By Matthew Santoni

Law360 (September 1, 2020, 3:04 PM EDT) -- A western Pennsylvania sporting goods store argued Tuesday that a state court should be the first to decide whether part of its business insurance policy, cited in its insurer's denial of coverage for COVID-19-related losses, should be invalid under state law.

In a video hearing before Chief U.S. District Judge Mark Hornak, Venezie Sporting Goods LLC argued that "anti-concurrence" language in its insurance policy — which says that when a loss is caused by both covered and noncovered events, the exception to coverage wins out — goes against the state's public policy, so the store's lawsuit against Nationwide Insurance Co. and Allied Insurance Company of America should be decided by a state court and not a federal one.

"Nationwide says the anti-concurrency clause controls; we say that goes against Pennsylvania public policy," said Charles W. Garbett of Luxenberg Garbett Kelly & George PC, representing Venezie. "We need a definitive state court analysis."

While Venezie asked the federal court to remand the case to the state court where it was originally filed in Lawrence County, Nationwide and Allied asked the court to dismiss the case based on the lack of covered physical loss and the applicability of a policy exclusion for losses caused by a virus.

Venezie, located in Ellwood City, Pennsylvania, submitted an insurance claim to Allied seeking coverage of business lost when Gov. Tom Wolf ordered nonessential businesses to shut down in mid-March in order to slow the spread of the pandemic, but the claim was denied. The store sued in state court in late June, and the insurers removed the case to federal court in July, citing diversity of their citizenship and the amount of money in contention.

Venezie said its policy contained an anti-concurrence clause saying that when a loss is caused by both a covered and an excluded event, the exclusion applies and defeats coverage. But the store questioned whether that language followed the state policy that coverage should be read broadly and exceptions applied narrowly.

"It violates basic principles of insurance policy construction under Pennsylvania law," Garbett said. "It would read the coverage exclusion broadly and the coverage narrowly."

Venezie also argued that state courts are still deciding whether the governor's closure orders were covered, whether the virus caused a "physical loss" and whether coverage of lost business even requires a physical loss.

Another federal judge has repeatedly remanded another case, brought by Pittsburgh-based DiAnoia's restaurant, to state court over similar questions. The Declaratory Judgment Act gave federal courts discretion to punt declaratory judgments to the state courts for first impressions of state laws, said Samuel Mack, another Luxenberg Garbett attorney representing Venezie.

But William T. Salzer of Swartz Campbell LLC, representing the insurers, said Venezie's case is distinct from DiAnoia's because the store is seeking more than just a declaratory judgment — it is also seeking an order compelling the insurers to cover the losses, which Salzer said made the case more akin to a breach-of-contract case than a pure declaration from the court of the parties' rights.

He said the suit was seeking coverage for a past event — the pandemic closure — not trying to mitigate a future or ongoing harm, though Judge Hornak noted that the pandemic, while slowed down enough to allow businesses to partly reopen, is still a threat.

Salzer argued the case should be dismissed because the plain language of the insurance policy said that losses caused directly or indirectly by viruses are excluded, there had been no physical damage or contamination to the Ellwood City store, and the "civil authority" claim only applied if the government cut off access to the business because of physical damage to a neighboring property.

Judge Hornak pressed Venezie's attorneys for any pleading or inference that the store or its neighbors had been directly contaminated by the coronavirus, but they had none to offer. Instead, they said the governor's orders clearly implied the danger of potential contamination.

Salzer countered that business losses due to closure orders for "potential" damage were no more covered than they were after the 9/11 terrorist attacks when airlines were shut down to prevent potential terrorist activity.

Judge Hornak took the parties' arguments under advisement Tuesday.

Venezie is represented by Charles W. Garbett and Samuel L. Mack of Luxenberg Garbett Kelly & George PC.

Nationwide and Allied are represented by Robert J. Grimm and William T. Salzer of Swartz Campbell LLC.

The case is Venezie Sporting Goods LLC v. Allied Insurance Company of America et al., case number 2:20-cv-01066, in the U.S. District Court for the Western District of Pennsylvania.

--Editing by Jack Karp.

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