44 Hummelstown Associates LLC v. Westfield Insurance Company

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

44 HUMMELSTOWN ASSOCIATES, :

LLC, : No. 1:20-cv-02319

Plaintiff :

: (Judge Kane)

v. :

:

AMERICAN SELECT INSURANCE :

COMPANY, :

Defendant :

MEMORANDUM

Plaintiff 44 Hummelstown Associates, LLC (“Plaintiff”) commenced this action on

December 10, 2020, alleging that Defendant American Select Insurance Company (“Defendant”)

improperly denied insurance coverage for losses sustained due to the COVID-19 pandemic and

related governmental orders. (Doc. No. 1.) Presently before the Court is Defendant’s motion to

dismiss (Doc. No. 16) Plaintiff’s amended complaint (Doc. No. 12) pursuant to Federal Rule of

Civil Procedure 12(b)(6). Having been fully briefed (Doc. Nos. 19-21), Defendant’s motion

(Doc. No. 16) is ripe for disposition. For the reasons that follow, the Court will grant the motion.

I. BACKGROUND1

Factual Background and Procedural History

Plaintiff is the owner and operator of a hotel in Hummelstown, Pennsylvania, known as

Comfort Suites Hummelstown (the “Covered Property” or “Property”). (Doc. No. 12 ¶ 1.) In

1 This background is drawn from the allegations in Plaintiff’s complaint, which the Court has

accepted as true, as well as exhibits attached to the complaint and matters of public record. See

Lum v. Bank of Am., 361 F.3d 217, 221 n.3 (3d Cir. 2004); see also Phillips v. Cty. of

Allegheny, 515 F.3d 224, 233 (3d Cir. 2008). Many of Plaintiff’s allegations consist of either

conclusory assertions or legal arguments concerning the construction of the insurance contracts

pursuant to which Plaintiff now seeks relief. As to any purely legal arguments, the Court has

relegated those to its discussion concerning the merits of Plaintiff’s claims unless otherwise

necessary for context.

July 2019, Plaintiff and Defendant entered into an insurance contract pursuant to which Plaintiff

purchased a one-year, “all-risk” commercial insurance policy (“Policy”) from Defendant. (Id. ¶¶

2, 16.) Under the Policy, which the parties renewed in July 2020,2 Defendant agreed to “pay for

direct physical loss of or damage to [the] Covered Property . . . caused by or resulting from any

Covered Cause of Loss,” which the Policy defines as “[d]irect physical loss unless the loss is

excluded or limited” elsewhere in the Policy. (Id. ¶¶ 2, 17, 24; see Doc. No. 12-1 at 23.) In

other words, the Policy insures against all non-excluded losses.

In March 2020, the World Health Organization declared COVID-19 a global pandemic

(Doc. No. 12 ¶ 43), and Pennsylvania Governor Tom Wolf proclaimed the existence of a disaster

emergency throughout the Commonwealth (id. ¶ 68; see Doc. No. 12-1 at 363-64). On March

19, 2020, Governor Wolf issued an order prohibiting any “person or entity [from] . . . operat[ing]

a place of business in the Commonwealth that is not a life[-]sustaining business . . . .” (Doc. No.

12-1 at 367.) Life-sustaining businesses—including hotels and other accommodations—were

permitted to remain open if they “follow[ed], at a minimum, the social distancing practices and

other mitigation measures defined by the Centers for Disease Control to protect workers and

patrons.” (Id. at 367-68, 373.) The Governor then issued two stay-at-home orders: the first,

dated March 23, 2020, ordered residents of several counties to stay at home; the second, dated

April 1, 2020, extended the first stay-at-home order to apply to all individuals residing in the

Commonwealth. (Doc. No. 12 ¶¶ 70-71; see Doc. No. 12-1 at 375, 378.)

Plaintiff alleges that it sustained business income losses and incurred additional expenses

2 Although there are two insurance policies at issue (the first in effect from July 2019 to July

2020, and the second in effect from July 2020 to July 2021), consistent with Plaintiff’s use of the

term “Policy” in the amended complaint (Doc. No. 12 at 4 n.1), the Court will refer to both

policies simply as the “Policy” herein.

due to COVID-19 and the restrictions imposed by Governor Wolf’s orders, because of which

Plaintiff allegedly “lost full use, or suffered limited use, of the physical space of the Covered

Property.” (Doc. No. 12 ¶¶ 78-80.) Plaintiff asserts that the “actual or suspected presence of

COVID-19,” or the risk of the virus’s presence, precludes or limits the use of its hotel. (Id. ¶¶

87-88.)3 Referencing the “COVID-19 Effect,” Plaintiff alleges that it sustained losses because of

“[s]ocial anxiety over public health and society’s change in perception that indoor establishments

are unsafe due to COVID-19.” (Id. ¶¶ 63-65.) Because of COVID-19 and Governor Wolf’s

orders, Plaintiff allegedly closed the portion of its business that is “non-life sustaining.” (Id. ¶

82.) According to Plaintiff, it was forced to “close the doors” to the Covered Property, which

COVID-19 rendered unsafe, uninhabitable, damaged, and unfit for use as a hotel. (Id.)

At some point in March or early April 2020, Plaintiff submitted a claim to Defendant

under the Policy to recover for losses stemming from the “presence of COVID-19 and the

[Governor’s] orders.” (Id. ¶¶ 90-92.) Defendant denied Plaintiff’s claim on April 13, 2020. (Id.

