HARRISBURG – The Supreme Court of Pennsylvania unanimously ruled that a dental practice which suffered business interruption losses during the COVID-19 pandemic was not entitled to receive coverage from its insurer for those losses, the first time the state’s high court made such a finding.
On Sept. 26, state Supreme Court Chief Justice Debra Todd and Justices P. Kevin Brobson, Christine Donohue, Kevin M. Dougherty, David N. Wecht, Sallie Updyke Mundy and Daniel McCaffery all found in favor of CNA & Valley Forge Insurance Company, ending the case brought by plaintiff Timothy A. Ungarean, D.M.D. (doing business as “Smile Savers Dentistry, P.C.”).
In so doing, the high court reversed an earlier ruling from the Superior Court of Pennsylvania, which had found that CNA-Valley Forge’s commercial insurance policy did not specify that the policy’s coverage for “direct physical loss of property” only covered circumstances where physical alteration or property damage had taken place.
Brobson authored the Court’s opinion in this matter.
Plaintiff Ungarean’s contention was that his commercial property insurance policy with CNA-Valley Forge should cover the sizable financial losses he incurred due to the COVID-19 pandemic and related shutdowns of non-essential businesses in Pennsylvania.
But because his properties didn’t sustain any physical damages, CNA denied Ungarean the coverage he requested.
Ungarean responded that he was in fact due for his coverage under a clause in the policy for Business Income and Extra Expense Endorsement, which requires “direct physical loss of or damage to” the covered properties, in order to be granted the coverage.
Ungarean argued that the loss of the use of his covered properties, directly caused by the shutdown, qualified as an example of “direct physical loss” under the policy – whereas, CNA-Valley Forge countered that physical alteration or harm had to have transpired in order to qualify for coverage.
While Ungarean’s argument found favor in prior rulings at the trial court and lower appellate court levels, the state Supreme Court wholly disagreed.
“We conclude that the language of the CNA Policy is not ambiguous because it is subject to only one reasonable interpretation. That is, for coverage to apply under the CNA Policy, there must be a physical alteration to the subject property as a result of a direct physical loss or damage necessitating repairs, rebuilding, or entirely replacing the property. As applied to the present case, we fail to find any facts in the record suggesting that the Covered Properties required these necessary actions in order to trigger coverage under the CNA Policy,” Brobson said.
“As CNA explains, Ungarean did not lose access to the Covered Properties during the government-ordered COVID-19 shutdown whatsoever; Ungarean could enter the Covered Properties at will and Ungarean’s business remained open for emergency dental procedures. The only loss Ungarean sustained, rather, was pure economic loss because the government-ordered COVID-19 shutdown prevented Ungarean from operating his Covered Properties at their full potential. That partial closure, however, had nothing to do with the physical attributes of the Covered Properties, as required by the CNA Policy for insurance coverage.”
Brobson clarified that “Ungarean does not allege that the COVID-19 virus was on the Covered Properties or caused any physical damage thereto at any time during the government-ordered shutdown, which might somehow trigger insurance coverage under the CNA Policy.”
“Said differently, the sole reason Ungarean’s business suffered financial losses during the period in question was due to the government-ordered shutdown, not any alleged physical condition of the Covered Properties,” Brobson concluded.
Supreme Court of Pennsylvania cases 11 WAP 2023 & 12 WAP 2023
Superior Court of Pennsylvania cases 490 WDA 2021 & 948 WDA 2021
Allegheny County Court of Common Pleas case GD-20-006544
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com