By Matthew Santoni

Law360 (January 15, 2021, 9:48 PM EST) -- A federal judge on Friday tossed a Pennsylvania restaurant's proposed class action seeking coverage from National Fire & Marine Insurance Co. for losses due to the coronavirus, finding that establishments limited to carry-out service had not sustained the "direct, physical loss" necessary to trigger their insurance policies.

U.S. District Judge William S. Stickman IV said that 1 S.A.N.T. Inc., which operates the Town & Country Bar & Grill and Gatherings Banquet and Event Center in New Castle, Pa., had not sustained a direct, physical loss under the common definitions of the words and had not lost all access to their premises under state orders limiting indoor dining during the pandemic.

"Four words are critical to the determination of this issue: 'direct,' 'physical,' 'loss' and 'damage,'" Judge Stickman wrote in his opinion Friday. "There is no reasonable question that the policy's language presupposes that the request for coverage stems from an actual impact to the property's structure, rather than the diminution of its economic value because of governmental actions that do not affect the structure."

Finding that the restaurant had not suffered a covered loss, the court granted National Fire's motion to dismiss the proposed class action suit.

The restaurant was part of a wave of nationwide litigation by businesses in the spring and summer seeking court declarations that the COVID-19 pandemic and the government-ordered closures and limitations stemming from it were covered by their business interruption insurance.

1 S.A.N.T. had made the argument that a "virus exclusion" in its policy was invalid because insurers had misrepresented its applicability to pandemic situations when originally getting the language approved by state regulators, but by finding that there was no coverage that the exclusion could apply to, Judge Stickman did not reach that question.

The court said it had to consider the language in the contract, and where the contract did not define a term, it would look to the plain, commonly-understood meanings of the words.

"The court's review of the language of the policy reveals that National Fire has not defined 'direct physical loss of' or 'direct physical damage to,'" Judge Stickman wrote. "But failing to define a coverage term does not mean that it is ambiguous."

Under the dictionary definitions of those key words, the judge said 1 S.A.N.T. had not sustained a "direct" or "physical" loss of its property, especially given that it was able to remain open for takeout. Though the restaurant claimed that the virus was so widespread that it was "ubiquitous," it had not alleged that anyone in the restaurant had gotten sick or that its facilities were contaminated, he said.

"1 S.A.N.T. has not alleged that someone has been infected, that COVID-19 was present in the building or that the building even closed because of the ubiquitous presence of the virus (it remained open for takeout operations)," the judge wrote. "The ubiquity theory cannot broaden the policy definition."

He pointed to cases such as Prime Time Sports Grill v. DTW 1991 Underwriting in Florida's Middle District and Newchops Restaurant Comcast v. Admiral Indemnity Co. in Pennsylvania's Eastern District, where judges in December made similar rulings on coverage.

Nor were orders from Gov. Tom Wolf closing or restricting indoor dining enough to be considered a "civil authority" that would trigger coverage, the judge said, again citing that the restaurant was able to remain partially open.

"Reduction to partial access does not suffice to trigger business income coverage under the Civil Authority provisions," he wrote.

Counsel for 1 S.A.N.T. and National Fire declined to comment Friday.

1 S.A.N.T. is represented by Gary F. Lynch, R. Bruce Carlson and Kelly K. Iverson of Carlson Lynch LLP.

National Fire is represented by Robert L. Byer, Julie S. Greenberg and Damon N. Vocke of Duane Morris LLP.

The case is 1 S.A.N.T. Inc. v. National Fire, case number 2:20-cv-00862, in the U.S. District Court for the Western District of Pennsylvania.

--Editing by Steven Edelstone.

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