The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
__________________________________________
ISAAC'S DELI, INC., :
Plaintiff, :
:
v. : Civil No. 5:20-cv-06165-JMG
:
STATE AUTO PROPERTY AND CASUALTY :
INSURANCE COMPANY, :
Defendant. :
__________________________________________
MEMORANDUM OPINION
GALLAGHER, J. May 14, 2021
I. OVERVIEW
COVID-19 has certainly authored a dark and unprecedented chapter in our history.
Nevertheless, it cannot rewrite the plain terms of a valid contract to impose liability in
circumstances not previously contemplated by the parties. Plaintiff Isaac’s Deli, Inc. (“Isaac’s”)
brought suit in the underlying matter against their insurer, Defendant State Auto Property and
Casualty Insurance Company (“State Auto”), seeking to recover business losses resulting from
Governor Tom Wolf’s emergency shut down orders issued in response to the outbreak of the
COVID-19 pandemic. Isaac’s claims that they are entitled to reimbursement for lost revenue under
the Business Income, Extended Business Income, Extra Expense, and Civil Authority provisions of
their Businessowners Policy (the “Policy”) with State Auto. Presently before the Court is State
Auto’s Motion for Judgment on the Pleadings, alleging that Isaac’s has failed to state a claim for
damaged or lost property under the applicable terms of the Policy. For the reasons set forth in more
detail below, Defendant’s Motion is granted.
II. FACTUAL BACKGROUND
a. Allegations
Since 1983, Isaac’s Deli has owned and operated a chain of popular sandwich restaurants
throughout central Pennsylvania. Pl. Resp. 1. Isaac’s currently boasts fourteen locations in
Cumberland, Dauphin, Lancaster, and York counties. Compl. ¶ 2. State Auto is a property and
casualty insurance company based in Columbus, Ohio and authorized to conduct insurance business
within the Commonwealth. Id. ¶¶ 3-4. Isaac’s maintained a Policy with State Auto covering
certain business loses and damages during the period of July 1, 2019 through July 1, 2020. 1 Id.,
Ex. A at 17. The applicable terms of the Policy provide that State Auto “will pay for direct physical
loss of or damage to Covered Property at the premises described in the Declarations caused by or
resulting from any Covered Cause of Loss.” Id., Ex. A at 204.
On March 6, 2020, Governor Tom Wolf issued a Proclamation of Disaster Emergency
following the outbreak of the COVID-19 pandemic. Id. ¶ 19. Governor Wolf subsequently ordered
all “non-life sustaining” businesses in the Commonwealth to cease operations and close all physical
locations on March 19, 2020. Id. ¶ 20. On March 23, 2020, Governor Wolf issued Stay at Home
Order for citizens in certain counties throughout central Pennsylvania, including Cumberland,
Dauphin, Lancaster, and York. Id. ¶ 21. The Governor later extended his Stay at Home Order to all
counties in Pennsylvania on April 1, 2020. Id. ¶ 23. Isaac’s thereafter closed its restaurants and
ceased its operations. Id. ¶ 26.
On May 4, 2020, Isaac’s noticed a claim upon State Auto for damages purportedly incurred
from their “loss of use” of the restaurant premises following the Governor’s shut down orders. Id.
¶¶ 26, 29, 31. Isaac’s claim sought recovery under the Business Income, Extended Business
1 Defendant notes that the location at 597 E. Main Street in Hummelstown, PA was deleted from the Policy effective
October 31, 2019. Def. Mot. 4 n.3.
Income, Extra Expense, and Civil Authority provisions of the Policy. Id. ¶ 30. In response, State
Auto issued a Notice of Declination on September 11, 2020. Id. ¶ 32. On November 10, 2020,
Isaac’s filed a Complaint against State Auto alleging breach of contract and requesting a declaration
by the Court that Isaac’s is entitled to recover its business losses under the applicable provisions of
the Policy. Id. ¶ 36.
b. Procedural History
Plaintiff filed a Complaint against Defendant alleging breach of contract and requesting
declaratory relief on November 10, 2020. (ECF No. 1). On December 7, 2020, Defendant removed
this case to the United States District Court for the Eastern District of Pennsylvania. Id. Defendant
then filed an Answer on December 14, 2020. (ECF No. 3). On February 3, 2021, Defendant filed
the instant Motion for Judgment on the Pleadings. (ECF No. 19). Plaintiff filed a Response in
Opposition to Defendant’s Motion on February 24, 2021. (ECF No. 22). On March 3, 2021,
Defendant filed its Reply to Plaintiff’s Response. (ECF No. 24).
