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Law360 (February 9, 2021, 5:03 PM EST) -- A Pennsylvania federal judge tossed a shuttered South Carolina restaurant's pandemic loss coverage suit against Pennsylvania National Mutual Insurance Co., holding that the insurance policy clearly bars coverage although it did not define the term "physical loss."
U.S. District Judge John E. Jones III said Monday Richard Kahn and his restaurant Mauldin's failed to allege any physical or structural loss at the business premises, as required under the policy.
"Even though 'physical loss' is not defined in the policy, that does not render the term ambiguous," Judge Jones said. "As a preeminent insurance treatise has explained, insurance policies that include 'physical loss or damage' as a prerequisite for coverage have been 'widely held to exclude alleged losses that are intangible or incorporeal.'"
Last October, Kahn told the court it is premature to make a ruling on the case because the policy terms are ambiguous enough for the insurer and the policyholder to have conflicting interpretations on what the policy covers. Kahn's restaurant was permanently closed due to loss of income during the pandemic and Pennsylvania National has denied coverage for its claim of loss, according to the suit.
The restaurant owner has said he should not be required to show structural alteration to allege property damage because the insurer never defined the terms "direct physical loss" or "direct physical damage" in the policy.
On Monday, Judge Jones said the eatery owner failed to allege that Mauldin's had to repair to restore anything physically.
"Interpreting 'physical loss' as plaintiffs request would render language in the 'period of restoration' provision superfluous," he said. "The business may have suffered economically, but the building did not suffer any kind of physical or structural impairment as required to fall under the business income coverage provision."
While some other federal district courts have supported similar positions as Kahn's, "we decline to follow the reasoning of these holdings," the judge said. "The overwhelming consensus on this issue, especially within our circuit, is certainly persuasive and difficult to ignore."
Additionally, Judge Jones said, the civil authority coverage provision was not triggered as Khan failed to show physical damage near his property. The judge said he will not address whether the virus exclusion precludes losses caused by COVID-19 since the restaurant did not satisfy the property damage requirement to get coverage.
"Even a successful argument that the virus exclusion was not intended to apply to COVID-19 cannot rescue the amended complaint," he said, "because we conclude that plaintiffs were ineligible for insurance coverage under the business income and civil authority coverage provisions in the policy."
Representatives for the parties could not be immediately reached for comment Tuesday.
Kahn is represented by Benjamin Johns of Chimicles Schwartz Kriner & Donaldson-Smith LLP and Bradley King of Ahdoot & Wolfson PC.
Pennsylvania National is represented by Allison Bressler Goldis and Eric D. Freed of Cozen O'Connor.
The case is 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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