Abington Kids Creative Learning Center, Inc. v. Utica National Insurance Group

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF PENNSYLVANIA

ABINGTON KIDS CREATIVE

LEARNING CENTER, INC., CIVIL ACTION NO. 3:22-CV-01095

Plaintiff,

(MEHALCHICK, M.J.)

v.

UTICA NATIONAL INSURANCE

GROUP, et al.,

Defendants.

MEMORANDUM

Pending before the Court is a motion to dismiss the complaint filed by Defendants

Utica National Insurance Group, Utica National Assurance Company, Utica Mutual

Insurance Company, and Republic-Franklin Insurance Company (collectively,

“Defendants”). (Doc. 3). Plaintiff Abington Kids Creative Learning Center, Inc. (“Abington

Kids”) initiated this lawsuit against Defendants for breach of the “all-risk” insurance policy

(the “Policy”), alleging that the Policy provides coverage for the losses it incurred as a result

of the government’s actions in response to the COVID-19 pandemic. (Doc. 1-2, at 38).

Defendants now move to dismiss the complaint for failure to state a claim upon which relief

may be granted. (Doc. 3). For the following reasons, Defendants’ motion to dismiss will be

GRANTED.

I. BACKGROUND AND PROCEDURAL HISTORY

On March 14, 2022, Abington Kids commenced this action by filing a praecipe for

writ of summons in the Court of Common Pleas of Lackawanna County against Defendants.1

(Doc. 1-2, at 30). Abington Kids is a Pennsylvania-based corporation that operates a childcare

center in Lackawanna County. (Doc. 1-2, ¶ 1). Defendants are New York and Ohio-based

insurance companies operating within the Utica trade group. (Doc. 1-2, ¶¶ 2-6).

On June 23, 2022, Abington Kids filed the complaint in the Court of Common Pleas

of Lackawanna County, asserting declaratory judgment and breach of contract claims against

Defendants. (Doc. 1-2, at 35-58). In the complaint, Abington Kids contends it purchased the

Policy for the policy period of February 12, 2020, to February 12, 2021. (Doc. 1-2, ¶ 13). In

addition, Abington Kids claims the Policy was issued by Republic-Franklin. (Doc. 1-2, at 62).

Abington Kids claims that it has suffered “substantial lost revenues” as a result of various

governmental orders (the “Orders”) issued in response to the COVID-19 virus, which forced

it to furlough or lay off its employees. (Doc. 1-2 at 44). Abington Kids states that there is no

evidence that the COVID-19 virus was present within its premises when it closed its business

and claims that the cause of its loss of the use of its business was due to business closure and

stay at home Orders issued in the Commonwealth. (Doc. 1-2, ¶¶ 62-63). The complaint also

asserts breach of contract claims against Defendants for “denying coverage for any business

losses incurred by [Abington Kids] in connection with the closure Orders and the COVID-19

1 Initially, Abington Kids also named Northeast Insurance as an additional defendant

to this action. (Doc. 1-2). However, on August 19, 2022, Abington Kids filed a stipulation of

dismissal, notifying the Court that its claims against Northeast Insurance only are dismissed.

(Doc. 22). On August 23, 2022, the Court approved the stipulation of dismissal, terminating

Northeast Insurance from this action and rendering Northeast Insurance’s motion to dismiss

moot. (Doc. 23).

pandemic.” (Doc. 1-2, at 46, 48, 51, 54, 57). Based on the foregoing, the complaint seeks

declarations that (1) Abington Kids’ losses are “insured losses under the Policy;” and (2)

Defendants are “obligated to pay [Abington Kids] for the full amount of the losses incurred

and to be incurred in connection with the covered business losses related to the closure

Orders.” (Doc. 1-2, at 44, 47, 50, 52, 55).

On July 13, 2022, Defendants removed this action to the United States District Court

for the Middle District of Pennsylvania pursuant to 28 U.S.C. § 1332 and 28 U.S.C. § 1441(a).

(Doc. 1). On July 20, 2022, Defendants filed the motion to dismiss, as well as a

“memorandum of law” and request for oral argument on the motion to dismiss. (Doc. 3; Doc.

4; Doc. 6). On July 21, 2022, Defendants filed a brief in support of the motion to dismiss.