III. LEGAL STANDARD
a. Rule 12(c) Motion for Judgment on the Pleadings
At the conclusion of the pleadings stage, “but early enough not to delay trial, a party may
move for judgment on the pleadings.” Fed. R. Civ. P. 12(c). “The pleadings are closed after an
answer is filed, along with a reply to any additional claims asserted in the answer.” Atiyeh v. Nat’l
Fire Ins. Co. of Hartford, 742 F. Supp. 2d 591, 595 (E.D. Pa. 2010). A motion for judgment on the
pleadings should only be granted “if, on the basis of the pleadings, the movant is entitled to
judgment as a matter of law.” Fed Cetera, LLC v. Nat’l Credit Servs., Inc., 938 F.3d 466, 470 n.7
(3d Cir. 2019). In reviewing a 12(c) motion, the court applies the same standard as that applied
under Rule 12(b)(6). Zimmerman v. Corbett, 873 F.3d 414, 417 (3d Cir. 2017).
Under the 12(b)(6) standard, “the court must determine whether the complaint is supported
by well-pleaded factual allegations.” Wolfington v. Reconstructive Orthopaedic Associates II, P.C.,
268 F. Supp. 3d 756, 760 (E.D. Pa. 2016) (citing Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). In
other words, the court must find that the moving party is “plausibly” entitled to relief. Phillips v.
County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008). The court may consider “the pleadings and
attached exhibits, [and] undisputedly authentic documents attached to the motion…if plaintiff’s
claims are based on the documents.” Atiyeh, 742 F. Supp. 2d at 595. During this analysis, the court
must “view the facts presented in the pleadings and the inferences to be drawn therefrom in the light
most favorable to the nonmoving party.” Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 220 (3d
Cir. 2005). Whether an insured has stated a plausible claim for relief, or whether their claim is
barred by an exclusion under an insurance policy, is a question that may be resolved on a Rule 12(c)
motion. Vito v. RSUI Indem. Co., 435 F. Supp. 3d 660, 665 (E.D. Pa. 2020).
b. Insurance Policy Interpretation
Interpretation of an insurance contract is a matter of law. See Ramara, Inc. v. Westfield Ins.
Co., 814 F.3d 660, 676 (3d Cir. 2016). The primary objective is to discern the intent of the parties
as manifested by the language of the agreement. Am. Auto Ins. Co. v. Murray, 658 F.3d 311, 320
(3d Cir. 2011). This requires the court to give effect to each of its provisions, read these provisions
within the context of the policy as a whole, and construe the policy in accordance with the plain
meaning of its terms. See Sapa Extrusions, Inc. v. Liberty Mut. Ins. Co., 939 F.3d 243, 358 (3d Cir.
2019). “Clear contractual terms that are capable of one reasonable interpretation must be given
effect without reference to matters outside the contract.” American Eagle Outfitters v. Lyle & Scott
Ltd., 584 F.3d 575. 582-84 (3d Cir. 2009) (quoting Krizovensky v. Krizovensky, 624 A.2d 638, 642
(Pa. Super. 1993)). Provisions that are susceptible to more than one reasonable interpretation must
be construed against the insurer. Murray, 658 F.3d at 321. In Pennsylvania, the policyholder bears
the initial burden of demonstrating the existence of a covered loss. State Farm Fire & Cas. Co. v.
Estate of Mehlman, 589 F.3d 105, 111 (3d Cir. 2009). Once this burden is met, the insurer must
demonstrate that an exclusion precludes recovery under the policy. Id.
