On Friday, April 24, 2020, a new Western District action was filed by two different Philadelphia firms, Chester County Sports Arena v. The Cincinnati Specialty Underwriters Insurance Company. The two Philadelphia firms in Chester County Sports are also counsel in all the Eastern District cases listed immediately below (with Alabama co-counsel in this Western District case only).
Counsel have moved the Judicial Panel on Multidistrict Litigation to transfer all federal Covid-19 business loss coverage cases arising from government shutdown orders to the United States District Court of the Eastern District of Pennsylvania, requesting coordination and consolidation of all pre-trial proceedings before the Honorable Timothy J. Savage. Other counsel seek transfer to federal courts elsewhere.
Pennsylvania Supreme Court and Covid-19 Insurance Coverage
These new cases all involve the now familiar issues concerning what constitutes direct physical loss or damages for purposes of business interruption or civil authority coverage. See our earlier article discussing the basic issues in Covid-19 coverage cases for business losses. Three of the Philadelphia cases and one Western District case, however, add the argument that Pennsylvania’s Supreme Court has already weighed in on whether the Covid-19 virus can constitute direct physical loss or damage, citing Friends of Danny DeVito v. Wolf (decided April 13, 2020). This reflects the hot debate over the impact of the Court’s reference to “substantial damage to property” in determining Governor Wolf’s power to compel “the closure of the physical operations of all non-life-sustaining business to reduce the spread of the novel coronavirus disease.”
[The Danny DeVito mentioned in the complaint is not the actor.]
The plaintiff’s perspective is that DeVito v. Wolf has virtually decided the issue for coverage purposes, while the insurer side points out the Court’s Opinion is focused on health issues and not business interruption, and that insurance coverage was in no way an issue before the Court, which did not render any decision on insurance coverage. While close legal analysis would seem to favor the insurer’s arguments, the underlying message from plaintiffs’ counsel could be that Pennsylvania’s Supreme Court may be open to finding coverage due when the time comes to rule on the issue. (There is no language in DeVito v. Wolf addressing the virus exclusion found in many policies.)
The Legislative Alternatives
Finally, as discussed in our most recent article, all of these legal disputes may be resolved by emergency legislation to create coverage where it does not otherwise exist, in return for a state or federal “backstop” to protect insurers from bankruptcy. There is a recent Pennsylvania Senate bill (No. 1114), however, that does not appear to propose such protections for insurers required to pay when coverage is otherwise not due, while still expanding the definition of direct physical loss, damage or injury to tangible property to include, “The presence of COVID-19 having otherwise been detected in this Commonwealth.” It is hard to imagine legislation passing that could financially cripple insurers when they were expressly seeking to avoid the payment risks posed by viral pandemics (for which specific risks their insureds did not pay premiums).
Further, insurers are uncertainty averse. This kind of legislation would cast a future pall over all insurers if legislatures develop a sense of empowerment to rewrite insurance coverage for any public emergencies, contrary to express policy language, to provide an involuntary alternative to a government safety net. If such legislation is imposed on insurers, they will certainly seek significantly large premium increases to anticipate uncertain future coverage risks, or argue that they will otherwise eventually go out of business.
Thus, the most likely result of any legislation likely would be some sort of compromise, rather than placing all the burden on insurers.
