BRANDYWINE VALLEY PREMIER HOSPITALITY GROUP v. FIREMANSS FUND INSURANCE COMPANY

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

BRANDYWINE VALLEY PREMIER :

HOSPITALITY GROUP “a : CIVIL ACTION

CONCORDVILLE INN & MENDENALL - :

INN, :

Plaintiff :

□□ :

FIREMAN’S FUND INSURANCE :

COMPANY, : No, 22-2221

Defendant :

MEMORANDUM

PRATTER, J. Auaust 7, 2023

“A chair is still a chair, even when there’s no one sitting there.”! The same can be said for

restaurants and hotels—their physical structures remains unchanged even if, for one reason or

another, patrons are not permitted inside. That principle lies at the foundation of a substantial body

of caselaw in the Third Circuit, in which businesses filed lawsuits against their insurers to enforce

coverage for losses sustained as a result of pandemic-related government closure orders.

After sustaining economic losses due to the COVID-19 pandemic, Brandywine Valley

Premier Hospitality Group initiated a lawsuit seeking recovery under the business insurance policy

it purchased from Fireman’s Fund Insurance Company, following which the insurance company

moved to dismiss Brandy wine’s Amended Complaint pursuant to Federal Rule of Civil Procedure

12(b)(6). The law in the Third Circuit has established that businesses like Brandywine cannot

receive coverage for pandemic-related economic losses because they are not caused by “direct

physical loss of or damage to” the insured property, Therefore, the Court grants Fireman’s Fund

Dionne Warwick, A House Js Not a Home, on Make Way for Dionne Warwick (Scepter 1964),

Insurance Company’s motion and dismisses Brandywine’s Amended Complaint with prejudice for

the reasons discussed below.

BACKGROUND

Brandywine Valley Premier Hospitality Group owns inn and restaurant businesses.

Brandywine, an unincorporated entity with a principal place of business in Pennsylvania,

purchased a commercial property insurance policy (the “Policy”) from Fireman’s Fund Insurance

Company (“FFIC”), an Ilinois-based company. The policy insured Brandywine’s buildings and

business personal property from February 7, 2020 to February 7, 2021. Brandywine did not

participate in negotiating or drafting the policy.

The FFIC policy includes a Business Income and Extra Expense Coverage provision that

covers losses and expenses incurred “due to the necessary suspension of .. . operations during the

period of restoration arising from direct physical loss or damage to property at a location.” Ex. A

to Mot. to Dismiss (“Policy”) § ILA. The policy also provides Civil Authority Coverage for

expenses sustained when access to the insured location is impaired due to “direct physical loss or

damage to property other than” the insured property. Jd. § V.E.2(a)(1).

The FFIC policy defines a “covered cause of loss” as a “risk[] of direct physical loss or

damage” that is not otherwise excluded or limited. Jd § XIV.A.13. A “period of restoration” as

defined in the policy “begins immediately after the time of direct physical loss or damage caused

by or resulting from a covered cause of loss to property at the location and ends on the earlier of

.. . date when such property at the location should be repaired, rebuilt, or replaced with

reasonable speed and like kind and quality; or... [t]he date when business is resumed at a new

permanent location.” Jd. § XTV.A.50.

The policy additionally has a Communicable Disease Coverage provision, in which FFIC

states that it “will pay for a direct physical loss or damage to Property Insured caused by or

resulting from a covered communicable disease event at [an insured] location.” Jd. § V.F.1.a(1).

There is a loss of use exclusion in the Policy, which sets forth that FFIC “will not pay...

for any loss, damage, or expense caused directly or indirectly by .... loss of use, loss of market,

loss of occupancy .. . for] [a]ny other consequential, indirect, or remote loss of any kind.” Id.

§IV.A.1.c. The FFIC policy also limits when a policyholder can take legal action to instances

where “[t]here has been full compliance with all of the terms of th[e] Policy” and “[t]he legal

action is brought within 2 years after the date upon which the direct physical loss or damage

occurred.” Jd. § XUILM.

In March 2020, local and state authorities ordered that non-essential businesses, like

Brandywine’s, be closed to curb the spread of COVID-19, The closure of the businesses continued

through the pandemic. Brandywine’s business operations ceased as a result of these orders, and it

sustained a loss of business income and incurred additional expenses in maintaining its business

location, Brandywine alleges that there was and continues to be a suspected presence of the virus

at its property.

Brandy wine submitted a claim under the policy for coverage of economic losses and extra

expenses. Around May 6, 2020, FFIC denied the claim. Brandywine filed suit in the Philadelphia

Court of Common Pleas, and FFIC subsequently removed the action to this Court, invoking

diversity jurisdiction under 28 U.S.C. §§ 1332 and 1441{b). In its Amended Complaint,

Brandywine asserts two claims: breach of contract and duty of good faith and fair dealing (Count

I) and bad faith violation of 42 Pa. Cons. Stat. § 8371 (Count II),

FFIC then filed a motion to dismiss the Amended Complaint under Federal Rule of Civil

Procedure 12(b)(6), to which Brandywine filed a response. The Court heard oral argument on the

present motion. Thus, the motion to dismiss is ripe for disposition,

LEGAL STANDARDS

I, Motion to Dismiss

A defendant may move to dismiss a complaint for “failure to state a claim upon which

relief can be granted.” Fed. R. Civ. P. 12(b)(6). A plaintiff's complaint must set out “a legally

cognizable right of action” and “enough facts” to make that cause of action “plausible on its face.”

