PHILADELPHIA – A sports facility in Chester County believes that physical loss is distinct from physical damage, and thus rejects the argument from its insurer that since it did not sustain physical damage loss in the coronavirus pandemic, it should not receive business interruption coverage.
Chester County Sports Arena of Downingtown initially filed suit in the U.S. District Court for the Eastern District of Pennsylvania on April 24 against The Cincinnati Insurance Company of Fairfield, Ohio.
“The policy provides, among other things property, business personal property, business income and extra expense, contamination coverage, and additional coverages. Plaintiff faithfully paid policy premiums to defendant, specifically to provide, among other things, additional coverages in the event of business interruption or closures by order of civil authority. Under the policy, insurance is extended to apply to the actual loss of business income sustained and the actual, necessary and reasonable extra expenses incurred,” the suit stated.
“The policy is an all-risk policy, insofar as it provides that covered causes of loss under the policy means direct physical loss or direct physical damage unless the loss is specifically excluded or limited in the policy. Based on information and belief, the defendant has accepted the policy premiums with no intention of providing any coverage for business losses or the civil authority extension due to a loss and shutdown from a virus pandemic.”
On March 6, Gov. Tom Wolf issued a Proclamation of Disaster Emergency, followed by an order on March 19 requiring all non-life-sustaining businesses in Pennsylvania to cease operations and close all physical locations.
The lawsuit also quoted President Donald Trump as supporting the concept of businesses receiving their specified interruption coverage, as included in their insurance policies.
The suit said the arena laid off 30 employees and continues to incur loss of business income and other expenses, and believes that a declaratory judgment compelling the provision of coverage under the policy would “prevent the plaintiff from being left without vital coverage acquired to ensure the survival of the business due to the shutdown caused by the civil authorities’ response is necessary.”
“Chester County Sports Arena – like all of the other small businesses we represent – have been dutifully paying for their business interruption coverage and when they need help the most, the insurance company is unwilling to do so. The purpose of the litigation is to obtain an order as a matter of law so that their claims can be honored,” plaintiff counsel Richard M. Golomb stated.
Cincinnati Insurance Company filed a motion to dismiss the lawsuit for failure to state a claim on July 20, countering the coverages in question protects insureds like the plaintiff “only for income losses tied to physical damage to property, not for economic loss caused by governmental or other efforts to protect the public from disease”.
Further, the defendant argues that Pennsylvania law requires physical alteration to a property, where there is none here.
“The policy only provides coverage where there is direct physical loss. But, the complaint does not allege facts showing any direct physical loss to any property. In fact, plaintiff coyly acknowledges this failure by stating in the complaint: ‘Plaintiff does not seek any determination of whether the coronavirus is physically in or at the insured property, amount of damages, or any other remedy other than declaratory relief,” the dismissal motion read.
“As shown, the mere presence of the virus on a premises does not constitute direct physical loss. But even assuming that it did, plaintiff eschews any thought that the virus was on its premises. Admittedly, plaintiff cannot possibly prove its claim.”
UPDATE
The plaintiff responded to the motion to dismiss on Aug. 27, challenging its insurer’s belief as to the reasons for the denial of its coverage.
“Cincinnati’s interpretation of the term ‘loss’ to require a ‘physical alternation’ wrongly assumes that ‘physical loss’ and ‘physical damage’ are synonymous, thereby rendering one of the terms superfluous. However, Pennsylvania law is clear that the ‘Court must avoid interpreting the policy in a way that makes any term meaningless or superfluous,” the response brief from the plaintiff said, in part.
“This Court must give meaning to every word and phrase in plaintiff’s policy as to not render any term meaningless. Applying Pennsylvania interpretation principles to plaintiff’s policy makes clear that physical damage or alteration is not required to adequately plead a covered cause of loss. Any interpretation of ‘physical loss’ to mean ‘physical damage’ would neutralize and render superfluous one of the two provisions.”
The plaintiff pointed to the defendant’s citing of other cases in which the insured party failed to allege or show a substance or condition directly affected the insured’s property, as incorrect.
“These factual scenarios are a far cry from the plaintiff’s allegations in this matter – where a viral pandemic has physically affected not only plaintiff’s business and property, but also those throughout Chester County, as well as the entire Commonwealth of Pennsylvania and the world,” the plaintiff said.
The plaintiff is seeking a declaratory judgment stating the governmental orders trigger its insurance policy coverage, for the business interruption coverage to be provided by Cincinnati Insurance Company and such other relief as the Court may deem proper, in addition to a trial by jury.
The plaintiff is represented by Richard M. Golomb of Golomb & Honik and Arnold Levin, Daniel C. Levin, Fred S. Longer and Laurence S. Berman of Levin Sedran & Berman, all in Philadelphia,
The defendant is represented by Daniel Litchfield and Lawrence Silverman of Litchfield Cavo, in Chicago and Philadelphia.
U.S. District Court for the Eastern District of Pennsylvania case 2:20-cv-02021
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com