¶ 93.) Plaintiff then commenced the instant action against Defendant, along with Westfield

Insurance Company (“Westfield”), asserting two forms of relief: (1) a declaration under the

Declaratory Judgment Act, 8 U.S.C. § 2201(a), that the losses and additional expenses Plaintiff

purportedly sustained and continues to sustain are covered by the Policy; and (2) damages for

breach of contract arising from Defendant’s denial of coverage. (Doc. No. 1.) After the parties

stipulated to terminate Westfield as a defendant (Doc. No. 7), Plaintiff filed the operative

amended complaint (Doc. No. 12), which Defendant now moves to dismiss (Doc. No. 16).

3 Plaintiff does not specifically allege what physical limitations were imposed by the Governor’s

orders, the risk of COVID-19’s presence, or COVID-19’s actual presence. The amended

complaint is silent as to the existence or impact of any government requirements to reduce

capacity and does not allege any instances of COVID-19 in or around the Covered Property.

B. The Policy

Plaintiff asserts that it is entitled to coverage under the Policy’s “Business Income,”

“Extra Expense,” and “Civil Authority” provisions. (Doc. Nos. 12, 12-1.) Regarding Business

Income coverage, the Policy provides, in pertinent part, as follows:

[Defendant] will pay for the actual loss of Business Income [Plaintiff] sustains due

to the necessary suspension of [Plaintiff’s] “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 . . . .

(Doc. No. 12-1 at 23.)4 A “suspension” occurs when there is a “partial slowdown or complete

cessation of [] business activities” or, if Business Income coverage applies, “a part or all of the

described premises is rendered untenantable . . . .” (Id. at 28.) The “period of restoration” begins

no later than 72 hours after “the time of the direct physical loss or damage” and ends on the

earlier of two dates: (1) the “date when the property at the described premises should be repaired,

rebuilt or replaced with reasonable speed and similar quality”; or (2) the “date when business is

resumed at a new permanent location.” (Id. at 56-57.) In addition to lost income and related

operating expenses, the Policy provides for Extra Expense coverage, which covers additional

expenses incurred during the period of restoration that Plaintiff would not have incurred but for

the “direct physical loss or damage.” (Id. at 30.)

Civil Authority coverage is implicated when a civil authority’s actions preclude access to

the area surrounding the Covered Property on account of damage to nearby property. As to this

area of coverage, the Policy provides as follows:

When a Covered Cause of Loss causes damage to property other than property at

the described premises, [Defendant] will pay for the actual loss of Business Income

[Plaintiff] sustains and necessary Extra Expense caused by [an] action of [a] civil

4 As indicated, supra, “Covered Cause of Loss” means a “[d]irect physical loss unless the loss is

excluded or limited . . . .” (Id. at 24.)

authority that prohibits access to the described premises, provided that both of the

following apply:

(1) Access to the area immediately surrounding the damaged property is

prohibited by civil authority as a result of the damage, and the described

premises are within that area but are not more than one mile from the

damaged property; and

(2) The action of [the] 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, or the action is taken to

enable a civil authority to have unimpeded access to the damaged property.

(Id. at 31-32.)

As Plaintiff notes in its amended complaint, in addition to the above provisions under

which it claims coverage, the Policy provides for certain “[e]xclusions,” including what is

commonly referred to as a “Virus Exclusion,” which excludes from the Policy’s scope any loss

or damage caused directly or indirectly by “[a]ny virus, bacterium or other microorganism that

induces or is capable of inducing physical distress, illness or disease.” (Id. at 40, 42; see Doc.

No. 12 ¶ 54.) The Virus Exclusion, like the other exclusions enumerated in the Policy, applies

“whether or not the loss event results in widespread damage or affects a substantial area” and

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

loss.” (Doc. No. 12-1 at 40.)

II. LEGAL STANDARD

Federal notice and pleading rules require the complaint to provide the defendant notice of

the claim and the grounds upon which it rests. See Phillips v. Cty. of Allegheny, 515 F.3d 224,

232 (3d Cir. 2008). When reviewing the sufficiency of a complaint pursuant to a motion to

dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court must accept as true all

material allegations in the complaint and all reasonable inferences that can be drawn from them,

viewed in the light most favorable to the plaintiff. See In re Ins. Brokerage Antitrust Litig., 618

F.3d 300, 314 (3d Cir. 2010). However, the Court need not accept legal conclusions proffered as

factual allegations. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Rather, a civil

complaint must “set out ‘sufficient factual matter’ to show that the claim is facially plausible.”

See Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (quoting Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009)).

Consistent with the Supreme Court’s rulings in Twombly and Iqbal, the Third Circuit has

identified three steps a district court must take when determining the sufficiency of a complaint

under Rule 12(b)(6): (1) identify the elements a plaintiff must plead to state a claim; (2) identify

any conclusory allegations contained in the complaint “not entitled” to the assumption of truth;

and (3) determine whether any “well-pleaded factual allegations” contained in the complaint

“plausibly give rise to an entitlement to relief.” See Santiago v. Warminster Twp., 629 F.3d 121,

130 (3d Cir. 2010) (citation and quotation marks omitted). A complaint is properly dismissed

where the factual content in the complaint does not allow a court “to draw the reasonable

inference that the defendant is liable for the misconduct alleged.” See Iqbal, 556 U.S. at 678.