Bell Atl. Corp. v. Twombly, 550 U.S, 544, 555, 570 (2007). On a motion to dismiss for failure to

state a claim, the Court takes all well-pleaded facts as true and draws all inferences in the light

most favorable to the plaintiff. Mayer v. Belichick, 605 F.3d 223, 229 (3d Cir. 2010). The Court

need not, however, credit “threadbare recitals of the elements of a cause of action, legal

conclusions, and conclusory statements” set forth in the complaint. James vy. City of Wilkes-Barre,

700 F.3d 675, 681 (3d Cir. 2012). In addition to the complaint, the Court may consider “exhibits

attached to the complaint, matters of public record,” and “undisputedly authentic documents” upon

which the claims rest, Mayer, 605 F.3d at 230, and documents “integral” to a complaint, like a

contract.” Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014).

After separating out well-pleaded factual allegations from legal conclusions, the Court

must determine whether “the plaintiff [has pled] factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556

U.S, 662, 678 (2009), Any “presumption of truth attaches only to those allegations for which there

is sufficient factual matter to render them plausible on [their] face.” Schuchard! v. President of the

U.S., 839 F.3d 336, 347 (3d Cir. 2016) (internal quotation marks omitted). “Determining whether

Although Brandywine did not include the Policy as an exhibit to its Amended Complaint, the Court

considers the Policy at length in ruling on FFIC’s motion to dismiss because the Policy is indisputably

integral to Brandywine’s claims.

a complaint states a plausible claim for relief will... be a context-specific task that requires the

reviewing court to draw on its judicial experience and common sense,” Jgbal, 556 U.S. at 679.

Il. Interpretation of Insurance Policies

When sitting in diversity, courts must apply state substantive law. Erie R. Co. v. Tompkins,

304 U.S. 64, 78 (1938). Absent a controlling decision by the Pennsylvania Supreme Court on this

issue, this Court must predict what the state court would do if presented with the plaintiff's claims.

Baptiste v. Bethlehem Landfill Co., 965 F.3d 214, 225 (3d Cir. 2020); see also Wilson v. USI Ins.

Sery, LLC, 57 F 4th 131, 138 (3d Cir. 2023).

“Interpretation of an insurance policy, and specifically whether a particular loss triggers

coverage, is a question of law.” Whiskey Flats Inc. v. Axis Ins. Co., 519 F. Supp. 3d 231, 235 (E.D.

Pa, 2021). In interpreting a policy under Pennsylvania law, the Court “ascertain[s| the intent of

the parties as manifested by the language of the written instrument.” Am. Auto. Ins. Co. v. Murray,

658 F.3d 311, 320 (3d Cir, 2011); see also 401 Fourth St, Inc. v. Invs. Ins, Grp., 879 A2d 166,

171 (Pa, 2005). “The policy must be read as a whole and construed in accordance with the plain

meaning of terms.” Am. Aufo. Ins,, 658 F.3d at 320. “Where the language of an insurance policy

is clear and unambiguous, a court must enforce that language.” Id. at 321, A term “is ambiguous

if it is reasonably susceptible of different constructions and capable of being understood in more

than one sense.” Hutchison v. Sunbeam Coal Corp., 519 A.2d 385, 390 (Pa. 1986). If a term is

ambiguous, the Court construes it “in favor of the insured,” 401 Fourth St., 879 A.2d at 171. Courts

determine whether language in policy provisions are ambiguous by considering such language “in

the-context of the entire policy,” Madison Constr. Co, y. Harleysville Mut. Ins. Co., 678 A.2d 802,

3 Because the parties do not dispute that Pennsylvania law applies, the Court does not engage in a

choice of law analysis.

805 (Pa. Super. Ct. 1996), and, where possible, “interpret the policy so as to avoid ambiguities and

give effect to all of its provisions.” 4m. Auto. Ins., 658 F.3d at 321,

“[A]n insured bears the initial burden to make a prima facie showing that a claim falls

within the policy’s grant of coverage, but 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.” State Farm Fire & Cas. Co. v. Est. of Mehiman, 589 F.3d 105,

111 (3d Cir, 2009), “[E]xclusions are always strictly construed against the insurer and in favor of

the insured.” Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197, 206-07 (3d Cir. 2001). If an

exclusion does apply, the burden shifts again to the insured to show an exception to that exclusion.

