FRANK VAN'S AUTO TAG, LLC v. SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

FRANK VAN’S AUTO TAG, LLC, :

Plaintiff : CIVIL ACTION

:

SELECTIVE INSURANCE COMPANY

OF THE SOUTHEAST, : No. 20-2740

Defendant :

MEMORANDUM

PRATTER, J. JANUARY £7 , 2021

An insurance purchaser hopes for the best, fears the worst, and ultimately often pays for

something in the middle. Choosing what to insure—and thus what to pay for—is inherently an

exercise in odds making and probability; it is rarely one of clairvoyance. That a particular loss is

not covered is not necessarily indicative of ambiguity or unfairness, but, perhaps is instead a lesson

in the anonymous adage that “In every insurance policy the big print giveth and the small print

taketh away.”

Like many locally owned and operated businesses in the Philadelphia area, Frank Van’s

Auto Tag enterprise has suffered economically during the COVID-19 pandemic. It temporarily

shuttered its operations in March 2020 when the Commonwealth issued shutdown orders as a

governmental effort to slow the spread of the virus. That shutdown cost Frank Van’s business

income. So, under the terms of its commercial property insurance policy, it sought coverage

benefits from its insurance carrier, Selective Insurance Company of the Southeast.

Selective denied Frank Van’s claim on the grounds that the plain language of the policy

bars the claim. So, Frank Van’s filed this lawsuit on behalf of a putative class of Selective insureds.

Selective responded with a motion to dismiss.

For the reasons that follow, the Court grants Selective’s motion and dismisses the case

without prejudice and with pemnccion to Plaintiff to file an amended complaint within sixty (60)

days of the entry of the order accompanying this Memorandum.

BACKGROUND

Frank Van’s is an auto title transfer, tag, and registration business. It also provides notary

public services. It has two locations in the Philadelphia area. Since 2016, Frank Van’s has secured

commercial property insurance coverage through Selective under an “all risk” policy.! An all risk

policy means that all risks are covered unless expressly excluded. The Policy provides coverage

for business interruptions caused by a Civil Authority and coverage for business income and extra

expenses when the business is suspended due to a covered loss. The Policy extends through April

2021.?

In March 2020, Pennsylvania Governor Tom Wolf announced a series of statewide orders

described as intended to slow the spread of the COVID-19 virus. Governor Wolf first signed an

emergency disaster declaration on March 6. Less than two weeks later, on March 19, the

Commonwealth suspended all non-essential business operations. Doc. No. 1 (Compl.) § 18. The

shutdown orders were described as designed to prevent additional person-to-person contact and

potential exposure to and spread of the virus. Compl. 93. Because Frank Van’s business is

considered “non-essential,” it temporarily closed its locations.

Describing a policy as “All Risks” is rather a misnomer when it contains no fewer than 14 lettered

exclusions. Port Auth. of New York & New Jersey v. Affiliated FM Ins. Co., 311 F.3d 226, 234 (3d Cir.

2002).

2 Frank Van’s attached the applicable policy as an exhibit to the Complaint, but it is not viewable on

ECF. Doc. No. 1-4. Selective has attached a viewable version with its motion to dismiss. Doc. No. 6-3.

References to the Policy are to the document attached as Exhibit A to Selective’s motion to dismiss. The

Court accepts that the document provided by Selective is identical to that which Frank Van’s attached to

the Complaint.

Frank Van’s timely submited a claim to its insurer, Selective, seeking reimbursement for

losses sustained during the closure period. It claimed coverage on the basis that Pennsylvania’s

closure orders constitute a “Covered Cause of Loss” under the Policy. Compl. 4 19. Specifically,

Frank Van’s sought coverage under the Policy’s Business Income, Extended Business Income,

Extra Expense, and Civil Authority provisions. Compl. 420. Although there was no presence of

COVID-19 at the covered premises, Frank Van’s described the closure orders as a “blockade”

preventing employees and customers from entering the business for its intended purpose. Compl.

qq 16, 19.