III. DISCUSSION

Both Plaintiff’s claim for a declaratory judgment and its claim for breach of contract

converge on a single issue: whether Plaintiff has plausibly alleged that its purported business

income losses and additional expenses resulting from COVID-19 and Governor Wolf’s orders

are covered under the terms of the Policy.5 Because the Court has jurisdiction based on diversity

5 In seeking relief under the Declaratory Judgment Act, Plaintiff must plead and ultimately

prove that the losses and expenses it allegedly sustained fall within the scope of the Policy’s

coverage as provided for in the underlying insurance contracts. In seeking damages for breach of

contract under Pennsylvania law, Plaintiff must plead and prove the following elements: (1) “the

existence of a contract, including its essential terms; (2) a breach of a duty imposed by the

contract; and (3) resultant damages.” See Key Consol. 2000, Inc. v. Troost, 432 F. Supp. 2d 484,

487 (M.D. Pa. 2006) (citing Corestates Bank N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa. Super.

and amount in controversy pursuant to 28 U.S.C. § 1332, and neither party has argued to the

contrary, the Court applies substantive Pennsylvania law.

A. Applicable Legal Standard

Under Pennsylvania law, an “insured bears the initial burden to make a prima facie

showing that a claim falls within the policy’s grant of coverage.” See State Farm Fire & Cas.

Co. v. Est. of Mehlman, 589 F.3d 105, 111 (3d Cir. 2009) (applying Pennsylvania law). If the

insured meets that burden, “the insurer then bears the burden of demonstrating that a policy

exclusion excuses the insurer from providing coverage if the insurer contends that it does.” See

id. Courts interpreting provisions of insurance policies must give effect to their “clear and

unambiguous” language. See Med. Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir. 1999)

(applying Pennsylvania law). Policy provisions that are “reasonably susceptible to more than

one interpretation” are ambiguous. See id. (internal quotation marks omitted) (quoting McMillan

v. State Mut. Life Assur. Co., 922 F.2d 1073, 1075 (3d Cir.1990)). “In order to determine

whether a term or language in a policy provision is ambiguous, the term or language must be

considered in the context of the entire policy.” Madison Const. Co. v. Harleysville Mut. Ins. Co.,

678 A.2d 802, 805 (Pa. Super. 1996), aff’d, 735 A.2d 100 (Pa. 1999).

B. Arguments of the Parties

In moving to dismiss Plaintiff’s amended complaint, Defendant argues that the Policy

does not cover Plaintiff’s alleged losses for three reasons: (1) the Covered Property “did not

experience a direct physical loss”; (2) “no nearby property experienced a direct physical loss that

1999)). The success of Plaintiff’s breach of contract claim therefore turns on whether Plaintiff is

entitled to a declaration that its losses are covered under the Policy. Cf. Trustees of Univ. of

Pennsylvania v. Lexington Ins. Co., 815 F.2d 890, 896 (3d Cir. 1987) (noting that

“[c]onstruction of an insurance policy, like construction of any contract, is a matter of law so

long as a court may fairly read it without ambiguity”).

triggered a civil authority order that prohibited access to [the Property]”; and (3) the “Policy’s

Virus Exclusion plainly bars coverage.” (Doc. No. 19 at 12.) Defendant maintains that Plaintiff

must allege “some nexus” to “connect the income loss and extra expense with [the] [P]roperty’s

physical condition” in order to invoke coverage under the Policy’s Business Income and Extra

Expense provisions. (Id.) Defendant contends that Plaintiff has “plead[ed] only intangible

economic losses such as reduced patronage due to the virus and resulting orders.” (Id. at 13.)

Regarding the Civil Authority provision, Defendant submits that the Policy “provides coverage

only when a nearby property experiences a direct physical loss causing a civil authority to issue

an order prohibiting access to the insured’s property.” (Id.) According to Defendant, Plaintiff

has not pleaded any allegations bringing its claims within this coverage. (Id.)

Plaintiff advances several counter arguments. Plaintiff first argues that it has “clearly

alleged direct physical loss of, or damage to, the insured property” as is required to trigger

Business Income and Extra Expense coverage. (Doc. No. 20-1 at 16.) Plaintiff submits that the

Policy’s requirement that there be “direct physical loss of or damage to” the Covered Property is

“ambiguous and must be interpreted to favor [Plaintiff].” (Id. at 17.) Interpreting the Policy as

such, Plaintiff asserts that a covered loss “may be [either] physical loss or physical damage,” and

that an “actual physical alteration of the covered property is not required.” (Id. at 18.) Because

Defendant included a Virus Exclusion in the Policy, Plaintiff argues that Defendant has conceded

that “viruses cause physical loss or damage.” (Id. at 18-19.) Given that coverage can be based

on “physical loss,” Plaintiff asserts that “Defendant incorrectly asserts that physical damage is

required before Business Income and Extra Expense Coverage applies.” (Id. at 19-26.) Plaintiff

further contends that it can recover for “physical damage” even “where there [i]s no structural

damage, but merely a perceived damage.” (Id. at 27.)

Separately, Plaintiff asserts that it has pleaded a plausible claim for Civil Authority

coverage under the Policy because Governor Wolf’s orders prohibited access to the Covered

Property. (Id. at 29-33.) Plaintiff argues that “[i]t is reasonable to interpret the words ‘prohibits

access’ to a building to encompass [] government order[s]” that direct residents to stay at home

and prohibit Plaintiff from operating its business “at full capacity.” (Id. at 30.) Plaintiff asserts

that such orders effectively “operate as closure orders,” and that “the public perception of the

known dangers of COVID-19 and potential to spread during travel” caused its “hotel [to] suffer

substantial losses.” (Id.) On Plaintiff’s reading of the Policy, there need not be a “specific

prohibition of access to the premises” in order to trigger the Policy’s Civil Authority coverage.

(Id.) A “total pro[hibi]tion of access is not required,” and it is sufficient if “an action of a civil

authority effectively prevented, or forbade by authority, individuals [from] accessing the insured

property in a meaningful way,” according to Plaintiff. (Id.)

