Wade Clark Mulcahy LLP

<p style="text-align: justify;">Business closed due to Covid-19? Sorry, you may be out of luck. When Pennsylvania Governor Tom Wolf mandated the closure of all non-life sustaining businesses in March 2020, enterprises across the state had to shut their doors and hope the Covid-19 virus would simply run its course. As we know now, Covid-19 is here to stay and as a result, many businesses have struggled to keep their doors open. Fuel University City, LLC is one of the companies ordered to close its doors in March, 2020, and even after reopening when the restrictions were lifted, Fuel continued to suffer financially. Moreover, Fuel’s insurance carrier, Allied Insurance Company of America, denied coverage for the losses occurring as a result of the pandemic.</p>
<p style="text-align: justify;">In <em><a href="https://www.wcmlaw.com/wp-content/uploads/2021/09/Fuel-University-City-LLC-v.-Allied-Insurance-Company-of-America-et-al..pdf">Fuel University City, LLC v. Allied Insurance Company of America, et al.,</a></em> the health-conscious Philadelphia eatery alleges its insurance carrier wrongfully denied coverage for its Covid-19 related losses. In response, Allied Insurance moved to dismiss the suit for failure to state a claim upon which relief can be granted. Fuel’s first argued that its financial losses are covered under the “Business Income Provision” of its policy, which states that Allied Insurance will pay for actual losses of income due to the suspension of operations caused by physical damage to the premises. This provision is meant to provide protection when the business cannot physically operate due to damage to the property. Fuel argued that Covid-19 actually caused physical loss and damage to its restaurant by rendering it unsafe for customers to eat there, and by creating a level of social anxiety throughout the community. However, the Court sided with Allied Insurance, ruling that the policy provision was intended to cover occurrences of actual physical damage and repair to the property. The Court stated that Fuel “cannot plausibly allege that the nature of the loss caused by COVID-19 was such that it could be repaired or remedied.” (at 6).</p>
<p style="text-align: justify;">Fuel also argued that its losses were covered under the Civil Authority Provision of its policy, which covers losses caused by governmental restriction of access to physically damaged property. Fuel claimed that Covid-19 rendered its property and the surrounding areas unsafe, uninhabitable, and damaged. The Court rejected this argument as well, stating the government shut-downs were enacted in response to Covid-19’s existence in the community, not in response to any particular damaged property.</p>
<p style="text-align: justify;">Finally, the Court made it clear that even if a right to coverage could be established, the Virus and Bacteria Exclusion would bar recovery. Fuel’s policy contained an exclusion for losses and damages caused directly or indirectly by any virus or bacterium that is capable of inducing disease. Because Covid-19 falls squarely within this definition, Fuel had no hope of coverage. Fuel made one last-ditch effort to argue the principle of regulatory estoppel bars enforcement of the provision, based on its assertion that insurance industry trade groups made misrepresentations to state regulators that the Virus and Bacteria Exclusion would not change the scope of coverage. However, this argument was quickly shut down by the Court.</p>
<p style="text-align: justify;">This decision serves as an example of how the Eastern District will handle business income losses in coverage cases concerning Covid-19 business closures. While a very real threat to public health, the Covid-19 virus is not powerful enough to tear the roof off a building or cause massive flooding in the basement. Yet, it has destroyed the economic viability of untold numbers of business owners throughout the state. As it stands in this district, the economic toll of Covid-19 lands at the feet of business owners.</p>
<p style="text-align: justify;">Thanks to Brian Zappala for his contribution to this post. Please contact <a href="mailto:Haquino@wcmlaw.com">Heather Aquino</a> with any questions.</p>