Selective denied the claim because Frank Van’s did not suffer a physical loss or damage to

its covered premises. Compl. § 23. The gravamen of the denial was simply that the business—

like many others—was suspended during the shutdown. Selective denied the claim on alternative

grounds that the Policy contains a virus exclusion which bars coverage for damage caused by a

virus. Doc. No. 1-5 (Claim Denial).

Frank Van’s filed this action seeking a declaration that its business losses were covered

and to certify a class of similarly situated insureds. Selective responded by moving to dismiss the

Complaint with prejudice.

LEGAL STANDARDS

I. Motion to Dismiss

A Rule 12(b)(6) motion to dismiss tests the sufficiency of a complaint. To provide

defendants with fair notice, a plaintiff must provide “more than labels and conclusions, and a

formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly,

550 U.S. 544, 555 (2007). The Third Circuit Court of Appeals instructs the reviewing court to

conduct a two-part analysis. Any legal conclusions are separated from the well-pleaded factual

allegations and disregarded. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009).

The Court then determines whether the facts alleged establish a plausible claim for relief. Jd. at

211.

To that end, “courts accept all factual allegations as true, construe the complaint in the light

most favorable to the plaintiff, and determine whether, under any reasonable reading of the

complaint, the plaintiff may be entitled to relief.” Jd. at 210. If the Court can only infer “the mere

possibility of misconduct,” the complaint has failed to show an entitlement to relief. Jd. (citing

Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). The Court need not ignore or discount reality. Nor

must the Court “accept as true unsupported conclusions and unwarranted inferences.” Doug

Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173, 183-84 (3d Cir. 2000).

II. Interpreting Insurance Policies

The parties agree that Pennsylvania law governs. The interpretation of an insurance

contract is, of course, a question of law. Duncan v. Omni Ins. Co., 210 F. Supp. 3d 652, 654 (E.D.

Pa. 2016), aff'd, 719 F. App’x 102 (3d Cir. 2017). The Court must interpret the plain text of the

contract in its entirety and give effect to all provisions. Am. Auto. Ins. Co. v. Murray, 658 F.3d

311, 320 (3d Cir. 2011). When the language of the policy is clear and unambiguous, the Court

must enforce that language. Jd. at 321.

However, where the language is susceptible to more than one interpretation, the provision

is ambiguous. In that case, the ambiguous provision must be construed against the insurer and in

favor of the insured. A reasonable interpretation proposed by the insured will control. Med.

Protective Co. v. Watkins, 198 F.3d 100, 104 (3d Cir. 1999). But ambiguity does not exist merely

because the parties disagree about the meaning of the policy language. Meyer v. CUNA Mut. Ins.

Soc., 648 F.3d 154, 164 (3d Cir. 2011). Nor can the court “distort the meaning of the language or

resort to a strained contrivance in order to find an ambiguity.” Wilson v. Hartford Cas. Co., No.

CV 20-3384, 2020 WL 5820800, at *6 (E.D. Pa. Sept. 30, 2020) (citing Madison Const. Co. v.

Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999)).

The insured has the burden of establishing coverage under the policy. State Farm Fire &

Cas. Co. v. Estate of Mehlman, 589 F.3d 105, 111 (3d Cir. 2009) (applying Pennsylvania law).

Once the insured has met that burden, the burden shifts to the insurer to prove that an exclusion in

the policy operates to deny coverage. Jd. Insurance contracts—and the policy exclusions—are

strictly construed against the insurer as drafter. Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d

197, 206-07 (3d Cir. 2001).

DISCUSSION

Frank Van’s asserts coverage under the Business Income, Extended Business Income,

Extra Expense, and Civil Authority coverage extensions in its Policy. Compl. 20. Selective

contends that Frank Van’s has no “covered loss” under any of the cited provisions. But even if

Frank Van’s could establish a covered loss, Selective maintains that the Virus Exclusion and the

Ordinance or Law Exclusion bar coverage.

Under Pennsylvania law, the Court first considers whether Frank Van’s has met its burden

of establishing coverage, before evaluating whether any of the exclusions apply.

1. The All-Risk Policy

A. Coverage

Frank Van’s all-risk policy protects against “direct physical loss of or physical damage to

Covered Property at the premises described . . . caused by or resulting from a covered Cause of

Loss.” Doc. No. 6-3 (Policy) at 61. “Covered Causes of Loss” means “direct physical loss unless

the loss is excluded or limited.” Policy at 62.