(Doc. 7). On August 12, 2022, Abington Kids filed a brief in opposition to Defendants’ motion

to dismiss. (Doc. 18). On August 26, 2022, Defendants filed a reply brief to the motion to

dismiss. (Doc. 26).

The Court conducted oral argument concerning the pending motion to dismiss on

September 14, 2022. (Doc. 28). At oral argument, Abington Kids made an oral motion for a

stay of proceedings pending resolution of related litigation in the Third Circuit Court of

Appeals and Pennsylvania state courts. (Doc. 28). Defendants opposed Abington Kids’ oral

motion for a stay and presented arguments in support of their position during the oral

argument. (Doc. 28). Defendants’ motion to dismiss and Abington Kids’ motion for a stay

are now ripe for disposition.

II. LEGAL STANDARDS

Rule 12(b)(6) authorizes a defendant to move to dismiss for “failure to state a claim

upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). To assess the sufficiency of a

complaint on a Rule 12(b)(6) motion, a court must first take note of the elements a plaintiff

must plead to state a claim, then identify mere conclusions which are not entitled to the

assumption of truth, and finally determine whether the complaint’s factual allegations, taken

as true, could plausibly satisfy the elements of the legal claim. Burtch v. Milberg Factors, Inc.,

662 F.3d 212, 221 (3d Cir. 2011). In deciding a Rule 12(b)(6) motion, the court may consider

the facts alleged on the face of the complaint, as well as “documents incorporated into the

complaint by reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v.

Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).

After recognizing the required elements which make up the legal claim, a court should

“begin by identifying pleadings that, because they are no more than conclusions, are not

entitled to the assumption of truth.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). The plaintiff

must provide some factual ground for relief, which “requires more than labels and

conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell

Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). “[T]hreadbare recitals of the elements of

a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S.

at 678. Thus, courts “need not credit a complaint’s ‘bald assertions’ or ‘legal

conclusions…’” Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (quoting In

re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429-30 (3d Cir. 1997)). The court also

need not assume that a plaintiff can prove facts that the plaintiff has not alleged. Associated

Gen. Contractors of Cal. v. Cal. St. Council of Carpenters, 459 U.S. 519, 526 (1983).

A court must then determine whether the well-pleaded factual allegations give rise to

a plausible claim for relief. “A claim has facial plausibility when the plaintiff pleads factual

content that allows the court to draw the reasonable inference that the defendant is liable for

the misconduct alleged.” Palakovic v. Wetzel, 854 F.3d 209, 219-20 (3d Cir. 2017) (quoting

Iqbal, 556 U.S. at 678) (internal quotation marks omitted); see also Sheridan v. NGK Metals

Corp., 609 F.3d 239, 262 n.27 (3d Cir. 2010). The court must accept as true all allegations in

the complaint, and any reasonable inferences that can be drawn therefrom are to be construed

in the light most favorable to the plaintiff. Jordan v. Fox, Rothschild, O’Brien & Frankel, 20 F.3d

1250, 1261 (3d Cir. 1994). This “presumption of truth attaches only to those allegations for

which there is sufficient factual matter to render them plausible on their face.” Schuchardt v.

President of the U.S., 839 F.3d 336, 347 (3d Cir. 2016) (internal quotation and citation omitted).

The plausibility determination is context-specific and does not impose a heightened pleading

requirement. Schuchardt, 839 F.3d at 347.

III. DISCUSSION

A. ABINGTON KIDS’ MOTION TO STAY

During oral argument, Abington Kids made an oral motion to stay this matter pending

the resolution of several other cases in the Third Circuit and Pennsylvania state courts. The

central issue raised by Abington Kids is whether the pending related litigation in the Third

Circuit and Pennsylvania state courts warrants staying this litigation. Abington Kids assert

granting a stay would promote judicial economy as resolution of the related litigation will

resolve the questions of law raised in the instant lawsuit. Defendants oppose the issuance of

a stay and assert that there has been substantial consistency in judgment in state and federal

courts throughout Pennsylvania and the United States to address the motion to dismiss at this

time.