IV. ANALYSIS
a. Coverage Under the Business Income and Civil Authority Provisions
The applicable terms of the Policy provide that State Auto “will pay for direct physical loss
of or damage to Covered Property at the premises described in the Declarations caused by or
resulting from any Covered Cause of Loss.” Compl., Ex. A at 204. Covered Causes of Loss are
“[r]isks of direct physical loss unless otherwise limited or excluded in the Policy.” See id., Ex. A at
205. The Business Income2 and Civil Authority provisions state in relevant part:
Business Income – (A)(5)(f)(1)
We 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 must be
caused by direct physical loss of or damage to property at the described premises. The loss
or damage must be caused by or result from a Covered Cause of Loss.
…
Extended Business Income – (A)(5)(f)(2)
If the necessary suspension of your “operations” produces a Business Income loss payable
under this policy, we will pay for the actual loss of Business Income you incur during the
period that…[b]egins on the date property except finished stock is actually repaired, rebuilt
or replaced and “operations” are resumed.
…
Loss of Business Income must be caused by a direct physical loss or damage at the
described premises caused by or resulting from any Covered Cause of Loss.
…
Extra Expense – (A)(5)(g)(1)
We will pay necessary Extra Expense you incur during the “period of restoration” that
would have not incurred if there had been no direct physical loss or damage to property at
2 Defendant refers to the Policy’s Business Income provision (Section (A)(5)(f)(1)), Extended Business Income
provision (Section (A)(5)(f)(2)), and Extra Expense provision (Section (A)(5)(g)(1)) collectively as “Business Income
Coverage” for the purposes of this Motion because each provision purportedly requires direct physical loss of, or
damage to, property resulting from a Covered Cause of Loss. Def. Mot. 2 n.2.
the described premises. The loss or damage must be caused by or result from a Covered
Cause of Loss.
…
Civil Authority – (A)(5)(i)
We will pay for the actual loss of Business Income you sustain and necessary Extra Expense
caused by action of civil authority that prohibits access to the described premises due to
direct physical loss of or damage to property, other than at the described premises, caused by
or resulting from any Covered Cause of Loss.
Id., Ex. A at 207-209.
Plaintiff asserts that these provisions are ambiguous, and thus should be construed against
the drafter. Def. Resp. 5. In requiring “direct physical loss of or damage to property at the
described premises,” Plaintiff argues that Defendant’s use of the disjunctive “or” evidences an
intent to differentiate between “loss of” and “damage to” the covered property. Id. at 8 (citing
Henderson Rd. Restaurant Sys., Inc. v. Zurich Am. Ins. Co., No. 20-1239, 2021WL 168422, at *12
(N.D. Ohio Jan. 19, 2021)). Plaintiff concededly asserts no claims for physical damages. Id.
However, Plaintiff suggests that the Governor’s orders precluding the operation of dine-in
restaurants essentially deprived their properties of all functionality and utility. Id. at 10. Plaintiff
contends that such “loss of use” should be construed as a “loss of property” covered under the
Business Income and Civil Authority provisions. Id. at 8-15. Plaintiff further alleges that even if
they have not stated the requisite theory of recovery under the terms of the Policy, the absence of a
virus or bacteria exclusion, coupled with the Policy’s Food-Borne Illness provision,3 gave rise to a
reasonable expectation of coverage for business losses resulting from the Governor’s shut down
orders. Id. at 15-17.
3 Plaintiff does not specifically alleged a right to recovery under the Food-Borne Illness provision. See Compl. ¶ 36.
Instead, Plaintiff suggests that the provision’s inclusion in the Policy justified their reasonable expectation that business
losses resulting from the COVID-19 pandemic would be covered. Pl. Resp. 15-16.
Defendant counters that Plaintiff’s allegations are facially deficient because they fail to state
a claim for damaged or lost property as contemplated under the terms of the Policy. Def. Mot. 1.
According to Defendant, a “direct physical loss of property” requires tangible, physical alterations
to the structure itself. Id. at 11. Defendant asserts that Plaintiff’s “loss of use” argument does not
satisfy this prerequisite to coverage. Id. at 11-13. Additionally, Defendant emphasizes that Plaintiff
neither alleges that the COVID-19 virus actually contaminated their properties, or any surrounding
properties, nor that any such contamination caused the suspension of operations. Id. at 13. As a
result, Defendant argues that Plaintiff’s claims under the Business Income and Civil Authority
provisions must fail. Id. at 9-14. Defendant further argues that the Policy’s “Ordinance or Law”
exclusion also precludes recovery because Plaintiff’s purported “loss of use” resulted from a
government order regulating the use of their property. Id. at 15-16.
