An insurer could have to pay for a Pennsylvania tavern’s business interruption losses after it shut down due to the COVID-19 pandemic because of a two-letter word in its policy.
The Pennsylvania Court of Common Pleas for Allegheny County has ruled in favor of MacMiles LLC, doing business as Grant Street Tavern, in its business interruption lawsuit brought on by the COVID-19 pandemic. The court granted insurance coverage for the tavern’s loss of business income during the pandemic, partly because of the word “or” in its insurance policy.
Grant Street Tavern is a restaurant and bar located in the downtown neighborhood of Pittsburgh, Pennsylvania. Its insurer, Erie Insurance Exchange, is a reciprocal insurance exchange based in Erie, Pennsylvania.
Erie initially issued Grant Street Tavern an ultra plus commercial general liability policy for a one-year period beginning September 12, 2019. The insurance contract was an all-risk policy providing coverage for any direct physical loss or direct physical damage unless specifically excluded or limited by the contract.
In March and April of 2020, to prevent the spread of COVID-19, Pennsylvania Governor Tom Wolf issued a series of mandates restricting operations for certain businesses throughout the state. As a result of the orders, Grant Street Tavern suspended its business operations and submitted a claim for coverage under its insurance contract, which Erie denied.
On September 29, 2020, Grant Street Tavern filed a complaint in the Court of Common Pleas of Allegheny County for declaratory judgment and breach of contract regarding the business income protection, civil authority and extra expense provisions of its insurance contract. In December 2020, Grant Street Tavern filed a motion for partial summary judgment, and in March 2021, Erie filed a cross motion for judgment on the pleadings.
Business Income Protection
In order to make a claim for coverage under the income protection provision of its insurance contract, Grant Street Tavern would need to show that it suffered “direct physical loss of or damage to” its property, according to the court opinion.
Erie contended that “direct physical loss of or damage to” property requires a physical altercation of or harm to the property. However, Grant Street Tavern claimed that this provision is not limited to physical damage but also includes the loss of use of property.
The court found that while some courts have interpreted “direct physical loss of or damage to” property to require some form of physical harm to property in order for the insured to be entitled to coverage, it said these interpretations conflate “direct physical loss of” with “direct physical . . . damage to” and ignore that these two phrases are separated by the word “or.”
Because of the word “or” in the policy, the court found that “direct physical loss of” means something different than “direct physical…damage to.”
The court also determined that based on the ordinary, dictionary definitions of the terms “direct” and “physical”, Grant Street Tavern could suffer “direct” and “physical” loss of use of its property without any tangible harm to property.
Erie further claimed in the lawsuit that the amount of insurance provision in the insurance contract necessitates tangible damage because it references a time frame for rebuilding, repairing or replacing property.
However, the court pointed to the word “or” in the policy once again in this case. It found that the amount of insurance provision imposes a time limit on available coverage that ends when any rebuilding, repairs or replacements are completed to damaged property, or 12 months after the initial date of loss.
“To put this another way, the amount of insurance provision provides that coverage ends when plaintiff’s business is once again operating at normal capacity after damaged or destroyed property is fixed or replaced, or within twelve months from the initial date of loss in circumstances where it is not necessary to fix or replace damaged or destroyed property, or it is not feasible to do so within a twelve month time frame,” the court found.
As a result, the court moved in favor of Grant Street Tavern’s motion for partial summary judgment regarding the income protection provision of its insurance contract.
Civil Authority Coverage
Another issue that arose in this case is whether Grant Street Tavern is entitled to coverage under the civil authority provision of its insurance contract.
To be entitled to this coverage, Grant Street Tavern would have to prove that COVID-19 was actually present on property within a mile of its own and that the actions of civil authority – in this case, the governor’s shutdown orders – were taken in response to dangerous physical conditions causing damage to the property or impeding access to the damaged property.
The court found no substantial proof of whether COVID-19 caused damage to property, whether it was present at any particular property and the extent to which the governor’s orders were issued in response to property damaged by COVID-19.
As a result, the court denied Grant Street Tavern’s motion for partial summary judgment regarding the civil authority provision of its insurance contract.
“Our legal team is very pleased with the opinion and hope that Erie will accept the judge’s decision and finally pay the coverage that our clients, and others, paid for and need,” Schmidt Kramer PC’s Scott Cooper, an attorney for Grant Street Tavern in the case, told Insurance Journal in an email. Erie did not immediately respond to a request for comment.
Grant Street Tavern’s motion for partial summary Judgment regarding its claim for declaratory judgment on the income protection coverage was granted, while its motion for partial summary judgment regarding its claim for declaratory judgment on the civil authority coverage was denied. Erie’s cross motion for judgement on the pleadings was also denied.
The case is Macmiles v. Erie Insurance Exchange.
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