To state a claim under Busineds Income, Extra Expense, and Civil Authority provisions,

whatever loss or damage sustained must be “caused by or result from a Covered Cause of Loss.”

Policy at 66, 68, 69.

Under the Policy, Selective will “pay for the actual loss of Business Income you sustain

due to the necessary suspension of your ‘operations’ during the ‘period of restoration.’” The

suspension of operations “must be caused by direct physical loss of or damage to property at the

described premises,” and such loss must be caused by or result from a “Covered Cause of Loss.”

Policy at 66.

Likewise, coverage under the Extra Expense provision is available for such costs incurred

“during the ‘period of restoration’ that would not have occurred if there had been no direct physical

loss or damage to the property at the described premises. The loss or damage must be caused by

or result from a Covered Cause of Loss.” Policy at 68.

Relevant here, “Period of restoration” means, in part, the:

[P]eriod of time that begins 72 hours after the time of direct physical loss or damage for

Business Income Coverage or [i]mmediately after the time of direct physical loss or

damage for Extra Expense Coverage caused by or resulting from any Covered Cause of

Loss at the described premises.

The “period of restoration” ends on the earlier of the date when the covered premise is

“repaired, rebuilt or replaced” or when business is “resumed at a new permanent location.” Policy

at 94.

The Policy further defines suspension of operations as either “the partial slowdown or

complete cessation of [the] business activities” or when “a part or all of the described premises is

rendered untenantable.” Policy at 67.

Under the Civil Authority provision, when a “Covered Cause of Loss” causes damage to a

property other than the covered premises, Selective will pay for “the actual loss of Business

Income [the insured] sustain[s] and necessary Extra Expense caused by action of civil authority

that prohibits access to the described siremises.” However, Civil Authority coverage is available

only when

“(1) access to the area immediately surrounding the damaged property is prohibited by

the civil authority as a result of the damage” (which can be no more than one mile from

the covered premises) and “(2) the action of civil authority is taken in response to

dangerous physical conditions resulting from the damage or continuation of the

Covered Cause of Loss that caused the damage... .”

Policy at 69.

B. Exclusions

There are two relevant exclusions in the Policy. First, the “Virus Exclusion” does not

provide coverage for loss or damage caused directly or indirectly due to “any virus, bacterium or

other microorganism that induces or is capable of inducing physical distress, illness or disease.”

Policy at 80.

Second, the “Ordinance or Law Exclusion” does not pay for loss or damage caused

indirectly or directly from “the enforcement of or compliance with any ordinance or law (a)

regulating the construction, use or repair of any property or (b) requiring the tearing down of any

property, including the cost of removing its debris.” Policy at 77-78.

II. Whether Frank Van’s Establishes Coverage

The underlying question is whether the Policy supports coverage for pure economic losses,

and not only physical losses. The relied-upon provisions all require that there be a “Covered Cause

of Loss.”

A. Business Income Coverage

The parties vigorously dispute whether the effects of a government-imposed business

shutdown constitute a Covered Cause of Loss under the Policy. That is because coverage under

the Business Income provision requires “direct physical loss of or damage to Covered Property.”

Policy at 66. Selective contends that neither the COVID-19 virus or the shutdown orders caused

physical loss or damage to Frank Vat’s property. For this reason, Frank Van’s has not suffered a

cognizable loss under the Policy. So, Selective argues, Frank Van’s is not entitled to Business

Income coverage.

Frank Van’s appears to concede that it has not suffered actual tactile physical damage. To

be sure, this concession is not fatal to stating a claim for coverage. That is because the Policy

inserts the disjunctive “or” between physical loss and physical damage. But it does require the

insured to then establish some physical loss. To do so, Frank Van’s proposes a more expansive

definition of “physical loss” that is not limited to only tangible changes. Instead, physical loss is

sustained when the insured property’s function or usefulness was eliminated—temporarily or

permanently. Doc. No. 7 at 14.3 Thus, Frank Van’s reads “physical loss” to encompass “loss of

use” of the property. So, the argument goes, because the shutdown orders prevented access to and

use of the business, Frank Van’s sustained a physical loss.