Disagreement between the parties as to the proper construction of a policy’s terms do not
render them ambiguous. Pacific Employers Ins. Co. v. Global Reinsurance Corp. of Am., 693 F.3d
417, 436 (3d Cir 2012). Neither does the absence of a definition for the phrases “direct physical
loss” or “direct physical damage.” See Telecomm. Network Design v. Brethren Mut. Ins. Co., 5
A.3d 336-37 (Pa. Super. 2010). The strongest evidence of the parties’ intent is the language of the
policy itself. Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d 69, 75-76 (3d Cir. 2011).
Therefore, the court must interpret the plain text of the policy and, upon finding that it is clear and
unambiguous, enforce that language according to its generally accepted meaning. Murray, 658 F.3d
at 321.
Given the context in which they are used and the sequence in which they appear, the
adjectives “direct” and “physical” modify the phrases “loss of property” and “damage to property.”
See Frank’s Auto Tag, LLC v. Selective Ins. Co. of the Southeast, No. 20-2740, 2021 WL 289547, at
*4 (E.D. Pa. Jan. 28, 2021). The word “direct” is defined as “stemming immediately from a source;
characterized by a close logical, causal, or consequential relationship.” Direct, Merriam-Webster
Dictionary (last visited May 10, 2021). “Physical” means “[o]f, relating to, or involving material
things; pertaining to real, tangible objects.” Physical, Black’s Law Dictionary (11th ed. 2019).
Construing these terms together as they apply to the phrase “loss of property,” a natural reading
suggests that the Policy contemplates an explicit nexus between the purported loss and the physical
conditions of the covered premises.
This reading is consistent with previous Third Circuit interpretations of the phrase as applied
in analogous contexts. In determining whether insurance coverage extended to the presence of
asbestos within a covered property, the court in Port Authority of New York and New Jersey v.
Affiliated FM Ins. Co. held that “physical loss” of a structure occurs when it has been rendered
“uninhabitable and unusable.” 311 F.3d 226, 235 (3d Cir. 2002). Conversely, “when the structure
continues to function…it has not lost its utility” and the owner has not suffered a physical loss. Id.
at 236. The court in Motorists Mutual Ins. Co. v. Hardinger found this definition “instructive in []
case[s] where sources unnoticeable to the naked eye have allegedly reduced the use of the property
to a substantial degree.” 131 Fed. App’x 823, 826 (3d Cir. 2005). The court likewise reiterated that
“physical loss” means that the property’s “function is nearly eliminated or destroyed, or
made…useless.” Id. (quoting Port Authority, 311 F.3d at 236).
The growing body of case law within the Eastern District of Pennsylvania has adopted this
definition within the context of the COVID-19 pandemic. 4 Upon consideration of analogous
claims by plaintiffs seeking recovery of business losses purportedly resulting from Governor Wolf’s
shutdown orders, courts in this District have consistently found that a “direct physical loss” requires
4 This is one of several factors informing the Court’s determination of what constitutes a “direct physical loss” under the
Policy. While persuasive authority may guide and ultimately reinforce the Court’s conclusions, the Court must engage
in an individualized review of the facts at bar and the applicable binding authority to render an independent judgment
regarding the particular controversy before it. See United States v. Nasir, 982 F.3d 144, 170 n.28 (3d Cir. 2020).
harm to the actual physical structure of property which impedes business operations. See J.B.’s
Variety Inc. v. Axis Ins. Co., No. 20-4571, 2021 WL 1174917, at *4 (E.D. Pa. Mar. 29, 2021);
Frank Van’s, 2021 WL 289547, at *5-6; TAQ Willow Grove, LLC v. Twin City Fire Ins., No. 20-
3863, 2021 WL 131555, at *5 (E.D. Pa. Jan. 14, 2021); Ultimate Hearing Solutions II, LLC v. Twin
City Fire Ins. Co., No. 20-2401, 2021 WL 131556, at *6 (E.D. Pa. Jan. 14, 2021); Newchops Rest.
