PHILADELPHIA – A federal judge has agreed that an insurance policy’s virus exclusion clause does in fact preclude businesses from staking a claim to income losses and expenses sustained during state-ordered shutdowns, resulting from the COVID-19 pandemic.
U.S. District Court for the Eastern District of Pennsylvania Judge Gerald A. McHugh issued a decision on Feb. 11, granting dismissal of plaintiff Fuel Recharge Yourself, Inc.’s case versus defendant AMCO Insurance Company.
Plaintiff Fuel Recharge Yourself, Inc. is a Philadelphia-based delicatessen. Prior to the onset of the COVID-19 pandemic, plaintiff purchased a commercial multiple peril insurance policy from AMCO Insurance Company. Plaintiff’s policy is an “all-risk” policy that covers all non-excluded business losses.
In March 2020, the plaintiff suspended its business operations in response to an order from Gov. Tom Wolf that mandated the closure of all non-life sustaining businesses to reduce the spread of COVID-19. The plaintiff asserts that it sustained significant and ongoing losses due to the mandatory closure, and invoked the business income, civil authority and extra expense provisions of its insurance policy.
AMCO denied the plaintiff’s claim on Aug. 26, 2020, citing the policy’s virus exclusion clause.
“Within the policy’s ‘Exclusions’ section is a provision that the insurer ‘will not pay for loss or damage caused directly or indirectly’ by ‘any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.’ The exclusion provides that it applies ‘regardless of any other cause or event that contributes concurrently or in any sequence to the loss,” McHugh said, referring to the defendant’s policy.
“Plaintiff contends that defendant is estopped from enforcing this provision, that the provision does not apply to the circumstances at issue and that the provision does not apply to claims for extra expenses. I find these arguments unpersuasive because the doctrine of regulatory estoppel does not apply on the facts here, and the virus exclusion squarely bars Fuel’s claim for business losses and extra expenses.”
The plaintiff argued that AMCO was prohibited from invoking the virus exclusion clause, but McHugh disagreed.
“As an initial matter, defendant is not estopped from asserting the virus exclusion. Plaintiff invokes the doctrine of regulatory estoppel, which requires the plaintiff to show that (1) the defendant insurer made statements to the Pennsylvania Insurance Department; and (2) then took a position in litigation opposite of the position presented to the Insurance Department,” McHugh stated.
“The fatal flaw in this argument is that defendant’s litigation position does not diverge from the representations made by the insurance trade groups to regulators. Both before regulators and this Court alike, the insurer has argued that the policy at issue does not cover disease-causing agents. And plaintiff acknowledges that in the insurers’ submission to regulators, the companies identified ‘the specter of pandemic or hitherto unorthodox transmission of infectious material’ as their motivation to secure approval for a virus exclusion. The doctrine of regulatory estoppel, therefore, does not apply, as defendant has not ‘switched legal positions to suit its own end.”
McHugh concluded that the virus exclusion unambiguously bars coverage for “loss or damage” sustained on account of the virus and actions taken in response by the civil authorities, and excludes “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”
“These injuries fall squarely within the ambit of a clause that excludes losses ‘caused by or resulting from any virus.’ Fuel argues that the provision is ambiguous because a ‘pandemic’ and the numerous follow-on consequences from a pandemic (including government closures) differ meaningfully from a virus. This is a distinction without a difference under the language of the exclusion,” McHugh said.
U.S. District Court for the Eastern District of Pennsylvania case 2:20-cv-04477
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com