Concerning the Virus Exclusion, Plaintiff contends that it is unclear and ambiguous and

should be interpreted in its favor. (Id. at 33.) Because the Policy does not define the term

“virus,” Plaintiff argues that the term “must be given its ordinary dictionary definition—which

does not include a ‘pandemic.’” (Id.) It is Plaintiff’s contention that an “ordinary virus, as

contemplated by the [P]olicy [], impacts only those persons it directly infects,” whereas “a

pandemic triggers a wide variety of measures designed to contain the virus, impacting people

and properties that the virus itself never reaches.” (Id.) Plaintiff notes that other insurance

companies’ policies specifically include “pandemic” in their exclusions. (Id. at 34 (citing Meyer

Natural Foods, LLC v. Liberty Mutual Fire Ins. Co., 218 F. Supp. 3d 1034, 1038 (D. Neb.

2016).) In any event, Plaintiff further argues that the doctrine of regulatory estoppel bars

Defendant from invoking the Virus Exclusion because Defendant “misled state insurance

regulators in seeking [the adoption of] the Virus Exclusion.” (Id. at 37.)6

Even assuming the Policy “appears to preclude coverage,” Plaintiff submits that its

reasonable expectations of coverage under the Policy should “supersede [] language [in the

Policy] which might otherwise deny coverage.” (Id. at 39 (citing UPMC Health Sys. v. Metro.

Life Ins. Co., 391 F.3d 497, 502 (3d Cir. 2004) (noting that, under Pennsylvania’s reasonable

expectations doctrine, “the ‘reasonable expectations of the insured is the focal point of the

insurance transaction . . . regardless of the ambiguity, or lack thereof, inherent in a given set of

documents’” (quoting Collister v. Nationwide Life Ins. Co., 388 A.2d 1346, 1353 (Pa. 1978))

(alterations in original))).)

C. Whether Plaintiff Has Stated a Prima Facie Claim for Coverage under the

Policy’s Provisions

Upon consideration of the allegations in the amended complaint, the terms of the Policy,

the parties’ arguments, and the applicable law, the Court finds that Plaintiff has failed to allege a

plausible claim to coverage under the Policy. In doing so, this Court joins the scores of courts

that have rejected commercial insurance claims predicated on similar or identical allegations and

policy provisions. See, e.g., Kahn v. Pennsylvania Nat’l Mut. Cas. Ins. Co., No. 1:20-cv-781,

2021 WL 422607 (M.D. Pa. Feb. 8, 2021) (dismissing a claim for a declaration of coverage

6 As to this contention, Plaintiff asserts that the Insurance Services Office (“ISO”) and American

Association of Insurance Services (“AAIS”), “on behalf of insurers, misled state insurance

regulators in seeking the adoption of the Virus Exclusion.” (Doc. No. 20-1 at 37.) The ISO and

AAIS did so, Plaintiff alleges, by “securing approval for the Virus Exclusion” based on the false

representation that property policies never covered “loss, cost or expense caused by disease-

causing agents” and were never intended to do so. (Id.) Plaintiff alleges that, contrary to this

misrepresentation, courts had previously found that “property insurance policies covered claims

involving disease-causing agents.” (Doc. No. 12 ¶¶ 120-21.) As a result of the ISO’s and

AAIS’s allegedly false representations, Plaintiff asserts that Defendant was permitted to include

a Virus Exclusion in the policy without a commensurate reduction in premiums “to balance a

reduction in coverage.” (Id. ¶ 122.)

under an all-risk insurance policy for the insured’s failure to plausibly allege physical loss of or

damage to the covered premises stemming from COVID-19 and Governor Wolf’s orders); 1

S.A.N.T., Inc. v. Berkshire Hathaway, Inc., No. 2:20-cv-862, 2021 WL 147139 (W.D. Pa. Jan.

15, 2021) (same); ATCM Optical, Inc. v. Twin City Fire Ins. Co., No. 20-cv-4238, 2021 WL

131282 (E.D. Pa. Jan. 14, 2021) (same); The Scranton Club v. Tuscarora Wayne Mut. Group,

Inc., No. 20-cv-2469, 2021 WL 454498, at *10 (Pa. Com. Pl. Jan. 25, 2021) (same).

1. Business Income and Extra Expense Coverage

To establish a prima facie claim for coverage under the Policy’s Business Income and

Extra Expense provisions, Plaintiff must plausibly allege that it suffered “direct physical loss of

or damage to” the Covered Property. (Doc. No. 12-1 at 20.) Before considering whether

Plaintiff’s allegations state a plausible claim for coverage, the Court must determine whether the

relevant terms of the Policy are clear and unambiguous. See, e.g., Ready Food Prods., Inc. v.

Great N. Ins. Co., 612 A.2d 1385, 1387 (Pa. Super. 1992) (noting that “[t]he threshold

determination of whether a writing is ‘ambiguous’ necessarily lies with the court”). Plaintiff

argues that the disputed language “direct physical loss of or damage to” is ambiguous—and that

the Court should construe the language in Plaintiff’s favor to deny Defendant’s motion to

dismiss—for three reasons: (1) the Policy “does not define the terms ‘loss’ or ‘damage’”; (2) the

“language sets up a false premise by conflating the words ‘loss’ and ‘damage’”; and (3) use of

the disjunctive “or” between “physical loss” and “damage” indicates that a covered loss “may be

physical loss or physical damage” such that “actual physical alteration of the [Covered Property]

is not required.” (Id. at 17-18 (emphasis in original).)