Comcast LLC v. Admiral Indem. Co., No. 20-1869, 2020 WL 7395153, at *5 (E.D. Pa. Dec. 17,
2020); Kessler Dental Assocs., P.C. v. Dentists Ins. Co., No. 20-03376, 2020 WL 7181057, at *4
(E.D. Pa. Dec. 7, 2020); Toppers Salon & Health Spa, Inc. v. Travelers Property Cas. Co. of
America, No. 20-03342, 2020 WL 7024287, at *4 (E.D. Pa. Nov. 30, 2020); Brian Handel D.M.D.,
P.C. v. Allstate Ins. Co., No. 20-3198, 2020 WL 6545893, at *4 (E.D. Pa. Nov. 6, 2020). In these
cases, the court’s analysis has centered on whether the premises retained its operational utility. See,
e.g., TAQ, 2021 WL 131555, at *5; Brian Handel, 2020 WL 6545893, at *3. Where the alleged
losses “bear[] no causal connection to the physical condition of its premises,” no reasonable
interpretation of the insurance policy would permit recovery. See TAQ, 2021 WL 131555, at *5.
Further consideration of the Policy as a whole demonstrates that Plaintiff’s position is
inconsistent with a permissible reading of its terms. The Business Income provisions limit recovery
to the “period of restoration” which ends when the covered premises is “repaired, rebuilt, or
replaced.” Compl., Ex. A at 207-208. Each of these outcomes anticipate a physical rehabilitation
of the premises itself. See TAQ, 2021 WL 131555, at *6 (“Built into coverage for business income
and extra expense coverage…is the idea that there must be something to repair, rebuild, or
replace.”); Newchops, 2020 WL 7395153, at *5 (holding that “period of restoration” provision
evidences intent that loss of property must affect physical structure); Toppers Salon, 2020 WL
7024287, at *4 (finding that parties’ agreement to measure period of restoration against time it takes
to repair premises indicates intent to cover physical damages). Interpreting “direct physical loss” to
include an ephemeral “loss of use” theory of recovery would impermissibly relegate the “period of
restoration” language to mere surplusage. See Clarke v. MMG Ins. Co., 100 A.3d 271, 276 (Pa.
Super. 2014). The Court must decline to manufacture such uncertainty by stretching the language
of the Policy beyond its plain meaning. See Meyer v. CUNA Mut. Ins. Soc., 648 F.3d 154, 164 (3d
Cir. 2011).
Plaintiff’s business has certainly not been immune to the devastation wrought by the
pandemic, and their inability to use their properties as dine-in restaurants undoubtedly has resulted
in economic loss. However, such losses are intangible, not physical. Newchops, 2020 WL
7395153, at *5 (citing 9A Couch on Ins. § 129.7 (3d ed. 1995)). The generalized threat of harm
stemming from the COVID-19 pandemic “lacks the distinct and demonstrable character necessary
for…coverage.” Hardinger, 131 Fed. App’x at 236. Plaintiff’s properties “remained inhabitable
and usable, albeit in limited ways.”5 Brian Handel, 2020 WL 654893, at *3. Therefore, Plaintiff’s
“loss of use” does not constitute a “direct physical loss” as required under the Policy’s “Covered
Cause of Loss.” As such, Plaintiff has not stated a claim for recovery under the Business Income
provisions.
Plaintiff’s failure to allege a “Covered Cause of Loss” also precludes them from invoking
the Civil Authority provision. Aside from sustaining no damage to the physical structure of their
own properties, Plaintiff’s claims do not suggest that the Governor’s shut down orders “prohibit[ed]
access to the described premises due to direct physical loss of or damage to property, other than at
the described premises.” Said differently, Plaintiff does not allege that a civil authority ordered the
closure of their business due to physical damages or losses at a nearby property. See Toppers Salon,
2020 WL 7024287, at *4. Instead, the Governor ordered the closure of non-essential businesses in
5 While Plaintiff was ordered to suspend dine-in service, they were permitted to continue physical operations on their
property to maintain take-out and delivery operations. See Answer, Ex. 3 (ECF No. 3).