Wilson, 57 F 4th at 141,

DISCUSSION

FFIC moves to dismiss the complaint for failure to state a claim pursuant to Federal Rule

of Civil Procedure 12(b)(6). FFIC makes several arguments regarding why the Court should

dismiss Brandywine’s amended complaint with prejudice: (1) the breach of contract claim fails

without an allegation of direct physical loss or damage to property; (2) the requirements of a

“communicable disease event” have not been alleged; (3) even had direct physical loss or damage

been alleged, the loss of use exclusion would apply; (4) Brandywine’s suit is untimely under the

terms of the policy; (5) Brandywine’s allegations of breach of good faith and fair dealing and bad

faith must be dismissed because coverage does not exist; and (6) further amendment of the

amended complaint would be futile. In opposition, Brandywine asserts that (1) the Amended

Complaint sufficiently alleges that COVID-19 caused a direct physical loss of use of the property;

(2) it has pled facts that plausibly show coverage under the Communicable Disease Coverage in

the policy; (3) the loss of use exception is contrary to the reasonable expectations of the insured;

-

(4) Brandywine’s suit is timely; (5) the claims of breach of good faith and fair dealing and bad

faith have been sufficiently pled; and (6) further amendment would not be futile.

Breach of Contract (Count I)

A. Brandywine Has Failed to Plausibly Plead Entitlement to Business Income and

[Extra Expense Coverage or Civil Authority Coverage

As a threshold matter, the Court observes that Brandywine bears the initial burden of

establishing its entitlement to coverage under the policy. See Jugan v. Econ. Premier Assurance

Co., 728 ¥. App’x 86, 90 (3d Cir. 2018) (“Pennsylvania law places the initial burden of establishing

the existence of insurance coverage on the insured.”). FFIC argues that because Brandywine

cannot establish that its claim falls within the coverage provided by the policy, its breach of

contract claim must be dismissed.

Each coverage provision at issue requires a direct physical loss or damage to property as a

triggering element. Both the Business Income and Extra Expense provision and the Communicable

Disease Coverage provision demand direct physical loss or damage to the insured property and do

not apply to economic losses. The Civil Authority provision, on the other hand, requires direct

physical loss or damage to property o/her than the insured premises as a qualifying element for

coverage.

FFIC argues that Brandywine has failed to allege physical loss or damage to its property,

but rather alleges purely economic losses resulting from the government closure orders issued to

mitigate the spread of COVID-19. Brandywine counters that the loss of functionality of its property

and the loss of revenue and income constitute direct physical losses under the policy.

The Court’s initial task is to determine whether the policy’s terms are clear and

unambiguous. Difabio v. Centaur Ins. Co., 531 A.2d 1141, 1143 (Pa. Super. Ct. 1987) (“The

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

Language is not ambiguous merely because parties disagree on the appropriate construction of a

given provision. Neuhard v. Travelers Ins. Co,, 831 A.2d 602, 605 (Pa. Super. Ct. 2003), And

where a policy has failed to define a term, “the Court will read it in the plain and generally accepted

meaning of the term,” J SANT, Inc. v. Berkshire Hathaway, Inc., 513 F. Supp. 3d 623, 629

(W.D. Pa. 2021), informing its understanding of the term by considering the relevant dictionary

definitions. Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d4 100, 108 (Pa. 1999),

Here, although the policy does not define “direct physical loss or damage to property,” the

Court cannot find that the term is ambiguous such that it must be construed in Brandywine’s favor

as the insured. Turning toward the dictionary definitions of the words used in this phrase, “direct”

means “marked by absence of an intervening agency, instrumentality, or influence.” Direct,

Mertiam-Webster’s Unabridged Dictionary (last visited July 28, 2023). “Physical” means □□□□□□

relating to, or involving material things; pertaining to real, tangible objects.” Physical, Black’s

Law Dictionary (11th ed. 2019); see also Wilson, 57 F 4th at 142. “Loss” means “failure to keep

possession” and “the state or fact of being destroyed or placed beyond recovery,” while “damage”

means “injury or harm to person, property, or reputation.” Loss, Merriam-Webster’s Unabridged

Dictionary (last visited July28, 2023); Damage, id.; see also Wilson, 57 F Ath at 141-42. As this

Court has previously remarked, “both the words ‘direct’ and ‘physical’ modify ‘loss of property’

and ‘damage to property.’” Frank Van's Auto Tag, LLC y. Selective Ins. Co. of Se., 516 F. Supp.

3d 450, 456 (E.D. Pa. 2021).

Looking next to the leading treatise on insurance law, a requirement that damage or loss

be “physical” “is widely held to exclude alleged losses that are intangible or incorporeal and,

thereby, to preclude any claim against the property insurer when the insured merely suffers a

detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of

QO

the property.” 10A Steven Plitt et al., Couch on Insurance § 148:46 Gd ed. June 2023) (emphasis

added). Courts in the Third Circuit have agreed with that principle, finding that “(t]he words

‘direct’ and ‘physical,’ which modify the word ‘loss,’ ordinarily connote actual, demonstrable

harm of some form to the 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.” Hair Studio 1208, LLC y. Hartford Underwriters Ins. Co., 539 F. Supp. 3d 409, 417

(E.D. Pa. 2021) (quoting Crescent Plaza Hotel Owner LP. v. Zurich Am. Ins. Co,, 520 F. Supp.