The Court must give effect to the words in the contract—including the requirement that

there be some “direct physical loss of or damage to property” at Frank Van’s premises. The Policy

does not define “direct physical loss” or “direct physical damage.” But failing to define a coverage

term does not mean it is ambiguous. Heebner v. Nationwide Ins. Enter., 818 F. Supp. 2d 853, 857

(E.D. Pa. 2011). To the contrary, the Court must read the terms in their plain and generally

accepted meanings.

As a starting point, both the words “direct” and “physical” modify “loss of property” and

“damage to property.” See Phila. Parking Auth. v. Fed. Ins. Co., 385 F. Supp. 2d 280, 289

(S.D.N.Y. 2005) (applying Pennsylvania law) (finding the phrase “direct physical loss or damage,”

when considered in the context of the insurance policy, “requires that claimed loss or damage must

be physical in nature’’).

3 The Court uses the pagination included by ECF.

Direct is defined in part as “hnaracterized by close logical, causal, or consequential

relationship.” Direct, Merriam-Webster Dictionary (last visited Jan. 19, 2021). It is the absence

of an intervening event or influence. Physical means “[o]f, relating to, or involving material things;

pertaining to real, tangible objects.” Physical, Black’s Law Dictionary (11th ed. 2019). A leading

insurance treatise emphasizes that a requirement that the loss be “‘physical,’ given the ordinary

definition of that term, is widely held to exclude alleged losses that are intangible or incorporeal.”

10A Couch on Ins. § 148:46 (3d ed. 2020).

The Court is likewise guided and, ultimately limited, by relevant precedent. The Third

Circuit Court of Appeals has previously addressed the meaning of “direct physical loss or damage”

in the context of whether asbestos in a building triggered coverage. In Port Authority of New York

and New Jersey v. Affiliated FM Ins. Co., the appellate court interpreted physical damage to

property to entail a “distinct, demonstrable, and physical alteration” of a structure. 311 F.3d 226,

235 (3d Cir. 2002). “Physical damage to a building as an entity by sources unnoticeable to the

naked eye must meet a higher threshold.” Jd.

As to what constitutes “physical loss” under the policy, the appellate court found that when

a structure has been rendered “uninhabitable and unusable,” the owner has suffered a “distinct

loss.” But when the “‘structure continues to function—it has not lost its utility.” Jd. at 236. In that

case, there was no physical loss that would be eligible for coverage.

The growing body of case law has interpreted the phrase “direct physical loss of or

damage” to require a direct nexus between the alleged loss and the physical conditions of the

covered premise.’ That is, there must be some issue with the physical premises which precludes

4 Although the Court takes note of the growing body of case law in COVID-19 business interruption

insurance cases, it makes an independent judgment. This is what is required. Cf United States v. Nasir,

982 F.3d 144, 170 n.28 (3d Cir. 2020) (“[C]ounting up judges who see the issue differently does not alter

our obligation. The answer to the old saw that ‘fifty million Frenchmen can’t be wrong’ is yes, they can.”).

Here, however, given the language of the Policy at issue, the Court does not disagree with the shared

or impedes the business operations, tliereby causing the losses complained-of. See, e.g., Ultimate

Hearing Solutions II, LLC v. Twin City Fire Ins. Co., No. CV 20-2401, 2021 WL 131556, at *6

(E.D. Pa. Jan. 14, 2021); Newchops Rest. Comcast LLC v. Admiral Indem. Co., No. CV 20-1869,

2020 WL 7395153, at *5 (E.D. Pa. Dec. 17, 2020); Kessler Dental Assocs., P.C. v. Dentists Ins.

Co., No. 2:20-CV-03376-JDW, 2020 WL 7181057, at *4 (E.D. Pa. Dec. 7, 2020); Brian Handel

D.M.D., P.C. v. Allstate Ins. Co., No. CV 20-3198, 2020 WL 6545893, at *4 (E.D. Pa. Nov. 6,

2020).

Putting these terms together given their ordinary usage and in the context of the Policy, the

Court is persuaded by the rulings of courts within the Circuit that have addressed disputes

essentially the same as this one in terms of factual predicates and policy language. To find

otherwise reads out operative language from the terms of coverage.