District courts have broad power to stay proceedings. Locke v. Wetzel, 2020 WL 5506435, at

*2 (M.D. Pa. 2020); citing Bechtel Corp. v. Local 215, Laborers’ Int'l Union, 544 F.2d 1207, 1215

(3d Cir. 1976). This power to stay proceedings “is incidental to the power inherent in every

court to control the disposition of the causes on its docket with economy of time and effort

for itself, for counsel and for litigants.” Landis v. North American Co., 299 U.S. 248, 254–55

(1936)). A district court may “hold one lawsuit in abeyance to abide the outcome of another

which may substantially affect it or be dispositive of the issues” particularly where the other

case is proceeding in another federal court. Locke, 2020 WL 5506435, at *2; quoting Bechtel,

544 F.2d at 1215; see Miccosukee Tribe of Indians of Florida v. South Florida Water Mgmt. Dist.,

559 F.3d 1191, 1196 (11th Cir. 2009) (holding appeals court lacked jurisdiction to hear appeal

from stay where district court, sua sponte, stayed proceedings pending an appeal in another

related federal case). The issues and the parties to the two causes need not be identical before

one suit may be stayed to abide the proceedings of another. See Landis, 299 U.S. at 254. A

district court must exercise its judgment in weighing the competing interests and maintaining

an even balance when staying a proceeding. Locke, supra; Cheyney State College Faculty v.

Hufstedler, 703 F.2d 732, 737–38 (3d Cir. 1983).

At the time of oral argument, pending before the Third Circuit was a set of

consolidated appeals in which insured businesses brought actions against commercial

property insurers, seeking to enforce coverage for losses during COVID-19 pandemic. Wilson

v. USI Ins. Serv. LLC, 57 F.4th 131 (3d Cir. 2023). Earlier this year, the Third Circuit affirmed

the District Courts’ holdings that insured business’ inability to use properties for their

intended business purposes caused by closure order did not constitute “physical loss of”

property, precluding coverage under business income, civil authority, and extra expense

provisions. Wilson, 57 F.4th at 147-48. The Court finds that a stay is not warranted, given that

there is now binding precedent in this circuit that facilitates the resolution of the issues before

the Court in this case, which is supported by both federal and state case law. Wilson, 57 F.4th

at 147-48; see Picone, 2022 WL 1537351; 44 Hummelstown Assocs., 542 F. Supp. 3d at 341; Body

Physics v. Nationwide Ins., 524 F.Supp.3d 372 (D.N.J. 2021); State St. Rest. Grp. v. Cincinnati

Cas. Co., Civ. No. 3:20-CV-816, 2021 WL 7967680 (M.D. Pa. Nov. 15, 2021); Boscov’s Dep’t

Store, Inc. v. Am. Guarantee & Liab. Ins. Co., 546 F. Supp. 3d 354, 366 (E.D. Pa. 2021).

Accordingly, Abington Kids’ motion to stay is DENIED.

B. DEFENDANTS’ MOTION TO DISMISS

Defendants move to dismiss the complaint for failure to state a claim pursuant to

Federal Rule of Civil Procedure 12(b)(6).2 (Doc. 3; Doc. 7, at 13). Defendants submit two

reasons as to why the Court should dismiss the complaint: (1) the Policy contains a virus

exclusion, which excludes from coverage loss or damage caused by or resulting from “any

virus . . . that induces or is capable of inducing physical distress, illness or disease;” and (2)

Abington Kids’ alleged reduction in income due to COVID-19 Orders is not covered by the

Policy because its losses were not “caused by direct physical loss of or damage to property”

at its premises. (Doc. 7, at 14-15). In opposition, Abington Kids claims the complaint alleges

sufficient facts to support its claims of declaratory judgment and breach of contract claims

against them. (Doc. 18, at 3). Specifically, Abington Kids states the Policy’s virus exclusion

is inapplicable because its losses are due to the Orders, not the COVID-19 virus, and the virus

2 In addition, Defendants argue that Utica National Insurance Group, Utica National

Assurance Group, and Utica Mutual Insurance Group should be dismissed from this action

because they are not parties to the Policy and, therefore, cannot be held liable for the

purported breach of its terms. (Doc. 7, at 15-16). In opposition, Abington Kids argues

discovery is needed to ascertain the relationship between the parties. For the reasons discussed

infra, the Court finds that Abington Kids has failed to allege in its complaint a claim upon

which any relief can be granted against any of the named defendants. Therefore, the Court

declines to address the merits of this issue.

exclusion does not contain language excluding coverage due to a concurrent cause. (Doc. 18,

at 5-10). In addition, Abington Kids asserts the complaint otherwise alleges facts that would

entitle it to recovery under the Policy’s business income and extra expense coverage

provisions because Abington Kids sufficiently alleges direct physical loss of or damage to its

property during a period of restoration. (Doc. 18, at 10-15).

