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Three Strikes and You’re Out on Coverage: COVID-19 Business Interruption Claim Fails (PA)

December 18, 2020

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<p style="text-align: justify;">Of course, COVID-19 and accompanying shutdown orders impact on business interruption claims are still among the most pressing issues facing the courts.  In <em><a href="">Toppers Salon &amp; Health Spa Inc v Travelers Property Casualty Company of America</a>,</em> the Eastern District of Pennsylvania has provided one of the most definitive answers on the issue with its rejection of an insured’s business interruption claim.</p>
<p style="text-align: justify;">Plaintiff Toppers operates a chain of day spas in Pennsylvania, New Jersey, and Delaware, all of which have been affected by government mandated shutdown orders.  Toppers’ insurance policy covers interruption to its business which includes business income coverage and civil authority coverage.  The key provision in the policy here is that it covers loss “due to the necessary suspension of your ‘operations’ during the ‘period of restoration,’” if the suspension was “caused by direct physical loss of or damage to property at [the insured's] premises.” “The ‘Civil Authority’ provision covers loss of Business Income and extra expenses incurred due to damage to property other than property at the insured's premises, when as a result of ‘dangerous physical conditions,’ a civil authority's actions prohibit access to both the insured's premises and the area immediately surrounding the damaged property.”</p>
<p style="text-align: justify;">The Court held that neither of these provisions applied in this case deciding that being forced to close as a result of the shutdown orders was not a “physical loss.” The language the Court primarily focused on was the period for which the policy would reimburse a loss. The policy provided that this period ended on the “date when the property at the described premises should be repaired, rebuilt or replaced.” The Court opined that for this language to make sense, a physical loss must have occurred to be repaired, and the shutdown order did not meet this definition.  The Court believed the policy language demonstrated the intent of the parties that any loss must be some sort of physical damage. The Civil Authority coverage did not apply because, similarly, a physical loss had not occurred to neighboring property.</p>
<p style="text-align: justify;">The Court also looked at the specific Virus Exclusion holding Plaintiff would also lose its claim for coverage because of its plain language as well.  The Virus Exclusion applies to “loss or damage caused by or resulting from any virus ... that induces or is capable of inducing physical distress, illness or disease.” The Court held that, “The language is not ambiguous, and it applies to Covid-19, which is caused by a coronavirus that causes physical illness and distress.” The Court held that similar language was held to exclude coverage in South Dakota and California.</p>
<p style="text-align: justify;">This opinion is one of the strongest yet to deny coverage for businesses forced to close due to government shutdown orders during the COVID-19 pandemic. A clear Virus Exclusion is one way for insurance companies to be sure that they will not be required to cover for these types of losses, but this Court went further, holding that COVID-19 is not a physical loss that could be covered by a business interruption or civil authority coverage. While courts will still wrestle for the time being as to how exactly COVID-19 and insurance overlap, this Court strongly casted its vote in favor of the lack of coverage camp.</p>
<p style="text-align: justify;">Thanks to Ryan Geib for his contribution to this post. If you have any questions or comments, please contact <a href="">Thomas Bracken</a>.</p>


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