Plaintiff’s attempt to inject ambiguity into the Policy is unavailing. A policy term is not

“ambiguous merely because it is not defined in the policy.” See Wall Rose Mut. Ins. Co. v.

Manross, 939 A.2d 958, 965 (Pa. Super. 2007); see also Telecommunications Network Design v.

Brethren Mut. Ins. Co., 5 A.3d 331, 336-37 (Pa. Super. 2010) (noting that the mere presence of

an undefined policy term that “can imply several meanings is insufficient to create ambiguity”).

Nor does ambiguity “exist simply because the parties disagree on the proper construction to be

given a particular policy provision.” See Neuhard v. Travelers Ins. Co., 831 A.2d 602, 605 (Pa.

Super. 2003) (citing Tyler v. Motorists Mutual Ins. Co., 779 A.2d 528, 531 (Pa. Super. 2001)).

Rather, when a “policy . . . neglects to define a term, the Court will read it in the plain and

generally accepted meaning of the term,” see 1 S.A.N.T., 2021 WL 147139, at *5, mindful that

“[w]ords of common usage in an insurance policy are to be construed in their natural, plain, and

ordinary sense, and [that courts] may inform [their] understanding of the terms by considering

their dictionary definitions,” see Madison Const. Co., 735 A.2d at 108.

The phrase “direct physical loss of or damage to” contains four key terms, “direct,”

“physical,” “loss,” and “damage,” none of which is defined within the Policy. The Court must

therefore consider their generally accepted meanings. “Direct” means “stemming immediately

from a source” and is “marked by [the] absence of an intervening agency, instrumentality, or

influence.” See Direct, Merriam-Webster’s Collegiate Dictionary (10th ed. 1997). “Physical”

means “of, relating to, or involving material things; pertaining to real, tangible objects.” See

Physical, Black’s Law Dictionary (11th ed. 2019). “Loss” means “destruction, ruin,” the “act of

losing possession,” and “[d]amage” means “loss or harm resulting from injury to person,

property, or reputation.” See Damage, Loss, Merriam-Webster’s Collegiate Dictionary (10th ed.

1997).7 Considering these terms in context, the Court agrees with Plaintiff that the phrase “direct

7 “Direct loss” means “[a] loss that results immediately and proximately from an event.” See

Direct Loss, Black’s Law Dictionary (11th ed. 2019).

physical loss of or damage to” requires either “direct physical loss” or “direct physical damage.”

This is so because the terms “direct” and “physical” modify both “loss” and “damage.” See

Frank Van’s Auto Tag, LLC v. Selective Ins. Co. of the Se., No. 20-cv-2740, 2021 WL 289547,

at *5 (E.D. Pa. Jan. 28, 2021); see also, e.g., Kahn, No. 2021 WL 422607, at *5.

As to “physical loss” and “physical damage,” in a leading and oft-quoted insurance

treatise, it is observed that the requirement in an insurance policy “that [a covered] loss be

‘physical’ . . . is widely held to exclude [intangible or incorporeal] losses . . . .” See 10 Couch on

Insurance § 148:46. It follows that a “detrimental economic impact unaccompanied by a distinct,

demonstrable, physical alteration of the property” does not qualify as “physical” loss or damage.

See id. Under this rationale, courts have construed policies insuring against “direct physical

loss” or “direct physical damage” to require “actual, demonstrable harm of some form to the

[insured] premises itself, rather than forced closure of the premises for reasons extraneous to the

premises themselves, or adverse business consequences that flow from such closure.” See, e.g.,

Hair Studio 1208 v. Hartford Underwriters Ins. Co., No. 20-cv-2171, 2021 WL 1945712, at *6

(E.D. Pa. May 14, 2021) (internal quotation marks omitted). There must be “some tangible issue

with the physical structure of the business’s premises,” Kahn, 2021 WL 422607, at *6, as well as

a “direct nexus between” the tangible issue and the alleged loss, see Frank Van’s Auto Tag,

LLC, 2021 WL 289547, at *5.

This construction of the phrase “direct physical loss of or damage to” is supported by the

Policy’s broader framework. The Business Income provision covers losses sustained during a

“period of restoration,” which itself begins with the commencement of some physical repair,

rebuilding, or replacement, and ends when such physical restoration is complete. “The language

of th[e] [‘period of restoration’] provision strongly implies that the Policy was only intended to

cover business losses sustained over a period when the property had some physical or structural

issue that prevented the business from operating.” See Kahn, 2021 WL 422607, at *6 (emphasis

added); see also Indep. Rest. Grp. v. Certain Underwriters at Lloyd’s, London, No. 20-cv-2365,

2021 WL 131339, at *7 (E.D. Pa. Jan. 14, 2021) (noting that “coverage for actual or threatened

coronavirus contamination [would not] make sense in connection with the [p]eriod of

[r]estoration language, which ties business income coverage eligibility to the period during

which the property can be ‘repaired, rebuilt, or replaced’”). To hold otherwise would render the

“period of restoration” provision superfluous, see, e.g., Kahn, 2021 WL 422607, at *6, and

Pennsylvania’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,” see

Clarke v. MMG Ins. Co., 100 A.3d 271, 276 (Pa. Super. 2014) (internal quotation marks

omitted) (ellipses in original).