3d 1066, 1068-69 (N.D. Ill, 2021)). There also must be “a direct nexus between the alleged loss

and the physical conditions of the covered premise.” Frank Van's Auto Tag, 516 F. Supp. 3d at

457 (emphasis added).

That it is not to say that “sources unnoticeable to the naked eye” could never cause physical

damage or loss that would trigger coverage of an insurance policy like the one at issue here—but

the resulting physical damage “must meet a higher threshold.” Port Auth. of N.Y. & N.S. □□

Affiliated FM Ins. Co., 311 F.3d 226, 235 (3d Cir. 2002). Rather, such particulate sources of

damage must “result[] in contamination of the property such that its function is nearly eliminated

or destroyed, or the structure is made useless or uninhabitable” before the insured becomes entitled

to coverage, Id, at 236.4

The Third Circuit Court of Appeals, in Wilson v. UST Insurance Service LLC, recently

placed its imprimatur on this construction of the term “direct physical loss or damage to property.”

4 Brandywine’s frequent analogizing of coverage due to the direct physical damage or loss of

property caused by COVID-19 particles versus the coverage of damage or loss of property due to smoke

damage, while creative, is unavailing. That is because, as the Third Circuit Court of Appeals has

acknowledged, smoke is but one “typicalf] example of physical damage from an outside source that may

demonstrably alter the components of a building and trigger coverage.” Port Auth. 311 F.3d at 235.

COVID-19 yiral particles, on the other hand, are not similarly capable of demonstrably altering

Brandywine’s insured properties.

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57 F.4th at 142-43. In Wilson, the Court of Appeals, citing its earlier ruling in Port Authority of

New York and New Jersey v. Affiliated FM Insurance Company, held that businesses similarly

situated to Brandywine during the pandemic-related government closures “must show that the

functionalities of their properties were nearly eliminated or destroyed, that the structures were

made useless or uninhabitable, or that there was an imminent risk of either of those things

happening” before such businesses can show entitlement to coverage. Jd. at 142.

Here, Brandywine has not plausibly alleged that COVID-19 caused any impact to the

physical structure of its property but, rather, complains merely of diminution of its economic value

without a direct nexus to actual physical property damage or loss. See 7 S.A.N.T., 513 F. Supp. 3d

at 630. Although physical particles of the COVID-19 virus may have come into contact with

Brandywine’s insured property, there is no direct causal relationship between that contact and

Brandywine’s business loss. KWB Enters., Inc. v. Nationwide Gen. Ins. Co., No. 20-cv-5195, 2022

WL 282533, at *3 (E.D. Pa. Jan. 31, 2022). Indeed, Brandywine’s economic “loss arises not from

the presence or absence of viral particles at any particular location but from the ambient risk that

people in society who enter the [premises] may carry the disease” and the state government’s

response to that ambient risk. Jd.

Moreover, Brandywine has not met the higher threshold outlined in Port Authority to show

that the virus, indisputably invisible to the naked eye, made its properties uninhabitable and

unusable for a// purposes—-those properties were merely rendered temporarily unsuitable for their

ideal pre-pandemic use within the hospitality industry. Wilson, 57 F.4th at 142-43, 145 n.8. This

Court is bound by the holding of the Third Circuit Court of Appeals that “loss of use of intended

purpose under the[se] circumstances . . . is not a physical loss of property within the meaning of

Ww

the policfy].” Zd. at 143. Brandywine therefore has not alleged direct physical loss or damage to

its property such that a “covered cause of loss” exists under the policy?

That conclusion necessarily informs the Court’s finding as to whether Brandywine was

entitled to recover under the Policy’s Business Income and Extra Expense Coverage or the Civil

Authority Coverage provisions. Because Brandywine has not alleged direct physical loss or

damage to its property, it has not adequately alleged its entitlement to the Business Income and

Extra Expense Coverage, which would apply for losses and expenses incurred “due to the

necessary suspension of [its] operations during the period of restoration arising from direct

physical loss or damage to property at a location.” Policy § ILA.°

5 Brandywine relies on two Pennsylvania state court cases to suggest that the Pennsylvania Supreme

Court coud find that pandemic-related loss of property use could qualify as direct physical loss or damage

to property, See MacMiles, LLC v. Erie Ins. Exch, No. GD-20-7753, 2021 WL 3079941 (Pa, C.P. May 25,

2021); Ungarean vp. CNA, No. GD-20-6544, 2021 WL 1164836 (Pa. C.P. Mar. 25, 2021). However, the