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 State

Farm Fire & Cas. Co., 589 F.3d at 111. 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 Med. Protective

Co., 198 F.3d at 103 (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

(1996), aff'd, 735 A.2d 100 (1999).

1. The Policy’s virus exclusion unambiguously excludes coverage for all loss

caused by or resulting from COVID-19.

As a threshold matter, each of the claims require that Abington Kids is entitled to

coverage under the Policy. See Jugan v. Econ. Premier Assurance Co., 728 F. App’x 86, 90 (3dCir.

2018) (“Pennsylvania law places the initial burden of establishing the existence of insurance

coverage on the insured.”) Defendants argue that Abington Kids cannot overcome this

threshold issue because the Policy “unambiguously excludes from coverage all loss caused by

or resulting a virus.” (Doc. 7, at 8). In relevant part, the Policy contains an endorsement, titled

“Exclusion of Loss Due to Virus or Bacteria” (the “Virus Exclusion”), that excludes coverage

for all “loss or damage caused by or resulting from any virus, bacterium or other

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

(Doc. 7-1, at 129). The Virus Exclusion expressly applies, but is not limited to, the sections of

the Policy invoked by the complaint, including “all coverage under Section I – Property,” and

“forms or endorsements that cover property damage to buildings or personal property and

forms or endorsements that cover business income, extra expense or action of civil authority.”

(Doc. 1-2, at 38; Doc. 7-1, at 129).

Defendants contend “a loss resulting from the response to the virus is unequivocally a

loss ‘caused by or resulting from’ the virus. This is the only reasonable application of the plain

and ordinary meaning of the terms of the Policy to the facts alleged.” (Doc. 7, at 21).

Defendants argue that Abington Kids’ allegations that its losses were caused by actions taken

to comply with the Orders issued in response to COVID-19, not the virus itself, is not

sufficient to avoid the application of the Virus Exclusion. (Doc. 7-1, at 22). In opposition,

Abington Kids contends Defendants “overly broad” reading renders the Virus Exclusion

ambiguous and thus, should be construed in its favor. (Doc. 18, at 6-7).

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

parties’ arguments, and the applicable law, the Court finds that Abington Kids has failed to

allege a plausible claim to coverage under the Policy. In doing so, the Court joins the scores

of courts that have considered identical exclusions in insurance policies and have concluded

that these exclusions are “unambiguous and clearly applicable ‘to COVID-19, which is caused

by a coronavirus that causes physical illness and distress.’” Picone, 2022 WL 1537351, at *6

(quoting Body Physics, 524 F.Supp.3d at 380); see 44 Hummelstown Associates, 542 F.Supp.3d at

340 (dismissing a claim for a declaration of coverage 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); Kahn, 517 F.Supp.3d at 321–23

(same); 1 S.A.N.T., Inc. v. Berkshire Hathaway, Inc., 513 F.Supp.3d 623 (W.D. Pa. 2021) (same);

ATCM Optical, Inc. v. Twin City Fire Ins. Co., 513 F.Supp.3d 513 (E.D. Pa. 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).

First, the Virus Exclusion unambiguously provides that that Defendants will not cover

any loss caused by or resulting from “any virus . . . or other microorganism that induces or is

capable of inducing physical distress, illness, or disease.” (Doc. 7-1, at 129); see 44

Hummelstown Associates, 542 F.Supp.3d at 340. Here, Abington Kids fails to specify any

ambiguities in the language of the Virus Exclusion; rather, it argues Defendants’ enforcement

of the Virus Exclusion renders the language ambiguous because Abington Kids’ losses were

caused by the closure Orders, not the virus. (Doc. 18, at 7). Indeed, Abington Kids concede

in the complaint that COVID-19 is a “virus” that caused a “pandemic.” (Doc. 7-1, at 21).

Notably, the Virus Exclusion does not suggest that the virus must be present at the insured

property for the exclusion to apply. See (Doc. 7-1, at 129). “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., 499 F.Supp.3d 95, 100 (E.D. Pa. 2020); see also Lansdale

329 Prop, LLC v. Hartford Underwriters Ins. Co., No. 20-CV-2034, 537 F.Supp.3d 780, 794–95

(E.D. Pa. Apr. 28, 2021). Thus, any claim that the loss or damage was caused by COVID-19

is plainly barred by the Virus Exclusion. See Picone, 2022 WL 1537351, at *6 (rejecting

plaintiff’s argument that its losses of business income and extra expenses were both a result

of COVID-19 itself and the Governor's closure orders).