Applying the unambiguous terms of the Policy to Plaintiff’s allegations, the Court finds

that Plaintiff has failed to state a plausible claim for coverage under the Business Income and

Extra Expense provisions. Stripped of conclusory assertions and legal arguments, Plaintiff’s

allegations simply do not support its claim that the COVID-19 pandemic and resulting

governmental orders caused “direct physical loss of or damage to” the Covered Property. What

Plaintiff has plausibly alleged is that the combination of the circumstances surrounding COVID-

19 and Governor Wolf’s orders negatively impacted its hotel by decreasing patronage, but such

allegations are insufficient to trigger coverage. In short, none of the allegations in the amended

complaint plausibly supports Plaintiff’s contention that COVID-19 and the Governor’s orders

“h[ad] something to do with the physical condition of the premises.” See Moody v. Hartford

Fin. Grp., Inc., No. 20-cv-2856, 2021 WL 135897, at *5 (E.D. Pa. Jan. 14, 2021) (emphasis

added).

Instructive in this regard is Port Authority of New York & New Jersey v. Affiliated FM

Insurance Co., 311 F.3d 226 (3d Cir. 2002), a decision of the United States Court of Appeals for

the Third Circuit upon which numerous courts have relied in dismissing similar claims.8 That

case presented the issue of whether an all-risk policy that insured against “physical loss or

damage” covered losses stemming from the presence of asbestos within the insured’s buildings.

See id. at 230. Drawing support from the aforementioned insurance treatise, see supra, the Third

Circuit expounded on the meanings of “physical damage” and “physical loss”:

In ordinary parlance and widely accepted definition, physical damage to property

means a distinct, demonstrable, and physical alteration of its structure. Fire, water,

smoke and impact from another object are typical examples of physical damage

from an outside source that may demonstrably alter the components of a building

and trigger coverage. Physical damage to a building as an entity by sources

unnoticeable to the naked eye must meet a higher threshold . . . .

[T]he policies [in this case] cover physical loss, as well as damage. When the

presence of large quantities of asbestos in the air of a building is such as to make

the structure uninhabitable and unusable, then there has been a distinct loss to its

owner. However, if asbestos is present in components of a structure, but is not in

such form or quantity as to make the building unusable, the owner has not suffered

a loss. The structure continues to function—it has not lost its utility. The fact that

the owner may choose to seal the asbestos or replace it with some other substance

as part of routine maintenance does not bring the expense within first-party

coverage.

See id. at 235-236 (internal quotation marks, citation, and footnote omitted) (emphasis added).

The Third Circuit agreed with the district court that there could be no physical loss or damage

8 Port Authority was an appeal from the grant of a summary judgment motion, but federal courts

that have considered similar coronavirus-related insurance claims have relied upon the Third

Circuit’s reasoning to dismiss claims at the pleading stage. See, e.g., Kahn, 2021 WL 422607, at

*9. Additionally, although Port Authority involved New Jersey and New York substantive law,

the Third Circuit has since “predict[ed] that the Pennsylvania Supreme Court would adopt a

similar principle as [the court] did in Port Authority.” See Motorists Mut. Ins. Co. v. Hardinger,

131 F. App’x 823, 826 (3d Cir. 2005) (unpublished).

absent “an actual release of asbestos fibers” that “resulted in contamination of the property such

that its function [wa]s nearly eliminated or destroyed, or the structure [wa]s made useless or

uninhabitable . . . .” See id. at 236.

Here, Plaintiff’s non-conclusory allegations do not suggest that the “function” of the

Covered Property was “nearly eliminated or destroyed” or “made useless or uninhabitable.” See

id. To the contrary, the amended complaint and attached exhibits reflect that the Covered

Property was never ordered closed, that hotels were excluded from the Governor’s closure order

and conditionally permitted to continue operations, and that neither COVID-19 nor the

Governor’s orders themselves touched upon the Property’s physical form in any tangible way.

Plaintiff’s allegations of the risks, stigma, and ubiquity of COVID-19 bear no relation to the

structure of the Covered Property and in no way suggest that the hotel became wholly defunct or

was otherwise reduced to uselessness or uninhabitability. Insofar as the pandemic prompted

individuals to refrain from patronizing certain businesses, the consequences of that phenomenon

are too removed from the Covered Property itself to be capable of establishing any “direct

physical loss” or “direct physical damage,” particularly given that “direct” connotes an

immediacy of consequences flowing from the cause of the losses.

Plaintiff asserts that the enclosed nature of its hotel’s indoor space makes it particularly

vulnerable to the spread and risk of COVID-19, but Plaintiff has not alleged any contamination

from the virus, nor, for that matter, any specific impact on the Covered Property aside from

COVID-19’s far-reaching impact on all humans and business relations generally. A similar

argument was advanced in Kessler Dental Associates, P.C. v. Dentists Insurance Co., No. 2:20-

cv-03376, 2020 WL 7181057 (E.D. Pa. Dec. 7, 2020), where the insured alleged that it sustained

direct physical loss or damage because its business was “conducted in an enclosed building,”

making it susceptible to “being or becoming contaminated” by COVID-19. See id., at *4. The

court held that the allegations amounted to “indirect ‘general threat[s] of future damage’ and do

not demonstrate ‘physical damage.’” See id. (quoting Port Auth. of New York & New Jersey,

311 F.3d at 235).9 For all these reasons, Plaintiff’s allegations do not establish a prima facie

claim for Business Income or Extra Expense coverage under the Policy.

