While the court found no allegations of direct physical loss in a claim arising from COVID-19, the insured survived a motion to dismiss based upon its expectation of coverage. Humans & Res. v. Firstline Nat’l Ins. Co., 2021 U.S. Dist. LEXIS 3998 (E.D. Pa. Jan. 8, 2021).
The insured owned a restaurant in Philadelphia. In March 2020, local and statue authorities issued orders closing all non-essential businesses. The insured’s restaurant remained closed for several months. It was later permitted to re-open on a part-time, limited basis with restricted hours. The insured claimed that COVID-19 made the restaurant unusable in the way that it had been used before the pandemic. Because it derived most of its revenue from in-restaurant seating and business, the insured argued it suffered losses within the coverage of its policy with the insurer.
The insured filed for a declaratory judgment that its restaurant was covered for all of the business income losses that it had incurred as a result of its forced closure. The policy provided that business income coverage was triggered only when the suspension of business operations was caused by “direct physical loss” of or damage to property at the described premises, and that the loss or damage was caused by or resulted from a Covered Cause of Loss. The loss had to bear a causal relationship to some physical condition making the premises uninhabitable and unusable, or nearly as such.
The policy did not afford coverage for the losses claimed here. The policy also included a virus exclusion.
Nevertheless, the insured argued that Pennsylvania’s Doctrine of Reasonable Expectations applied to override the insurer’s denial of coverage. The court found this argument to be persuasive. Even the most clearly written exclusion did not bind the insured where the insurer created in the insured a reasonable expectation of coverage. The insured’s complaint alleged,
32. Plaintiff had a reasonable expectation that the policy’s business interruption coverage applied where a civil authority forced closure, thereby barring access to the business, due to an issue of public safety in the immediate area surrounding the Insured Property.
These allegations plausibly alleged facts which could give rise to a basis to afford coverage to the insured if proven. Therefore, the insurer’s motion to dismiss was denied to provide the insured the opportunity to take discovery on this point.