Next, courts in the Third Circuit have held that a claim of loss due to governmental

civil authority orders “cannot circumvent the Virus Exclusion, as the closure orders were

issued ‘to stop the spread of the virus,’ and thus fall under the exclusion.” Picone, 2022 WL

1537351, at *6 (citing Big Red Management Corp. v. Zurich American Ins. Co., 579 F.Supp.3d 665,

671 (E.D. Pa. 2022)); see Frank Van's Auto Tag, LLC v. Selective Ins. Co. of the Se., 516 F.Supp.3d

450, 460 (E.D. Pa. 2021) (“[T]he plain text of the provision bars coverage for loss or damage

caused ‘indirectly’ by any virus . . . . [T]he March 2020 Closure Orders were issued with the

plan to stem the spread of COVID-19”). Abington Kids claims that its covered business losses

are a result of the Orders. (Doc. 1-2, at 43-44). However, Abington Kids concedes the Orders

were issued “in response to [the COVID-19] pandemic.” (Doc. 7-1, at 21). As the Orders were

issued to stop the spread of the COVID-19 virus, Abington Kids cannot circumvent the Virus

Exclusion. See Picone, 2022 WL 1537351, at *6. 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.” 44 Hummelstown Assocs., 542 F. Supp. 3d at 341

(quoting Whiskey Flats Inc. v. Axis Ins. Co., No. 20-cv-3451, 519 F.Supp.3d 231, 237, (E.D. Pa.

Feb. 12, 2021)).

Accordingly, the Court finds that Abington Kids’ claims for business income, extended

business income, and extra expense are barred under the Virus Exclusion. See Picone, 2022

WL 1537351, at *6; 44 Hummelstown Assocs., 542 F. Supp. 3d at 341.

2. The Policy unambiguously requires direct physical loss, which the

COVID-19 virus does not cause.

Next, Defendants argue that, even if the virus exclusion is unenforceable or

inapplicable, Abington Kids’ claims for business income, extended business income, and

extra expense coverage also fails because Abington Kids’ loss of income was not caused by

“direct physical loss of or damage to property” at its childcare center. (Doc. 7, at 24).

In relevant part, the Policy provides Business Income coverage for “the actual loss of

Business Income you sustain due to the necessary suspension of your ‘operations’ during the

‘period of restoration.’” (Doc. 7-1, at 32). Second, the Policy provides Extended Business

Income coverage for “the actual loss of Business Income” incurred “during the period that . . .

[b]egins on the date property except finished stock is actually repaired, rebuilt or replaced and

‘operations’ are resumed.” (Doc. 7-1, at 32). The coverage ends on the earlier of:

i. The date you could restore your “operations”, with reasonable speed, to the level

which would generate the Business Income amount that would have existed if no

direct physical loss or damage had occurred; or

ii. 30 consecutive days after the date determined in Paragraph (a)(i) above.

(Doc. 7-1, at 32).

The Extended Business Income coverage does not apply to: “loss of Business Income incurred

as a result of unfavorable business conditions caused by the impact of the Covered Cause of

Loss in the area where the described premises are located. (Doc. 7-1, at 33). Third, the Policy

provides Extra Expense coverage for necessary expenses incurred “during the ‘period of

restoration’ that you would not have incurred if there had been no direct physical loss or

damage to property” caused by or resulting from a covered cause of loss. (Doc. 7-1, at 33).

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

Extended Business Income, and Extra Expense coverage provisions, Abington Kids must

plausibly allege that it suffered “physical loss or damage at the described premises caused by

or resulting from any Covered Cause of Loss.” (Doc. 7-1, at 32-33). For Business Income

coverage, the “period of restoration” begins 72 hours after the time of direct physical loss or

damage” and ends on the earlier of the date when “property at the described premises should

be repaired, rebuilt or replaced with reasonable speed and similar quality; or . . . [t]he date

when business is resumed at a new permanent location.” (Doc. 7-1, at 54-55). For Extra

Expense coverage, the “period of restoration” begins “[i]mmediately after the time of direct

physical loss or damage” and is otherwise defined as for Business Income. (Doc. 7-1, at 54).