Pennsylvania Superior Court reversed the Common Pleas Court’s ruling in MacMiles. See MacMiles, LLC

v. Erie Ins, Exch, 286 A3d 331, 339 (Pa. Super. Ct. 2022) (“The trial court’s reading of the Policy is

strained, and we find that we are constrained to reject that holding.”). The Superior Court in Ungarean

came to a different conclusion. Ungarean v. CNA, 286 A.3d 353, 385 (Pa. Super. Ct. 2022) (finding that

the insurer had failed to show that the policy at issue clearly and unambiguously prevented coverage). “The

differing outcomes make these decisions a less useful measure in determining how the Supreme Court of

Pennsyivania would decide the issues before [the Court]... .” Wilson, 57 F. 4th at 144 n.7. Still, the Third

Circuit Court of Appeals, whose rulings are binding on this Court, “carefully reviewed the reasoning of

both decisions and predict[ed] that the Supreme Court of Pennsylvania, like the overwhelming majority of

state and federal jurisdictions that have considered the issue, would determine that the policies here are

unambiguous and do not cover the businesses’ losses.” Jd. The Supreme Court of Pennsylvania recently

granted petitions for allowance of appeal as to both Superior Court cases. See Ungarean v. CNA, Nos. 313

& 314 WAL 2022, 2023 WL 4530116, at *1 (Table) (Pa. July 13, 2023); Macmiles, LLC v. Erie Ins, Exch.,

No. 307 WAL 2022, 2023 WL 4528617, at *1 (Tabie) (Pa. July 13, 2023).

As FFIC notes in its motion, this conclusion is consonant with other terms in the policy.

Specifically, the Business Income and Extra Expense Coverage would cover expenses incurred during a

period of restoration, which period would end on the date when the insured property “should be repaired,

rebuilt or replaced with reasonable speed,” or when the business moved to a permanent new location. Policy

§§ ILA, XIV.A.50. But in Brandywine’s case, “there is nothing to repair, rebuild or replace,” nor is there

any indication that the business needed to move locations entirely—“[t]he businesses’ loss of use would

be—and was—cured by an end to the closure orders, and not by the rebuilding or repairing of any property.”

Wilson, 57 F, 4th at 143. Adopting Brandywine’s proposed construction of “direct physical loss or damage”

would render the defined term “period of restoration” effectively meaningless. Jd. at 144.

474

The policy also provides for Civil Authority Coverage when there has been “direct physical

loss or damage to property other than at” the insured location, “caused by or result[ing] from a

covered cause of loss” and occurring within a certain number of miles of the insured premises. Jd.

§ V.E.2. The Amended Complaint, however, does not allege at all that a civil authority has

prohibited access to some area near the insured property. And, as discussed above, even had

Brandywine alleged the existence of the COVID-19 virus at another property, it still would not

constitute direct physical loss or damage. See Krank Van's Auto Tag, 516 F. Supp. 3d at 459

{noting that “fear of the virus in nearby properties d{id] not establish physical damage” entitling

the insured to similar civil authority coverage.). Brandywine has therefore failed to allege coverage

under the Civil Authority provision.

B. Brandywine Has Failed to Plausibly Plead Entitlement to Communicable Disease

Coverage

Brandywine’s Amended Complaint aiso fails to set forth facts that would entitle it to

“Communicable Disease Coverage.” That provision of the policy sets forth the following

language:

a. (1) We will pay for direct physical loss or damage to Property Insured caused

by or resulting from a covered communicable disease event at a location

including the following necessary costs incurred to:

(a) Tear out and replace any part of Property Insured in order to gain access

to the communicable disease;

(b) Repair or rebuild Property insured which has been damaged or

destroyed by the communicable disease; and

(c) Mitigate, contain, remediate, treat, clean, detoxify, disinfect, neutralize,

cleanup, remove, dispose of, test for, monitor, and assess the effects the

communicable disease.

(2) If the Declarations show a Limit of Insurance for Business Income and

Extra Expense Coverage, then we will pay for the actual loss of business tncome

and necessary extra expense you sustain due to [t]he necessary suspension of

operations during the period of restoration!.] The suspension must be due to

direct physical loss or damage to property at a location caused by or resulting

from a covered communicable disease event.

144

Policy § V.F.1. The policy defines a “communicable disease event” as “an event in which a public

health authority has ordered that a location be evacuated, decontaminated, or disinfected due to

the outbreak of a communicable disease at such location.” Jd. § XIV.A.11. “Communicable disease

means any disease, bacteria, or virus that may be transmitted directly or indirectly from human or

animal to a human.” Jd, § XTV.A.10. “Public health authority means the governmental authority

having jurisdiction over [the insured’s] operations relative to health and hygiene standards

necessary for the protection of the public.” Jd. § XTV.A.59,

Amalgamating this language, the Court concludes that to plausibly plead entitlement to

Communicable Disease Coverage, Brandywine must allege (1) an evacuation, decontamination,

or disinfection of the insured location by a public health authority with appropriate jurisdiction,

(2) a conclusion that such evacuation, decontamination, or disinfection of a location was due to an

outbreak at the location, (3) that the outbreak was of a communicable disease,’ and (4) that the

order of public health authority caused, or resulted in, direct physical loss or damage to the insured

property.

