PHILADELPHIA – A federal judge has ruled that due to not being able to show physical damage or loss of property during the COVID-19 pandemic, the Independence Beer Garden in Philadelphia is not entitled to coverage under its policy with the Lloyd’s of London insurance company.
Independence Restaurant Group, LLC (doing business as “Independence Beer Garden”) of Philadelphia first filed a class action suit on May 20 against the London-based insurer in the U.S. District Court for the Eastern District of Pennsylvania.
Lloyd’s of London had provided the plaintiff with a one-year insurance policy covering the dates of Aug. 14, 2019 to Aug. 14, 2020, which according to the lawsuit, included coverage for, among other things, the building, personal property and business income with extra expense and rental income,
After the pandemic resulted in executive orders from Pennsylvania Gov. Tom Wolf declaring that “non-life sustaining” businesses would be shut down, the suit states the plaintiff suffered significant losses and therefore, submitted a claim declaring such to the defendant.
Despite having an “all-risk” policy which did not have virus or pandemic exclusions, the plaintiff assert their insurance claim was still rejected by Lloyd’s.
“On information and belief, Lloyd’s position is that its insurance policies do not provide coverage for business income losses based upon the allegation that there is no physical loss or damage to the plaintiff’s property. Plaintiff also believes that Lloyd’s will assert that closure for civil authority coverage requires physical damage to another property, the suit stated.”
The plaintiff said this same denial of coverage has taken place with other clients of Lloyd’s in Pennsylvania, numbering in the hundreds, thereby making the certification of the case as a class action appropriate.
On July 10, the underwriters at Lloyd’s filed a motion to dismiss the claim, asserting the policy in questions states there must be physical damage to a business for such interruption coverage to be activated, in addition to the policy’s exclusions for damages connected to microorganisms and pollution which are harmful to human health.
“The plain and unambiguous language of the policy requires the business income loss at issue to be the direct result of physical loss of or damage to the property. Pennsylvania law places the initial burden on an insured seeking to recover under an all-risk policy of ‘proving facts that bring its claim within the policy’s affirmative grant of coverage,” the insurer’s answer read, in part.
Additionally, Lloyd’s argued that policy exclusions for microorganisms and health-harming pollutants should preclude activation of the plaintiff’s insurance coverage, believing that COVID-19 qualifies under such exclusions.
In a Jan. 14 opinion, U.S. District Court for the Eastern District of Pennsylvania Judge Chad F. Kenney ruled that the plaintiff was not entitled to either business interruption or civil authority coverage from Lloyd’s.
Pointing to precedent from the U.S. Court of Appeals for the Third Circuit, Kenney said that the COVID-19 losses cited by the plaintiff were “not covered losses within the meaning of the policy.”
“With respect to the government orders, even assuming they had rendered IRG’s property uninhabitable or nearly eliminated or destroyed its function, loss of use caused by government orders cannot constitute ‘direct physical loss of…property’ for the reasons described. IRG also alleges that its property is at imminent threat of being contaminated by the virus. But those allegations also do not meet the requisite threshold,” Kenney stated.
“While IRG alleges that it has suffered a complete loss of its property’s functionality and use, other allegations show that neither the virus itself nor any imminent threat of its presence has ‘nearly eliminated or destroyed’ its functionality or rendered it ‘useless or uninhabitable. Rather, IRG’s business reopened (albeit with restrictions and limited capacity) once the government orders lifted, showing that the government orders addressing the virus, rather than the virus itself, was the source seriously affecting the property’s functionality.”
Kenney added that due to contaminated surfaces being able to be cleaned and sanitized, actual contamination by the virus would “not meet legal requirements, because presence of the virus would not render the property useless or uninhabitable or nearly eliminate or destroy its functionality.”
According to Kenney, IRG also “has not plausibly pleaded the necessary physical loss of or damage to other property as required under the Civil Authority provision, not alleged any specific ‘direct physical loss of or damage to’ nearby property and general allegations that the coronavirus is present nearby does not mean nearby property suffered ‘direct physical loss’ or ‘damage’ as those terms apply in the policy.”
“IRG is not entitled to coverage for the losses it suffered. Its claim for declaratory relief will accordingly be dismissed with prejudice as to IRG and without prejudice as to the putative class,” Kenney said.
U.S. District Court for the Eastern District of Pennsylvania case 2:20-cv-02365
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com