Defendants argue Abington Kids has failed to allege any direct physical loss or damage

to its childcare center or that such direct physical loss or damage caused Plaintiff to suspend

operations or incur any additional expense. (Doc. 7, at 26). Rather, Abington Kids has alleged

only a “loss of use of its business” as a result of the orders, which Defendants aver does not

constitute “direct physical loss or damage” for triggering coverage. (Doc. 7, at 25). In

opposition, Abington Kids argues that the motion to dismiss must be denied because whether

it has sufficiently alleged “physical loss or damage” to its property presents a question of fact,

not a legal issue that can be decided at this early stage. (Doc. 18, at 10). Finally, Abington

Kids states that it has sufficiently alleged direct physical loss of or damage to its property

because its complaint alleges that it was both required to close its business as a result of the

orders and cease operations which has caused significant financial losses. (Doc. 18, at 13-14).

Before considering whether Abington Kids' allegations state a plausible claim for

coverage, the Court must determine whether the relevant terms of the Policy are clear and

unambiguous. See 44 Hummelstown Assocs., 542 F. Supp. 3d at 336 (citing Ready Food Prods.,

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

of whether a writing is ‘ambiguous’ necessarily lies with the court”)). 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, 5

A.3d at 336-37 (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., 513 F.Supp.3d at 629, 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.

Here, Abington Kids argues Defendants’ failure to define any of the terms "direct,"

"physical," "loss," or "damage,” renders the terms ambiguous, and thus should be construed

in favor of Abington Kids. (Doc. 18, at 11). Abington Kids’ attempt to inject ambiguity into

the Policy is unavailing. As the Court previously explained:

“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). Considering

these terms in context, the Court agrees with Plaintiff that the phrase “direct

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, 516 F.Supp.3d 450, 456–57, (E.D. Pa. Jan. 28, 2021);

see also, e.g., Kahn, 517 F.Supp.3d at 321–23.

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, 539

F.Supp.3d 409, 417, (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, ––– F.Supp.3d at ––––, 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, 516 F.Supp.3d at 456–57.

44 Hummelstown Assocs., 542 F.Supp.3d at 337.

In Picone, the Court denied coverage because the plaintiff failed to demonstrate

sufficient physical loss or damage to trigger the civil authority provision of the insurance

policy. 2022 WL 1537351, at *7. The Court rejected plaintiff’s argument that because the

words “loss” and “danger” are not defined in the policy, they were therefore ambiguous.

Picone, 2022 WL 1537351, at *7. The Court explained: “The Third Circuit has held that

physical damage to a property means “a distinct, demonstrable, and physical alteration” of

its structure such that “its function is nearly eliminated or the structure is made useless or

uninhabitable.” Picone, 2022 WL 1537351, at *4 (quoting Port Auth. of New York & New Jersey

v. Affiliated FM Ins. Co., 311 F.3d 226, 235 (3d Cir. 2002)). Further, the Court explained that

even where “physical loss” is not defined in the Policy, this does not render the term

ambiguous. Picone, 2022 WL 1537351, at *4 (quoting Kahn, 517 F.Supp.3d at 322). The Court

also found in the context of insurance claims following COVID-19 closures, the presence of

COVID-19 does not constitute physical loss or damage for purposes of insurance policies.

Picone, 2022 WL 1537351, at *5; see e.g., 44 Hummelstown Assocs., LLC, at 328 (denying the

plaintiff's claim for business income and extra expense losses because “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’”).

Most recently, in Wilson v. USI Ins. Serv. LLC, the Third Circuit Court of Appeals held

insured businesses’ inability to use property for their intended purpose caused by government

edict did not constitute “physical loss of” property, precluding coverage under business

income and extra expense provisions. 57 F.4th 131, 143-47 (3d Cir. 2023). The Third Circuit

concluded that insured businesses were not entitled to coverage under civil authority

provisions, explaining:

No business alleged that a property other than the insured premises was

damaged or suffered a physical loss or that an action of a civil authority

prohibited access to the insured premises because of loss or damage to another

property. Indeed, the closure orders were issued not in response to property loss

or damage but to mitigate health risks to the public and slow the spread of

COVID-19 by limiting person-to-person exposure. Even more fundamentally,

the closure orders did not prohibit access to the businesses' properties. The

businesses remained physically accessible; the closure orders merely prohibited

certain uses of the buildings. See Philadelphia Parking Auth. v. Fed. Ins. Co., 385

F. Supp. 2d 280, 289 (S.D.N.Y. 2005) (applying Pennsylvania law) (finding no

civil authority coverage where the civil authority grounded airplanes, which

“may have temporarily obviated the need for Plaintiff's parking services” but

“did not prohibit access to Plaintiff's garages and therefore c[ould] not be used

to invoke coverage under Plaintiff's [insurance] policy”); see also S. Hosp., Inc. v.