The parties differ on how the policy’s Communicable Disease Coverage applies to the facts

of this case. FFIC argues first that the Communicable Disease provision, like the other coverages

at issue here, covers only “direct physical loss or damage” to Brandywine’s property, so no

coverage is available here. Second, FFIC argues that the Amended Complaint contains no

allegations of an outbreak at Brandywine’s properties, Brandywine, on the other hand, again

argues that the loss of the normal use of its business premises constituted a direct physical loss

There is no dispute that COVID-19 qualifies as a “disease, bacteria, or virus that may be transmitted

directly or indirectly from human or animal to a human.” Policy § XTV.A.10; see About COVID-19, Centers

for Disease Control and Prevention Guly 10, 2023), https://www.cdc.gov/coronavirus/2019-neov/your-

health/about-covid-19.html (“COVID-19 spreads when an infected person breathes out droplets and very

small particles that contain the virus... . Anyone infected with COVID-19 can spread it, even if they do

NOT have symptoms.”).

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under the policy. Brandywine implicitly argues that an outbreak occurred at its premises because

“COVID-19 was present and being transmitted at all businesses and places of human interaction.”

PL’s Resp. to Mot. to Dismiss, at 15. And, according to Brandywine, Governor Wolf's order issued

on March 19, 2020 forced Brandywine to evacuate its premises and shut its doors, causing all

normal business operations to cease,

First, for the reasons discussed above, Brandywine has not alleged direct physical loss or

damage to its insured property. That failure alone precludes a showing of entitlement to the

Communicable Disease Coverage.

Second, Brandywine has not alleged that there has been a “communicable disease event”

because it has not alleged that a public health authority ordered that its location be evacuated,

decontaminated, or disinfected due to the outbreak of a communicable disease at the insured

location. The policy includes no definition of the term “outbreak,” so the Court resorts to “the

plain and generaliy accepted meaning of the term” in interpreting the Policy. 1 SA.N.T., 513 F.

Supp. 3d at 629. “Outbreak” means “[a] sudden increase in the incidence of a disease; an epidemic

of infectious disease, esp[ecially] when relatively localized.” Outbreak, Oxford English Dictionary

(3d ed. 2004) (emphasis added).

Brandywine alleges only that “[gliven the widespread nature of the virus, and the ability

for hosts to remain asymptomatic, [Brandywine] believes that the virus was on site in some form

during the shutdown.” Am, Compl. 32. Fairly construing the term outbreak as it is commonly

used, this broad allegation—which does not even point to ove instance of an infected person being

present at Brandywine’s insured premises—falls far short of plausibly pleading that an outbreak

occurred at a Brandywine location. See BSD-360, LLC v. Phila. Indem. Ins. Co., 580 F. Supp. 3d

92, 102-03 (E.D. Pa. 2022) (finding that insurance policy provided no communicable disease

4A

coverage because one parent of a student testing positive for COVID-19 did not qualify as an

“outbreak” at a preschool based on the plain, ordinary meaning of the word, and the governot’s

order closing businesses did not result from an outbreak at the preschool’s location).

Thus, the Communicable Disease provision does not cover Brandywine’s claim. The

provision cannot reasonably be read to protect generally against a global pandemic rather than an

outbreak localized particularly to Brandywine’s immediate vicinity. Jd. at 102. Finding that the

provisions terms are “clear and unambiguous,” this Court will apply the language as written. Aim.

Auto. Ins., 658 F.3d at 321,

Therefore the Court finds that the Pennsylvania Supreme Court would likely decide that

Brandywine cannot recover for its economic losses under the Communicable Disease Coverage

provision of the policy at issue.

' Because Brandywine has failed to demonstrate coverage under the FFIC policy, the Court

need not consider whether the loss of use exclusion bars coverage, Wilson, 57 F.4th at 148, nor

will it address Brandywine’s related counterargument that the loss of use exclusion creates an

ambiguity when read in conjunction with the Business Income and Extra Expense Coverage and

Communicable Disease Coverage provisions. And because, as explained above, Brandywine fails

to allege a direct physical loss or damage, the Court need not reach the question of whether the

policy’s two-year limitation bars Brandywine’s claim,

C, The Reasonable Expectations of the Insured Doctrine

Brandywine argues that it had a reasonable expectation that its policy would provide

coverage for the economic losses it sustained, and its expectations must be given priority.