response to the public health threat posed by the outbreak of a global pandemic. See Pl. Resp. 13-
14. Preemptive safety measures intended to curb the spread of the COVID-19 virus, however, do
not establish the existence of structural damage or loss to nearby properties. Frank Van’s, 2021 WL
289547, at *7; Kessler Dental Assocs., 2020 WL 7181057, at *4; 4431, Inc. v. Cincinnati Ins. Cos.,
No. 20-04396, 2020 WL 7075318, at *12 (E.D. Pa. Dec. 3, 2020). Accordingly, Plaintiff does not
state a claim under the Civil Authority provision of the Policy.
b. Ordinance or Law Exclusion
Assuming, arguendo, that Plaintiff had alleged a “Covered Cause of Loss’ under the Policy,
their claim would still be barred under the Policy’s “Ordinance or Law” exclusion. This provision
states in relevant part that Defendant “will not pay for loss or damage caused directly or indirectly
by…[t]he enforcement of any ordinance or law…[r]egulating the construction, use, or repair of any
property.” Compl., Ex. A at 212 (emphasis added). Pennsylvania law authorizes the Governor to
issue “[e]xecutive orders [which] have the force and effect of law.” 35 Pa. C.S. § 7301(b).
Governor Wolf’s shutdown order thus undoubtedly constitutes the “enforcement of any ordinance
or law.” The Court also finds that the Governor’s order regulated the use of Plaintiff’s property.
Indeed, Plaintiff has conceded this point, stating unequivocally that “Isaac’s was expressly
forbidden to use, possess, and enjoy its properties for their traditional and intended purpose.” Pl.
Resp. 13 (emphasis added). This is consistent with subsequent guidance advising businesses on
how they may operate within the mandates of the Governor’s order.6 The “Ordinance or Law”
6 See “Guidance for Businesses in the Restaurant Industry Permitted to Operate During the COVID-19 Disaster
Emergency to Ensure the Safety and Health of Employees and the Public,” Governor Tom Wolf (May 27, 2020),
https://www.governor.pa.gov/covid-19/restaurant-industry-guidance/. Other courts in this District have also reached the
conclusion that Governor Wolf’s order regulated the “use” of property within the meaning of identical “Ordinance or
Law” exclusions. See, e.g., Newchops, 2020 WL 7395153, at *7; but see Frank Van’s, 2021 WL 289547, at *9
(holding that the phrase “construction, use, or repair” suggests that the exclusion relates to the physical structural
integrity of the property).
exclusion therefore precludes Plaintiff’s from seeking recovery of their business losses under the
Policy.
c. Plaintiff’s Reasonable Expectations
Plaintiff argues that the absence of a virus or bacteria exclusion, coupled with the Policy’s
Food-Borne Illness provision, establishes that Plaintiff had a reasonable expectation of coverage for
business losses resulting from the Governor’s shut down orders. Pl. Resp. at 15-17. As a result,
Plaintiff reasons that even if they have not stated the requisite theory of recovery under the terms of
the Policy, their reasonable expectation of coverage entitle them to relief. See id. The court’s
priority when interpreting insurance contracts is to effectuate the reasonable expectations of the
insured. United Financial Cas. Co. v. Princeton Excess and Surplus Lines Ins. Co., 748 Fed. App’x
435, 439 (3d Cir. 2018). This requires the court to “examine the totality of the insurance transaction
involved.” Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330, 344 (3d Cir. 2005). When the
policy language is unambiguous, courts should give effect to its explicit terms. Frederick Mut. Ins.
Co. v. Hall, F. App’x 115, 117 (3d Cir. 2018). Nevertheless, a party’s reasonable expectations can
overcome this unambiguous language when the insured relies upon representations of the insurer
that do not accurately reflect the terms of the policy. UPMC Health Sys. v. Metro Life Ins. Co., 391
F.3d 497, 502-03 (3d Cir. 2004).
Plaintiff has not pled facts showing that they reasonably expected that income losses
resulting from their inability to use the premises as a dine-in restaurant would qualify as a “Covered
Cause of Loss” under the Policy. Absent from the pleadings are any allegations that Defendant
unilaterally changed the terms of the Policy after the Parties entered into their agreement. UPMC
Health Sys., 391 F.3d at 502. Instead, Plaintiff merely points to the language of the Policy itself as
evidence of their reasonable expectation for coverage. Specifically, Plaintiff contends that because
the Policy did not contain a virus, bacteria, or microorganism exclusion, they reasonably expected
that losses arising from these hazards qualified as a “Covered Cause of Loss.” See Pl. Resp. 15-16.