Zurich Am. Ins. Co., 393 F.3d 1137, 1141 (10th Cir. 2004) (“We hold that the

civil authority provision does not apply because the FAA's order grounding

flights did not itself prevent, bar, or hinder access to Southern Hospitality's

hotels in a manner contemplated by the policies.”).

Wilson, 57 F.4th at 147.

Here, Abington Kids claims that its covered losses were due to the Orders issued in

response to the COVID-19 virus, not the virus itself. (Doc. 1-2, at 44). However, like the

complaint in Picone and Wilson, the complaint does not allege that any part of the physical

structure of the premise was damaged or lost. Instead, the complaint only claims losses of

business and financial losses, not property. (Doc. 1-2, at 44). Applying the unambiguous terms

of the Policy to Abington Kids’ allegations, the Court finds that Abington Kids has failed to

state a plausible claim for coverage under the Business Income, Extended Business Income,

and Extra Expense provisions. See 44 Hummelstown Assocs., 542 F.Supp.3d at 337-38; Wilson,

57 F.4th at 144. Abington Kids’ allegations simply do not support its claims that the COVID-

19 virus and resulting Orders caused “direct physical loss of or damage to” the covered

premises. See Picone, 2022 WL 1537351, at *5; 44 Hummelstown Assocs., 542 F.Supp.3d at 337-

38; Wilson, 57 F.4th at 144. As physical damage or loss to the covered property stands as a

firm prerequisite for direct loss coverage under this policy language, the Courts concludes that

such coverage was never triggered. In short, none of the allegations in the complaint plausibly

support Abington Kids’ contention that COVID-19 and the Orders “h[ad] something to do

with the physical condition of the premises.” See Moody v. Hartford Fin. Grp., Inc., 513 F.Supp.3d

496, 505 (E.D. Pa. 2021) (emphasis added). Furthermore, although the policy was labeled as

“all-risk,” the Court notes that “‘all risks’ does not mean ‘every risk’ . . . ‘[a] loss which does

not properly fall within the coverage clause cannot be regarded as covered thereby merely

because it is not within any of the specific exceptions.’” Picone, 2022 WL 1537351, at *5

(quoting Port Auth., 311 F.3d at 233-34 (quoting 10 Couch on Insurance § 148:48 (3d ed.

1998))).

Accordingly, Abington Kids’ claims are dismissed.

C. LEAVE FOR 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 v. Cty. of Allegheny, 515 F.3d 224, 236 (3d Cir. 2008)

(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.” 44 Hummelstown Assocs., 542 F. Supp. 3d at 342

(quoting Alvin v. Suzuki, 227 F.3d 107, 121 (3d Cir. 2000)). Here, the none of the allegations

in Abington Kids’ pleadings are capable of establishing a prima facie case for relief under the

Policy. Given the clear applicability of the Virus Exclusion to the covered losses and that it

seeks to recover for intangible harms unrelated to the physical form of the covered

property, Abington Kids does not appear to have any plausible, factual basis upon which to

invoke the Policy's coverage. Thus, the Court finds that permitting further amendment would

be futile. See 44 Hummelstown Assocs., 542 F.Supp.3d at 342 (denying leave to amend where

complaint failed to establish prima facie claims for relief under insurance policy because

plaintiff sought recovery for intangible harms unrelated to physical form of covered property).

IV. CONCLUSION

For the foregoing reasons, Defendants’ motion to dismiss is GRANTED. (Doc. 3).

The claims against Defendants are DISMISSED WITH PREJUDICE and the Clerk of Court

is directed to CLOSE this action. An appropriate Order follows.

BY THE COURT:

Dated: March 16, 2023 s/ Karoline Mehalchick

KAROLINE MEHALCHICK

Chief United States Magistrate Judge