“Pennsylvania case law .. . dictates that the proper focus for determining issues of

insurance coverage is the reasonable expectations of the insured.” Reliance Ins. Co. v. Moessner,

121 F.3d 895, 903 (3d Cir. 1997). To determine Brandywine’s reasonable expectations, the Court

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looks to the “totality of the insurance transaction” with FFIC. St, Paul Mercury Ins, Co. y. Corbett,

630 A.2d 28, 30 (Pa. Super. Ct. 1993) (en banc). Generally, “an insured may not complain that

[its] reasonable expectations were frustrated by policy limitations which are clear and

unambiguous.” /d. Nevertheless, an insured’s reasonable expectations might prevail over the

express terms of an insurance contract under certain circumstances. See Newchops Rest. Comcast

LLC y, Admiral Indem. Co., 507 F. Supp. 3d 616, 621 (E.D. Pa. 2020): Reconstructive Orthopaedic

Assocs. H, LLC, v. Zurich Am. Ins, Co., No. 21-cv-4003, 2022 WL 4586131, at *2 (E.D. Pa, Sept.

29, 2022). Where “insurance companies abuse their position vis-a-vis their customers” and

“create[] in the insured a reasonable expectation of coverage that is not supported by the terms of

the policy that expectation will prevail over the language of the policy.” Bensalem Tip. v. □□□□□

Surplus Lines Ins. Co., 38 F.3d 1303, 1311 (3d Cir. 1994). But to rely on the doctrine, the insured

must allege some misconduct on the part of the insurer—for example, “actively providing

misinformation about the scope of coverage” or “passively failing to notify the insured of changes

in the policy.” at 1312, 1312 n.5 (“In contrast, [certain] cases ... concern situations where the

insured has no reasonable basis for believing that a policy covers events that it does not. That is,

the insurer has neither told the insurer that a policy would cover certain events when by its terms

it does not, nor made a change in the terms of coverage after the insured has agreed to purchase

insurance without informing the insured of the change and its consequences.”).

Brandywine argues that it reasonably expected indemnification (1) “given the severe loss

of business income it was forced to endure” and (2) the fact that FFIC’s withholding of the

insurance payment is “contrary to every expectation an insured has ever held and contrary to

one-hundred and fifty years of homeowner’s insurance policies.” Pl.’s Resp. to Mot. to Dismiss at

16-17. These types of vague expectations, unmoored from the actual language of the policy, are

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insufficient to entitle Brandywine to relief. Brandywine alleges no misconduct on the part of FFIC,

And as explained above, the policy’s language clearly and unambiguously requires “direct physical

damage or loss” as a condition precedent to all of the at-issue coverage provisions, so the Court

cannot agree that FFIC gave Brandywine some other assurances that coverage would be available

under these circumstances. See Hirschfield-Louik v. Cincinnati Ins. Co., No. 20-cv-816, 2022 WL

14004005, at *16 (W.D. Pa. Oct. 24, 2022), To the extent Brandywine argues that it had a

reasonable expectation that its economic losses would be covered merely because the policy it

purchased from FFIC was an “all risk” policy, the Court cannot accept such an argument because

that stance untethers a party’s reasonable expectations from the express terms of the contract. “[I]n

the insurance industry, ‘all risks’ does not mean ‘every risk.’” Port Auth., 311 F.3d at 234.

Therefore, Brandywine cannot overcome the motion to dismiss by relying upon the

reasonable expectations of the insured doctrine.

As this Court has expressed before, it is sympathetic to the daunting challenges businesses

faced during the COVID-19 pandemic. See, e.g., Frank Van's Auto Tag, 516 F. Supp. 3d at 458.

Nevertheless, the plain language of the insurance policy, and binding precedent from the Third

Circuit Court of Appeals, requires a finding that Brandywine’s losses are not covered. See Wilson,

57 F 4th at 147-48. Therefore, FFIC’s motion to dismiss is granted as to Brandywine’s breach of

contract claim.

I. Breach of Duty of Good Faith and Fair Dealing (Count D

FFIC contends that Brandywine’s breach of duty of good faith and fair dealing claim must

merge with the breach of contract claim because those claims are based on the same underlying

conduct.

“[T]o plead a cause of action for breach of the covenant of good faith, . . . a plaintiff must

properly plead the elemenis of'a claim of breach of contract.” CRS Auto Parts, Inc. v. Nat'l Grange

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Mut. Ins. Co., 045 F. Supp. 2d 354, 369 (E.D. Pa. 2009), Brandywine may not maintain its claim

for breach of a covenant of good faith and fair dealing independently from its breach of contract

claim, /d.; see also Tubman y, USAA Cas. Ins. Co., 943 F. Supp. 2d 525, 529 (E.D. Pa. 2013)

(“[BJecause the common law [good faith] claim sounds in contract, it cannot be brought

independently from a breach of contract claim,”).

For the reasons set forth above, Brandywine has failed to plausibly plead its breach of

contract claim, and Brandywine’s breach of good faith and fair dealing claim cannot survive

independently. Thus, the motion to dismiss will be granted as to this claim.