Plaintiff also argues that the provision providing for a limited coverage extension for food-borne
illnesses further justified their expectations. Id. at 16.
The Court is unpersuaded by Plaintiff’s contention that the text of the Policy itself gave rise
to reasonable expectations of coverage contrary to its plain terms. As an initial matter, the absence
of a “virus, bacteria, or microorganism exclusion” provides no support for this conclusion. Courts
in this district have consistently dismissed “loss of use” claims as failing to properly allege a “loss
of property” under the terms of the policy without reference to whether the policy contained a virus
exclusion. See, e.g., J.B.’s Variety Inc. v. Axis Ins. Co., 2021 WL 1174917, at *4-5; Frank Van’s,
2021 WL 289547, at *7; Newchops, 2020 WL 7395153, at *4-6; Kessler Dental Assocs., 2020 WL
7181057, at *4. The fact that certain claims were not specifically excluded has no bearing on the
fact that Plaintiff’s claims do not fall within the scope of a “Covered Cause of Loss.” 7 See 4431,
Inc., 2020 WL 7075318, at *13 n.18.
Plaintiff’s argument concerning the “Food-Borne Illness” extension is equally unavailing.
This provision provides coverage for losses sustained from civil orders suspending operations
“resulting from…[e]xposure of the described premises to a contagious or infectious disease.” See
Answer, Ex. 1 at 232 (emphasis added). The phrase “resulting from” suggests a requirement of
proximate causation. See Cher-D, Inc. v. Great Am. Alliance Ins. Co., No. 05-5936, 2009 WL
943540, at *7 (E.D. Pa. Apr. 7, 2009). Plaintiff does not assert that the Governor’s shut down
orders resulted from exposure of any of their properties to the COVID-19 virus. Indeed, the
Governor’s orders would have issued regardless of whether Plaintiff’s restaurants experienced any
such outbreak. The “Food-Borne Illness” extension therefore describes a situation different than the
7 The same principle applies to Plaintiff’s assertion that the absence of a clause disclaiming coverage “even if the
properties have not been damaged” within the Business Income and Civil Authority provisions gave rise to a reasonable
expectation of coverage. See Pl. Resp. 17.
case at hand and shows that Plaintiff’s expectations of coverage in this instance would be
unreasonable.
Courts have, in certain instances, granted leave to amend complaints alleging a reasonable
expectation of coverage. See, e.g., Frank Van’s, 2021 WL 289547, at *10. In these cases, plaintiffs
who had not clearly articulated the reasons supporting their expectation were granted leave to offer
more specific allegations. Id. This is not there case here. Plaintiffs have argued that their
reasonable expectation for coverage was rooted in the terms of the Policy itself and the Court has
rejected this contention for the reasons set forth above. Courts should permit curative amendment
when justice so requires. Fed. R. Civ. P. 15(a)(2). However, dismissal with prejudice is appropriate
where amendment would be futile. Kanter v. Barella, 489 F.3d 170, 181 (3d Cir. 2007). Since
Plaintiff cannot amend the terms of the Policy, amendment of the Complaint would also be in vain.
V. CONCLUSION
Isaac’s cannot recover their business losses under the Business Income or Civil Authority
provisions of its Policy with State Auto. In order to state a claim for recovery, the insured must
allege a suspension of operations “caused by direct physical loss of or damage to property.” A
“direct physical loss of property” requires tangible, physical alterations to the structure itself.
Plaintiff’s inability to use their properties as dine-in restaurants do not satisfy this requirement
because their property remained otherwise functional and sustained no structural harm. Plaintiff has
therefore failed to state a claim for a “direct physical loss of property” under the applicable
provisions of their Policy with State Auto. Plaintiff is also barred from recovery under the
“Ordinance or Law” exclusion, which precludes recovery for losses resulting from a government
order regulating the use of the insured’s property.
Accordingly, Defendant’s Motion for Judgment on the Pleadings is granted. An appropriate Order
follows.
BY THE COURT:
/s/ John M. Gallagher
JOHN M. GALLAGHER
United States District Court Judge