Business Income coverage is available to an insured during the “period of restoration.”

Policy at 66. The “period of restoration” ends either when the covered premise is “repaired, rebuilt

or replaced” or “resumed at a new permanent location.” Policy at 94. So, this limiting language

inherently contemplates addressing some physical condition of the property. However, if the Court

adopts Frank Van’s interpretation that coverage exists any time there is mere loss of the

opportunity to function, the qualifying language of repair, rebuild or replace is rendered

surplusage. The Commonwealth’s “rules of construction do not permit words in a contract to be

treated as surplusage . . . if any reasonable meaning consistent with the other parts can be given to

it.” Gen. Refractories Co. v. First State Ins. Co., 94 F. Supp. 3d 649, 661 (E.D. Pa. 2015).

conclusion that loss or damage cannot merely be economic and still be “physical.” That conclusion could

conceivably be different if, for example, the policy language stated that the coverage was triggered by “loss

of physical use of the property” or some such configuration.

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Similarly, if all that is needed for coverage is the mere inability to access the property—as

is proposed here—the Business Income provision would swallow the Civil Authority provision.

Under this proposed interpretation, an insured could seek and obtain coverage any time there is a

loss of use under the Business Income provision. But the Civil Authority provision discussed in

Section I.B., supra, sets forth limited circumstances in which curtailed access to covered premises

triggers coverage. There is no way to reconcile the existence of this separate carve-out under the

Civil Authority provision, or why it would be needed. Nor does Frank Van’s propose one. The

Court will not read in ambiguity when it must “resort to a strained contrivance” to find one.

Wilson, 2020 WL 5820800, at *6 (internal quotation marks omitted).

This Complaint does not allege any facts regarding the physical state of the premises.°

Instead, it alleges that it forewent business income during the closure period. Once the shutdown

order lifted, Frank Van’s could immediately resume business, without a period of restoration. That

is because there was no damage to the property and the loss was only economic.

A government-imposed order which limits access to the covered premises—but has not

been prompted by the condition of the physical structure—causes at most an economic loss. Pure

economic losses, including loss of business and lost profits, are intangible losses. See 9A Couch

on Insurance § 129.7; Newchops Rest. Comcast LLC, 2020 WL 7395153, at *5. And an intangible

loss is not “direct physical” loss or damage. So, it does not fall within the Policy’s “Covered

Causes of Loss.” To find otherwise would be to read out words from the Policy, and in so doing,

re-write a contract, or to construe the words in a tortured and unnatural way. The Court declines

5 The Court declines to adopt the reasoning of Studio 417, Inc. et al. v. The Cincinnati Insurance

Co., a decision from the Western District of Missouri, which denied the insurer’s motion to dismiss. No.

20-CV-03127-SRB, 2020 WL 4692385 (W.D. Mo. Aug. 12, 2020). But even if the Court were persuaded

by its logic, Frank Van’s has not alleged that COVID-19 “particles attached and damaged” its property, as

did the plaintiffs in Studio 417.

11

to do either here—although it does not ignore that Frank Van’s has allegedly sustained an

economic loss.

Businesses have sustained breath-taking economic losses during shutdown periods. Those

losses are not merely recorded on ledger sheets. They translate painfully into the day-to-day lives

of members of every community. As distressing as the rush to disclaim coverage may surely be,

that is the case and controversy this Court must address.° The existence of economic loss is not in

dispute here. Rather, the question is whether the Policy covers this type of loss. Frank Van’s has

not pled facts that COVID-19 caused physical damage or loss to its property to trigger Business

Income coverage.

Extended Business Income coverage applies only if Business Income coverage applies.

Policy at 67. Because the Court finds that, on the current state of the pleadings, Business Income

coverage does not apply, neither does the extended coverage.

B. Extra Expense Coverage

Extra Expense coverage covers expenses during the “period of restoration” that the insured

would not have incurred but for the direct physical loss or damage to property at the covered

premises. Policy at 68. As with Business Income coverage, this provision requires pleading facts

of direct physical loss or damage caused by a Covered Cause of Loss.

