the court determined, to establish coverage under the civil authority provision, MacMiles must demonstrate COVID-19 was actually present on property other than its own property, such damage occurred within one mile of its property and the Governors’ orders were “taken in response to dangerous physical conditions resulting from the damage or continuation of the peril insured against that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.” As the court determined genuine issues of material fact exist as to the foregoing elements, MacMiles’ motion was denied, in part.
This decision is significant, as it seemingly provides plaintiffs with an avenue to obtain coverage for any losses sustained to their business as a result of COVID-19.
Thanks to Lauren Berenbaum for her contribution to this post. Please contact Heather Aquino with any questions.