2. Civil Authority Coverage

Equally unavailing is Plaintiff’s contention that it has adequately pleaded a claim for

coverage under the Policy’s Civil Authority provision. As recited, supra, coverage under this

provision is triggered only upon a showing that: (1) a Covered Cause of Loss caused damage to

property nearby the Covered Property; (2) Plaintiff sustained losses due to the action of a civil

authority that prohibits access to the Covered Property; (3) the civil authority’s action prohibiting

access to the Covered Property resulted from the damage to the nearby property; and (4) the civil

authority’s action is taken in response to “dangerous physical conditions resulting from the

damage or continuation of the Covered Cause of Loss that caused the damage,” or the action “is

taken to enable a civil authority to have unimpeded access to the damaged property.” (Doc. No.

12-1 at 31-32.)

A review of these conditions to coverage makes abundantly clear that Plaintiff has failed

to plead allegations sufficient to state a claim for relief under the Policy’s Civil Authority

9 Further, as one court has noted, “[b]ecause surfaces [contaminated by COVID-19] would

merely need to be cleaned, contamination would not meet the requirements under Port Authority

because presence of the virus would not render the property useless or uninhabitable or nearly

eliminate or destroy its functionality.” See Moody, 2021 WL 135897, at *6; see also, e.g., Indep.

Rest. Grp., 2021 WL 131339, at *7 (noting the insured’s concession that “contaminated surfaces

can be cleaned and sanitized”); Rococo Steak, LLC v. Aspen Specialty Ins. Co., No. 8:20-cv-

2481, 2021 WL 268478, at *4 (M.D. Fla. Jan. 27, 2021) (holding, under Florida law, that an

insured “cannot allege direct physical loss by claiming its property was superficially

contaminated with COVID-19 particles”).

provision. Plaintiff has not alleged that a Covered Cause of Loss caused damage to “property

other than” the Covered Property. See, e.g., Kahn, 2021 WL 422607, at *6 (holding that the

insured did not allege loss or damage to another property caused by a covered cause of loss);

Windber Hosp. v. Travelers Prop. Cas. Co. of Am., No. 3:20-cv-80, 2021 WL 1061849, at *5

(W.D. Pa. Mar. 18, 2021) (dismissing a claim for civil authority coverage, noting that “[t]here

was no[] damage to any surrounding properties, there was only the Governor’s [o]rders and the

COVID-19 pandemic”). Moreover, the amended complaint and its exhibits demonstrate that

Governor Wolf never prohibited access to the Covered Property or any adjacent areas. Even if

the Governor’s orders did prohibit access to the Covered Property and surrounding areas,

Plaintiff has not alleged that the orders were issued in response to “some dangerous physical

condition at [a] nearby premise[s].” See Kessler Dental Assocs., P.C., 2020 WL 7181057, at *4.

Nor has Plaintiff alleged that the Governor’s orders constituted “action [] taken to enable a civil

authority to have unimpeded access to the damaged property.” (Doc. No. 12-1 at 32.) The Court

therefore concludes that Plaintiff has failed to state a claim for entitlement to Civil Authority

coverage under the Policy.

D. Whether the Virus Exclusion Applies

Because Plaintiff has not pleaded allegations sufficient to bring its alleged losses within

the scope of the Policy, the Court need not address the parties’ contentions concerning the

applicability of the Virus Exclusion. However, given that the Court must consider whether to

grant Plaintiff leave to file a second amended complaint, see infra, the Court will briefly address

the application of the Virus Exclusion as applied to Plaintiff’s allegations. To reiterate, Plaintiff

asserts that the Virus Exclusion is ambiguous and only covers losses sustained due to viruses, not

pandemics, and that the doctrine of regulatory estoppel bars Defendant from invoking the Virus

Exclusion altogether. Neither argument is availing.

First, the Policy unambiguously excludes from coverage losses caused by “[a]ny virus,

bacterium or other microorganism that induces or is capable of inducing physical distress, illness

or disease.” (Doc. No. 12-1 at 40, 42); see Wilson v. Hartford Cas. Co., 492 F. Supp. 3d 417,

427 (E.D. Pa. 2020) (noting that “[t]he Third Circuit and [other courts] have upheld similarly

unambiguous exclusions barring coverage for losses caused by hazardous substances or

microorganisms”). “There is no other way to characterize COVID-19 than as a virus which

causes physical illness and distress.” Brian Handel D.M.D., P.C. v. Allstate Ins. Co., No. 20-cv-

3198, 2020 WL 6545893, at *4 (E.D. Pa. Nov. 6, 2020); see also Lansdale 329 Prop, LLC v.

Hartford Underwriters Ins. Co., No. 20-cv-2034, 2021 WL 1667424, at *10 (E.D. Pa. Apr. 28,

2021). Plaintiff argues that the pandemic itself, together with the resulting social anxiety and

governmental restrictions, caused harms separate and apart from the virus, but the Virus

Exclusion applies “regardless of any other cause or event that contributes concurrently or in any

sequence to the loss.” (Id. at 40.)

Second, Plaintiff’s regulatory estoppel arguments are misplaced. To invoke regulatory

estoppel, which, “prohibits parties from switching legal positions to suit their own ends,” see

Sunbeam Corp. v. Liberty Mut. Ins. Co., 781 A.2d 1189, 1192 (Pa. 2001), Plaintiff must

establish that Defendant “represent[ed] to a regulatory agency that new language in a policy will

not result in decreased coverage” only to “assert the opposite position” in this litigation. See

Brian Handel D.M.D., P.C., 2020 WL 6545893, at *4. Plaintiff argues that the ISO and AAIS

sought approval of the Virus Exclusion by misrepresenting to state regulators that commercial

property policies were not intended to cover virus-related losses. However, Defendant’s current

position—in essence, that “the virus exclusion eliminates coverage for any damage or loss as a

result of the causes enumerated therein,” see id.—is consistent with the ISO’s and AAIS’s

position that a “virus exclusion can be helpful in clarifying that a policy does not cover losses

stemming from a virus or other disease-causing agent,” see Paul Glat MD, P.C. v. Nationwide