As stated above, Frank Van’s has not done so here. So, Frank Van’s cannot rely on this

section either.

6 But the weight of domestic case law, largely dismissing claims against insureds with prejudice, is

clearly not the only approach to interpreting insurance contracts in a common law system. Indeed, across

the pond, the Financial Conduct Authority—the United Kingdom’s regulator for the insurance industry—

recently prevailed in its test case before the UK’s highest court, seeking guidance on whether non-damage

business interruption losses were covered. The UK Supreme Court largely endorsed a policyholder-favored

approach and clarified that insureds may be eligible for coverage benefits for business interruption losses

arising out of the pandemic. Fin. Conduct Auth. v. Arch Ins. (UK) Ltd. et al. [2021] UKSC 1.

12

C. Civil Authority Coverage

Frank Van’s likewise does not state a claim for coverage under the Civil Authority

provision based on Governor Wolf’s orders. The Civil Authority provision covers loss of income

and extra expenses incurred when (1) a civil authority prohibits access to the covered premises,

(2) there is a Covered Cause of Loss to property in the immediate area of the covered premises,

and (3) the order prohibiting access is taken in response to dangerous physical conditions resulting

from the Covered Cause of Loss. Policy at 69. However, there are several gating issues which

prevent Frank Van’s from establishing entitlement to coverage under this section.

Fatal to Frank Van’s claim here, it would have to plead that there was a “Covered Cause

of Loss” to a nearby property. As with the Business Income and Extra Expense provisions, the

shutdown order does not constitute a “Covered Cause of Loss” for purposes of invoking the Civil

Authority provision. This finding alone forecloses coverage under the Civil Authority provision.

Moreover, Frank Van’s does not allege that other properties sustained damage to trigger

protection under this provision. It concedes that the closure orders were not issued because of

physical damage or loss sustained to a nearby property. Rather, the orders enforced the stated need

for social distancing to prevent future viral transmission. Compl. {{ 16-19. But the fear of the

virus in nearby properties does not establish physical damage. See e.g., 4431, Inc. v. Cincinnati

Ins. Cos., No. 5:20-CV-04396, 2020 WL 7075318, at *12 (E.D. Pa. Dec. 3, 2020); Toppers Salon

& Health Spa, Inc. v. Travelers Prop. Cas. Co. of Am., No. 2:20-CV-03342, 2020 WL 7024287,

at *4 (E.D. Pa. Nov. 30, 2020); United Air Lines, Inc. v. Ins. Co. of State of PA, 439 F.3d 128, 134

n.8 (2d Cir. 2006) (no civil authority coverage for airline following airport shutdown in response

to September 11 attacks because order was based on “fears of future attacks” rather than “direct

result of damage’).

13

For the same reasons as above, Frank Van’s losses are not cognizable under the plain text

of the Civil Authority provision.

Under the terms of the Policy as written, Frank Van’s claim for coverage fails.

lil. Whether Exclusions Bar Coverage

A. Virus Exclusion

Even if Frank Van’s could state a claim under the above-mentioned provisions, it must still

contend with the Virus Exclusion. The Policy provides that Selective “will not pay for loss or

damage caused directly or indirectly by . . . any virus, bacterium or other micro-organism that

induces or is capable of inducing physical distress, illness or disease.” Policy at 77, 80. The Virus

Exclusion, which appears in the Businessowners Coverage Form, applies to the Policy writ large—

unless it is expressly exempted.

Frank Van’s contends that the Virus Exclusion does not preclude Civil Authority coverage

because the proximate cause of its loss was the shutdown orders—not the virus. Compl. J 21. But

this argument—though facially compelling—ultimately fails for the same reasons as above. Frank

Van’s cannot point to a physical loss or damage, which is required to trigger Civil Authority

coverage. Moreover, the plain text of the provision bars coverage for loss or damage caused

“indirectly” by any virus. And the anti-concurrent-clause language provides that the exclusion

applies even if the virus is not the sole cause of loss. Policy at § I1(B)(1)Q) (precluding coverage

“regardless of any other cause or event that contributes concurrently or in any sequence to the

loss”). See Moody et al. v. Hartford Fin. Grp, Inc. et al., No. CV 20-2856, 2021 WL 135897, at

*8 (E.D. Pa. Jan. 14, 2021). Both parties admit that the March 2020 Closure Orders were issued

with the plan to stem the spread of COVID-19.

