Scranton Club v. Tuscarora Wayne Mut. Grp., Inc.

Opinion

CIVIL ACTION — LAW

MEMORANDUM AND ORDER

NEALON, J.

The operator of a private social club, which sells food and alcoholic beverages and caters events, has instituted this action against its commercial property insurer seeking to recover under its business income, extra expense, and civil authority coverages for revenues lost and additional costs incurred due to the state government closure orders issued in response to the novel coronavirus. The insurer has filed preliminary objections asserting the legal insufficiency of the operator's claims on the grounds that: (1) they are barred by the virus exclusion in the policy; (2) the operator's allegations do not satisfy the "direct physical loss or damage" to property requirement for business income and extra expense coverage; and, (3) the civil authority coverage is inapplicable since the operator has not averred that it was prohibited access to its property as a result of the dangerous physical condition of a [*2]  neighboring property.

Unlike other virus exclusions that preclude coverage for "damage caused directly or indirectly" by a virus "regardless of any other cause or event that contributes concurrently or in any sequence to the loss," the virus exclusion in this case only bars coverage "for loss or damage caused by or resulting from any virus." Absent such "anti-concurrent causation" language, the exclusion in question is governed by the "efficient proximate cause" or "concurrent causation" doctrine which provides that if a covered risk and an excluded risk combine to concurrently cause a loss, coverage for the insured's claim still exists as long as the proximate cause of the loss is covered by the policy. Other states, which experienced per capita incidence of positive COVID-19 cases comparable to or greater than Pennsylvania, issued closure orders that were less restrictive or shorter in duration than those implemented in Pennsylvania, as a result of which the individual closure orders, rather than the coronavirus itself, arguably determined the financial gains or losses experienced by the businesses in those states. Since the Pennsylvania closure orders and COVID-19 may have been concurring [*3]  causes of the operator's business losses, and exclusionary clauses must be strictly construed in favor of the insured, it cannot be declared as a matter of law that the coronavirus was the efficient proximate cause of those losses based upon the operator's allegation that the virus was never present or detected at its insured premises. Therefore, the insurer's demurrer predicated upon the virus exclusion will be overruled.

The property loss, business income, and extra expense provisions provide coverage "for direct physical loss of or damage to" covered property, and require some form of damage related to the physical condition of the insured property that makes it uninhabitable or unusable. In light of the operator's failure to allege that COVID-19 was ever physically present on its premises or that the loss of the property's utility had some relation to the physical condition of the premises, the operator cannot satisfy the "direct physical loss or damage" condition for business income and extra expense coverage. Furthermore, the civil authority coverage applies only if damage is caused "to property other than" the operator's property and a civil authority prohibits access to the [*4]  operator's premises due to the damaged condition of that proximate property, and since the operator has not alleged any such damage to a neighboring property or an accompanying civil authority directive, the operator's claim for civil authority coverage is also insufficient as a matter. Finally, based upon the judicial determination that business income, extra expense, and civil authority coverage does not exist, the operator is unable to establish that the insurer did not have an objectively reasonable basis for denying coverage, and that it knew or recklessly disregarded its lack of a reasonable basis in denying the coverage claim, as a result of which the insurer's demurrer to the operator's bad faith claim will likewise be sustained.

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