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Law360 (May 13, 2020, 9:35 PM EDT) -- The owner of a small South Carolina restaurant launched a proposed class action in Pennsylvania federal court on Tuesday accusing Penn National Insurance of wrongly denying claims from businesses for losses they suffered after being forced to close their doors because of the coronavirus pandemic.
Richard Kahn, who owns a family restaurant outside Greenville, South Carolina, says Harrisburg, Pennsylvania-based Penn National had improperly cited policy language excluding claims related to viruses and other microorganisms in refusing to provide business interruption coverage under his policy.
"Contrary to defendant's assertions, plaintiff's loss of business profits should have been covered by the policy because the COVID-19 pandemic is such a devastating, far-ranging and unforeseen event that it does not fall within a reasonable interpretation of the 'virus' exclusion in the policy endorsement," he said.
Kahn says the exclusion for viruses, bacteria and other microorganisms was meant to apply to outbreaks or contamination specifically connected to the restaurant, and the pandemic was more akin to the kind of natural disaster the policy was meant to cover losses from.
"The current global catastrophe is much different from, for example, an episode of food poisoning affecting several restaurant patrons," he said. "The COVID-19 pandemic is much closer to a natural disaster than a 'loss due to virus or bacteria.'"
The lawsuit is part of a growing mountain of cases from business owners seeking coverage for economic losses sustained as a result of pandemic-related closures.
Kahn, whose restaurant goes by the name Mauldin's, says in the complaint he was forced to close the eatery in mid-March as Gov. Henry McMaster urged that all public gatherings be canceled or postponed.
McMaster ultimately issued an order on April 6 requiring all South Carolinians to limit their travel outside the home to only essential activities, according to the suit.
Kahn says he asked Penn National to provide business interruption coverage but received a denial letter from the insurer at the end of March citing his policy's exclusion for virus- or bacteria-related losses.
Kahn argues in his complaint that a recent decision from the Pennsylvania Supreme Court upholding a business-closure order in the Keystone State made it clear that the pandemic could not be written off so easily.
In that decision, the justices agreed the pandemic met the Pennsylvania emergency code's definition of a "natural disaster," which Kahn says means that it should be covered under his policy with Penn National.
"The court rejected an argument that COVID-19 must be detected at a specific location for that location to fall within the scope of the disaster area," he said in the complaint.
Since Penn National had likely used the rationale to deny potentially hundreds or thousands of claims from other policyholders, Kahn says, he should be allowed to pursue coverage on a classwide basis.
Representatives for the parties did not immediately return messages seeking comment on Wednesday.
Kahn is represented by Benjamin Johns of Chimicles Schwartz Kriner & Donaldson-Smith LLP and Tina Wolfson and Bradley King of Ahdoot & Wolfson PC.
Counsel information for Penn National was not immediately available.
The case is Richard Kahn et al. v. Pennsylvania National Mutual Casualty Insurance Co., case number 1:20-cv-00781, in the U.S. District Court for the Middle District of Pennsylvania.
--Editing by Janice Carter Brown.
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