A Pennsylvania federal court has dismissed two coverage suits from Philadelphia restaurants seeking coverage for lost business from COVID-19-related closures—among the first such lawsuits filed—finding that they didn’t sustain physical damage as required under their insurance policies with Admiral Insurance Company.
In September 2019, Admiral issued “all risks” commercial lines policies to the insureds, providing property, business personal property, business income, extra expenses, and other coverage through September 2020.
Like many restaurants throughout the United States, the insureds were forced to close or limit operations starting in March 2020 due to shutdown orders in response to the COVID-19 pandemic. As a result, they suffered business losses and sought indemnity from their insurance carrier under their commercial lines policies. Admiral denied the claims.
The insureds then brought these actions seeking a declaration that Admiral must cover their business losses. The insureds claimed that their business losses were covered under the civil authority and business income provisions of their policies.
Goldberg Segalla’s Eric A. Fitzgerald and Hillary Ladov, members of the firm’s Global Insurance Services practice based in Philadelphia, served as local counsel defending Admiral in both actions. Admiral took the position that there was no covered loss under either provision, and even if the restaurants’ damages did fall within the policy, they would trigger the policies’ virus exclusions.
Admiral further argued, under Pennsylvania law, the insured failed to establish physical damage as required under the insurance policy, and that the loss of utility does not constitute structural or physical damage.
U.S. District Judge Timothy J. Savage agreed and dismissed the coverage suits with prejudice, ruling that the civil authority and business income provisions only cover damage that is physical. Judge Savage also noted that even if the insureds had alleged a covered cause of loss, the virus exclusion would apply to bar coverage. The decision could signal how other courts will resolve nearly identical coverage issues at the center of an unprecedented wave of COVID-19 business interruption claims pending in venues across the nation.
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