Mut. Ins. Co., No. 20-cv-5271, 2021 WL 1210000, at *9 (E.D. Pa. Mar. 31, 2021). Assuming

the ISO’s and AAIS’s statements can be imputed to Defendant, Plaintiff has not alleged that

Defendant is presently embracing a view that contradicts those statements.10 Thus, even if

“Plaintiff’s claimed losses fell within the grant of coverage under the Business Income or Civil

Authority provisions, the Virus Exclusion would still prevent recovery.” See Whiskey Flats Inc.

v. Axis Ins. Co., No. 20-cv-3451, 2021 WL 534471, at *4 (E.D. Pa. Feb. 12, 2021).

E. Whether Plaintiff’s Reasonable Expectations Supersede the Policy’s Terms

Finally, the Court addresses Plaintiff’s contention that, even if the Policy’s terms

preclude relief, the Court should apply Pennsylvania’s reasonable expectation doctrine to deny

Defendant’s motion to dismiss. “Under Pennsylvania law, in ‘very limited circumstances,’ the

insured’s reasonable expectations may prevail over the clear and unambiguous terms of the

contract.” See Paul Glat MD, P.C., 2021 WL 1210000, at *2 (quoting Madison Const. Co., 735

A.2d at 109). The doctrine is “intended to protect against the inherent danger, created by the

nature of the insurance industry, that an insurer will agree to certain coverage when receiving the

10 In a related argument, Plaintiff submits that Defendant has taken an inconsistent position by

including a Virus Exclusion in the Policy, only to now assert that a virus can never cause “direct

physical loss of or damage to” property. (Doc. No. 20-1 at 18-19.) According to Plaintiff, “[i]f

Defendant truly believed that a virus could not cause direct physical loss, there would be no

reason for the virus exclusion to be included in the Policy and Defendant would simply rely on

allegations that plaintiff could not show the virus caused a loss under the policy.” (Id. at 19.) As

to this argument, neither Defendant nor the myriad courts that have addressed similar claims

posit that a virus can never cause physical loss or damage. It is Defendant’s contention that, in

this particular case, Plaintiff has not plausibly alleged that COVID-19 damaged or rendered

unusable the Covered Property, and the Court agrees.

insured’s application, and then unilaterally change those terms when it later issues a policy.” See

UPMC Health Sys., 391 F.3d at 502 (citing Tonkovic v. State Farm Mut. Auto. Ins. Co., 521

A.2d 920 (Pa. 1987)). To invoke the doctrine, the insured must plead “some affirmative action

by the insurer or its agent that changed the coverage the insured purchased.” See Paul Glat MD,

P.C., 2021 WL 1210000, at *2.

In relying on the reasonable expectations doctrine, Plaintiff rehashes its contentions that

the Policy is ambiguous, that the Policy should be construed in its favor, and that Plaintiff

expected that its alleged losses would be covered. However, “mere assertions that a party

expected coverage will not ordinarily defeat unambiguous policy language excluding coverage.”

See Matcon Diamond, Inc. v. Penn Nat. Ins. Co., 815 A.2d 1109, 1114-15 (Pa. Super. 2003).

Although “an insurer may not make unilateral changes to an insurance policy unless it both

notifies the policyholder of the changes and ensures that the policyholder understands their

significance,” see Bensalem Twp. v. Int’l Surplus Lines Ins. Co., 38 F.3d 1303, 1311 (3d Cir.

1994), Plaintiff does not allege that Defendant unilaterally altered the policy, see Paul Glat MD,

P.C., 2021 WL 1210000, at *8 (rejecting application of the reasonable expectations doctrine

where the plaintiff did not allege that the insurer had “deceived it or unilaterally changed the

policy” or “wrote coverage different from what [Plaintiff] had requested”). Because the

unambiguous terms of the Policy preclude coverage—and given that Plaintiff’s mere expectation

that its alleged losses are covered does not warrant application of the reasonable expectations

doctrine—Plaintiff’s arguments on this score are unavailing.

F. Leave to Amend

The Third Circuit has “instructed that if a complaint is vulnerable to 12(b)(6) dismissal, a

district court must permit a curative amendment, unless an amendment would be inequitable or

futile.” See Phillips, 515 F.3d at 236 (citing Grayson v. Mayview State Hosp., 293 F.3d 103,

108 (3d Cir. 2002)). “An amendment is futile if the amended complaint would not survive a

motion to dismiss for failure to state a claim upon which relief could be granted.” Alvin v.

Suzuki, 227 F.3d 107, 121 (3d Cir. 2000) (citing Smith v. NCAA, 139 F.3d 180, 190 (3d Cir.

1998), rev’d on other grounds, 525 U.S. 459 (1999)). Here, Plaintiff has already filed an

amended complaint in response to Defendant’s motion to dismiss the original complaint, and the

allegations in neither of Plaintiff’s pleadings are capable of establishing prima facie claims for

relief under the Policy. Given that the clear import of Plaintiff’s non-conclusory allegations is

that it seeks to recover for intangible harms unrelated to the physical form of the Covered

Property, the Court finds that permitting further amendment would be futile. Simply put,

Plaintiff does not appear to have any plausible, factual basis upon which to invoke the Policy’s

coverage.

IV. CONCLUSION

For the foregoing reasons, the Court will grant Defendant’s motion to dismiss (Doc. No.

16) and dismiss this action with prejudice. An appropriate Order follows.