Frank Van’s next asserts that the language in the Virus Exclusion is ambiguous. But the

Court is hard-pressed to find ambiguity in an otherwise unambiguous provision. Indeed, several

14

courts within this Circuit have likewise concluded the language of the provision is not only

unambiguous, but unambiguously bars coverage for COVID-19-related losses. See, e.g., Humans

& Res., LLC v. Firstline Nat’l Ins. Co., No. 20-CV-2152, 2021 WL 75775, at *8 (E.D. Pa. Jan. 8,

2021); Wilson, 2020 WL 5820800, at *7.

So, Frank Van’s claims there is structural ambiguity as to when the Virus Exclusion

applies. The Court cannot agree. The Virus Exclusion applies to the entire Policy, unless it is

exempted. However, Frank Van’s also purchased the Property Enhancement Endorsement which,

in part, provides coverage for damage to records of its Accounts Receivables “caused by or

resulting from a Covered Cause of Loss.” Policy at 169-70. Here, the Virus Exclusion does not

apply to prevent coverage in this specific and limited situation. So, based on this one provision

where the Virus Exclusion is left out of the list of applicable exclusions, Frank Van’s claims that

the exclusion does not apply to the entire Policy.

Frank Van’s offers an expansive—and incorrect—reading of the Property Enhancement

Endorsement. First, it is not claiming coverage for damage sustained to its accounts receivable.

So, this section of the Policy is inapplicable as a matter of fact. Second, its underlying logic does

not comport with basic principles of contractual interpretation. The Endorsement is an optional

amendment to an existing Policy to provide additional coverage—here, for the literal records of

the insured’s accounts receivables. But to the extent the amendment changes the terms of the

Policy, it is as applied to the literal records of the insured’s accounts receivables. Frank Van’s

asks the Court to interpret an otherwise limited Endorsement to wholesale remove the Virus

Exclusion as to all claims.

The Court declines to find ambiguity where there is none, let alone to adopt a reading that

is not reasonable. Frank Van’s does not offer any other compelling argument as to why the Virus

Exclusion does not bar its claim.

15

B. Ordinance or Law Endorsement and Exclusion

Finally, Selective also moves to dismiss the Complaint as barred by the Policy’s

“Ordinance or Law” exclusion, even when modified by the “Ordinance or Law” endorsement as

it is here.’ Section I(B)(1)(a) provides that Selective “will not pay for loss or damage caused

directly or indirectly by . . . .[t]he enforcement of or compliance with any ordinance or law

[rjegulating the construction, use or repair of any property.” Policy at 77. The Endorsement,

however, reimburses the property owner for costs of complying with an ordinance or law

obligating construction, demolition, and/or repair when “a Covered Cause of Loss causes or results

in loss or damage to building.” Policy at 190. In general, the Endorsement may cover the cost of

complying with local building codes.

The Court finds each party’s arguments as to the relevance and interpretation of the

Ordinance or Law coverage flawed. In short, the Court questions whether either the Exclusion or

the Endorsement apply here.

Selective must first establish that the shutdown orders are ordinances or laws covered by

the Exclusion. The Court is doubtful that they are. And, at least one court has found otherwise.

See Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., No. 2:20-CV-265, 2020 WL

7249624, at *13 (E.D. Va. Dec. 9, 2020). It is not disputed that Pennsylvania law grants the

Governor authority to issue “[e]xecutive orders,” which “have the force and effect of law.” 35 Pa.

C.S. § 7301(b). So, the first prong is satisfied; the closure orders issued by the Governor are

functionally equivalent to ordinances or laws. But this does not answer the second concern—

whether the closure orders regulate the construction, use, or repair of any property.

Frank Van’s did not initially seek coverage under the “Ordinance or Law” endorsement, although

it argues in response to Selective’s argument based on the exclusion that the Endorsement applies. Doc.

No. 15. For that reason, the Court will address the applicability of those provisions here.

