A company operating a restaurant in Pittsburgh, Pennsylvania, which – like many similarly situated parties – suffered significant disruptions of its business activity on account of the COVID-19 pandemic and related closures, filed suit against its insurer claiming that the economic losses due to the loss of use of its business premises were covered under its commercial property insurance.

Indeed, the restaurant had stipulated a commercial property policy covering inter alia, “physical loss of or damage to covered property”.

The trial Court partially agreed with the restaurant, concluding that plaintiff had shown physical loss of or damage to the covered property. Namely, in interpreting the policy’s phrase "direct physical loss of or damage to Covered Property", the trial court reasoned that the disjunctive "or" between "direct physical loss of" and "damage to Covered Property" supported a reasonable reading of the Policy whereby a "direct physical loss" did not need to necessarily result from physical or structural damage.

The insurer filed an appeal against the first instance decision claiming that the trial court had committed an error in law. By judgment of 30 November 2022, the Superior Court of Pennsylvania upheld such appeal and reversed the trial court’s judgment. At the outset, the appellate judges highlighted that courts around the country construing similar policy language had already held that “economic loss unaccompanied by a physical alteration to the property [did] not trigger coverage under a commercial property insurance policy”. Furthermore, contrary to the view of the trial court, the Superior Court concluded that it was not reasonable to construe the policy as covering mere loss of use since “the Policy never expressly says so […] repeatedly uses the word damage” and, when dealing with the amount of insurance, expressly refers to “the time period necessary to "repair, replace, or rebuild" any part of the covered property that had been "damaged or destroyed”. Since plaintiff had failed to allege that it suffered any physical damage, its claim was bound to fail.

On the same date, the Superior Court issued a decision in favor of a policyholder in another covid-related insurance case (see the story published on 5 December 2022) relating to a different kind of policy providing for a “Business Income and Extra Expense” coverage.

Reference: Macmiles LLC v. Erie Ins., Superior Court of Pennsylvania, 30 November 2022.

Full text of the decision available at en