Iii. Bad Faith Violation of 42 Pa. Cons. Stat. § 8371 (Count IT)

Brandywine also asserts a claim that FFIC violated 42 Pa, Cons. Stat. § 8371, which states:

In an action arising under an insurance policy, if the court finds that the insurer has

acted in bad faith toward the insured, the court may take all of the following actions:

(1) Award interest on the amount of the claim from the date the claim was

made by the insured in an amount equal to the prime rate of interest plus

(2) wate punitive damages against the insurer,

(3) Assess court costs and attorney fees against the insurer.

id. “[T]o recover under a claim of bad faith, the plaintiff must show that the defendant did not have

a reasonable basis for denying benefits under the policy and that defendant knew or recklessly

disregarded its lack of reasonable basis in denying the claim.” Terletsky v. Prudential Prop. &

Cas. Ins. Co., 649 A,2d 680, 688 (Pa. Super. Ct. 1994); see also WV. Realty, Inc. v. N. Ins. Co.,

334 F.3d 306, 312 (3d Cir. 2003). Because “[b]ad faith claims are fact specific and turn on the

conduct of the insurer towards the insured[,] .. . [a] plaintiff must plead specific facts as evidence

of bad faith and cannot rely on conclusory statements.” Toner v. GEICO Ins. Co., 262 F. Supp. 3d

200, 208 (E.D. Pa. 2017). To establish an insurer’s bad faith, the insured must allege a

frivolous or unfounded refusal to pay proceeds of a policy; it is not necessary that

such refusal be fraudulent. For purposes of an action against an insurer for failure

1qQ

to pay a claim, such conduct imports a dishonest purpose and means a breach of a

known duty (i.e., good faith and fair dealing), through some motive of self-interest

or ill will; mere negligence or bad judgment is not bad faith.

Romano vy. Nationwide Mut. Fire Ins, Co., 646 A.2d 1228, 1232 (Pa. Super. Ct. 1994); accord

Jurinko v. Med. Protective Co., 305 F. App’x 13, 18-19 d Cir, 2008).

FFIC argues that Brandywine’s statutory bad faith claim is not viable and must be

dismissed because coverage does not exist for the losses claimed, so FFIC had a reasonable basis

for its determination. Brandywine counters that the Court should be lenient, because without

further discovery and investigation, there is no way for Brandywine to prove that FFIC failed to

conduct a good faith investigation into Brandywine’s claim.

Although the Amended Complaint is replete with conclusory statements as to FFIC’s bad

faith in denying the claim for coverage, Brandywine’s only factual allegation in the Amended

Complaint regarding bad faith is that FFIC failed to provide coverage for a loss without a

reasonable basis, specifically under the Communicable Disease and Civil Authority coverages.

But “[a]t the pleading stage, a plaintiff [only] states a sufficient claim if the complaint avers basic

facts regarding the insurance policy, loss, and denial of the claim, as well as allegations that the

insurer acted unreasonably.” Snider for Goldhirsh v. State Farm Fire & Cas, Co., No. 21-ev-4224,

2022 WL 17540210, at *3 (E.D. Pa. Dec. 8, 2022).

Here, Brandywine’s claim is insufficient under Ter/etsky because it has failed to allege that

FFIC acted unreasonably. See 649 A.2d at 688. To the contrary, as the Court concluded above, the

clear and unambiguous terms of the policy serve as a reasonable basis for FFIC’s denial of

Brandywine’s claim because Brandywine made no claim of direct physical damage or loss to its

property. The Court therefore grants FFIC’s motion to dismiss as it relates to Brandywine’s bad

faith claim.

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IV. Leave to Amend

Courts should “freely give leave” to amend pleadings “when justice so requires.” Fed, R.

P. 15(a)(2). However, the Court need not grant leave to amend when doing so would be futile.

Phillips v. Cnty. of Allegheny, 515 F.3d 224, 236 (3d Cir, 2008), “Futility? means that the

complaint, as amended, would fail to state a claim upon which relief could be granted.” Jn re

Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1435 (3d Cir. 1997); see also Alvin v, Suzuki,

227 F.3d 107, 121 (3d Cir. 2000).

Here, Brandywine has already amended its complaint once, without alleging any plausible

facts to support a finding that there was a direct physical loss or damage to its insured property.

Because Brandywine cannot withstand a successive motion to dismiss without asserting such facts,

permitting a second amended complaint would be futile. See 44 Hummelstown Assocs., LLC v.

Am. Select Ins, Co,, 542 F. Supp. 3d 328, 342 (M_D. Pa. 2021) (finding, where plaintiff had already

filed an amended complaint, that further amendment would be futile “[g]iven that the clear import

of [the] [p]laintiff’s non-conclusory allegations is that it seeks to recover for intangible harms

unrelated to the physical form of the [c]overed [p]roperty”), The Amended Complaint is therefore

dismissed with prejudice.

CONCLUSION

For these reasons, FFIC’s motion to dismiss is granted, and Brandywine’s claims against

FFIC are dismissed with prejudice. An appropriate order follows.

BY THE COURT:

ENE E.K. PRATTER

UNITED STATES DISTRICT JUDGE

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