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Covid-19 Closures and the Reasonable Expectations of a Commercial Insured is still undecided in Pennsylvania (PA)

January 15, 2021

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<p style="text-align: justify;">COVID-19 related insurance litigation has often left insurers with more questions than answers. In <em><a href="https://www.wcmlaw.com/wp-content/uploads/2021/01/Browns-Gym-Inc.-v.-The-Cincinnati-Ins.-Co..pdf">Brown's Gym, Inc. v. The Cincinnati Ins. Co.</a>,</em> another open question of law in Pennsylvania is being looked at in relation to such a COVID-19 initiated case. Here, the Court of Common Pleas of Pennsylvania in Lackawanna County recently ruled that a case by a commercial insured looking to sue their insurance broker for negligence should not be dismissed for several reasons, but one being that the reasonable expectations doctrine as applied to a commercial insured is still an open one.</p>
<p style="text-align: justify;">Plaintiff is a gym that was forced to shut down due to government shut down orders. Plaintiff sought a declaratory judgement that its insurance policy covers the losses suffered because of the closures. While this is still an open question before many courts, plaintiff has taken the additional step in arguing in the alternative that its insurance broker was negligent in failing to provide the coverage that the plaintiff sought and reasonably expected.</p>
<p style="text-align: justify;">Defendant, plaintiff’s insurance broker, sought dismissal of the claim for three reasons. First, the broker owed no duty to plaintiff. Second, the broker was not a party to the insurance contract. Both of these reasons are analyzed and rejected by the Court. Third, plaintiff as a commercial insured is not entitled to the “reasonable expectations doctrine.”</p>
<p style="text-align: justify;">Plaintiff claims that they made it clear to their broker that they wanted to purchase an “All Risk” policy, one without an exclusion for viruses, one that would cover government shutdown orders, with the goal for it be “as broad as possible.” The Court explained that, “under the reasonable expectations doctrine, when interpreting a policy of insurance, the court should focus upon whether the insurer or its agent created in the insured a reasonable expectation of coverage that is not supported by the policy terms.” The Court noted that thus far, Pennsylvania courts have only applied this doctrine to non-commercial insureds. However, the Court also points to the 3<sup>rd</sup> Circuit, which “predicted that Pennsylvania courts would apply that doctrine even where the insured is a sophisticated purchaser of insurance.”</p>
<p style="text-align: justify;">The Court held that, with no precedential decision on this question of law, the question could not be resolved at this stage of the litigation and specified that the broker could revisit the issue in a motion <em>in limine</em> or an objection to proposed jury instructions later in the case.</p>
<p style="text-align: justify;">This case demonstrates that even if courts eventually do settle on the determination that the COVID-19 shutdown is not covered by most insurance policies, insureds will target brokers for the failure to provide a policy which covers their expectations.</p>
<p style="text-align: justify;">Thanks to Ryan Geib for his contribution to this post.  Should you have any questions, please contact <a href="mailto:tbracken@wcmlaw.com">Thomas Bracken</a>.</p>

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