A gym and fitness center in Pennsylvania recently won a minor victory in an insurance coverage dispute with an Ohio-based commercial property insurer over business interruption coverage claims stemming from closures caused by the COVID-19 pandemic.
As a result of Pennsylvania Governor Tom Wolf declaring a disaster emergency due to the coronavirus pandemic, Brown’s Gym had to close. Relying on its “all-risk” commercial property policy it purchased from Cincinnati Insurance Co., and broker C.C. Young and Henkelman Insurance, with acknowledgement that the policy did not contain a virus exclusion, Brown’s Gym brought a claim for compensatory damages and bad faith under its business interruption coverage after its Covid-BI claim was denied.
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Brown’s Gym also asserted claims against broker C.C. Young for negligence and negligent representation. Young filed an objection asking to be removed from the suit based on the allegation that it did not owe a duty to the insured. However, in an order in Dec. 2020, the court rejected Young’s argument for removal from the case.
Cincinnati’s pleading alleged that Brown’s claims were insufficient on their face due to the lack of direct or physical loss to the property, a condition under the policy that all insureds have relied on to deny coverage.
The court disagreed, finding that because the gym specifically attested to the fact that the “virus was a continuous presence on its property… it sufficiently alleged ‘direct physical loss’ under the ‘physical contamination’” theory as a necessary condition to coverage.
Quoting from the court’s decision:
“Equally troubling is Brown’s contention that, instead of investigating and evaluating its claim based upon the facts and governing law, Cincinnati’s denial of coverage was motivated by its desire to preempt its own financial exposure to the economic fallout resulting from the COVID-19 crisis”…In light of the gym’s assertions that the insurer misrepresented the policy terms and monetary limits to the gym and denied the gym’s coverage request based upon the insurer’s own economic considerations, rather than the merits of the claim, the insurer’s demurrer to the gym’s declaratory judgment, breach of contract, and bad faith claims will be overruled.”
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Bottom line, in every instance that I am aware of, insurers have and continue to outright deny all COVID-BI claims from every insured regardless of whether a Virus Exclusion exists in the policy and further regardless of the facts or the Covered Cause language in the policy for the reason, as the Pennsylvania court has stated to “preempt its own financial exposure to the economic fallout resulting from” successful Covid-BI claims.
Here’s hoping that courts around the country accept that establishments closed by edict or as a result of the pervasive coronavirus and those closures resulted in “direct physical loss” to insured's as covered in their policies.