16

Selective contends this Exclusion is relevant because the shutdown orders limited the “use”

of non-essential businesses. But, in context, Selective stretches the meaning of the phrase “use

... of any property.” The Court questions whether this Exclusion is designed to capture any uses

of property—without limitation—particularly when “use” appears alongside “construction” and

“repair.” The latter words suggest that the exclusion relates to the physical structural integrity of

the property. Indeed, this was the logic followed by the court in Elegant Massage, which

distinguished the Executive Orders as “temporary restrictions” from “safety regulations or law”

addressing the construction, repair and other physical aspects of the property. Jd.

But Frank Van’s reliance on the Endorsement is likewise misplaced. Reading the

Exclusion and Endorsement together, the Endorsement provides coverage to an insured who, in

the course of repairing or reconstructing the covered property, was impacted by a law or ordinance

that delayed the project and/or increased costs. The Endorsement discusses five circumstances all

concerning the physical repairs to the insured’s premises, including demolition costs, increased

cost of construction and physical improvement, and the increased amount of time to restore

business operations. None of these speak to Frank Van’s situation. Even if Frank Van’s was to

plead some “restoration” costs that were somehow increased—which it does not—it still has yet

to plead “direct physical loss or damage” to its covered properties to trigger the Endorsement

provision. As discussed throughout, see supra Section IJ, it has not done so.

So, although the Court doubts whether the Exclusion would bar coverage, Frank Van’s

cannot claim coverage in the first instance under the Endorsement either.

IV. Doctrine of Reasonable Expectations

Despite the plain terms of the Policy, Frank Van’s urges the Court to apply the doctrine of

reasonable expectations to conform the Policy to its alleged expectations. Regardless of any

ambiguity—or lack thereof—the Court’s focus in interpreting an insurance contract is to effectuate

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the reasonable expectations of the insured. UPMC Health Sys. v. Metro. Life Ins. Co., 391 F.3d

497, 502 (3d Cir. 2004). To do so, the Court “must examine the totality of the insurance transaction

involved to ascertain the reasonable expectations of the insured.” Liberty Mut. Ins. Co. y.

Treesdale, Inc., 418 F.3d 330, 344 (3d Cir. 2005). Most of the time, the best evidence of the

parties’ reasonable expectations certainly focuses on the text of the Policy itself. Newchops Rest.

Comcast LLC, 2020 WL 7395153, at *2.

But the doctrine can be applied when an insured relies upon the representations of an

insurance company—which may not accurately represent the written contents of the policy that is

issued. Downey v. First Indem. Ins., 214 F. Supp. 3d 414, 423 (E.D. Pa. 2016). The doctrine thus

serves a corrective function to account for the disparity in bargaining power between the parties

and to acknowledge the inherent complexity woven into hundred-plus page policy documents.

There may well be a potentially meritorious amendment as to Frank Van’s reasonable

expectations of the Policy’s scope of coverage. It is yet unclear whether Frank Van’s purchased

the Policy with an expectation that it would be covered for losses of the sort it sustained due to the

shutdown orders. At least one other court within the Circuit has denied an insurer’s motion to

dismiss to permit discovery when insured pled it bought the policy with the expectation the policy

would cover losses from COVID-19 related shutdowns. Humans & Res. LLC v. Firstline Nat’l

Ins. Co., 2021 WL 75775 (E.D. Pa. Jan. 8, 2021). But that is presently not the case here as far as

the Court is yet aware from the pleadings.

V. Leave to Amend

When, as here, a complaint is subject to a Rule 12(b)(6) dismissal, the Court should permit

a curative amendment unless it would be futile or inequitable. Alston v. Parker, 363 F.3d 229, 235

(3d Cir. 2004). The Court will grant Frank Van’s leave to amend its Complaint to include

allegations about its reasonable expectations about the Policy’s coverage. As set forth in the

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accompanying order, Frank Van’s shall have sixty (60) days to file an amended complaint, should

it choose to do so.

CONCLUSION

For the reasons set out in this Memorandum, the Court grants the motion to dismiss without

prejudice but with leave to amend the Complaint. An appropriate order follows.

BY THE GOURT:

L/

G □□□ PRATTER

UNITED STATES DISTRICT JUDGE

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