Pa. Caterer Attacks Insurer's Virus Exclusion Amid Pandemic

By Matthew Santoni
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Law360 (February 9, 2021, 5:05 PM EST) -- A New Castle, Pennsylvania, catering business said its insurer — and insurers in general — should not be able to avoid covering global pandemics by using their "virus exclusions," as it seeks coverage from a Donegal Insurance Group unit for its coronavirus-related business losses in state court.

Medure's Catering Inc. said Monday that the virus exclusion language promulgated by Insurance Services Office Inc. and approved by state regulators only applied to personal injury claims caused by a virus, as opposed to business losses during an unprecedented pandemic and its associated government closure orders.

"The virus exclusion does not apply to this pandemic. The policy does not identify any exclusions for a pandemic," the complaint said. "The virus exclusion in the policy was never intended by the ISO nor defendant to pertain to a pandemic like the present global COVID-19 pandemic because the ISO and defendant define 'virus' and 'pandemic' as used in their policies differently than how those terms might be normally used.

"The virus exclusion was only intended to cover discrete instances of infection or contamination by a virus as a covered cause of loss, not to direct physical loss or damage caused by a pandemic," it said.

In its Philadelphia Court of Common Pleas lawsuit, Medure's asked the court for a declaratory judgment that it was entitled to coverage of its lost business and extra expenses during the pandemic under its "all-risks" policy from Donegal subsidiary Atlantic States Insurance Co.

The lawsuit said Medure's had been forced to shut down completely between mid-March and early May of 2020 because of the pandemic and the state's orders closing "non-life-sustaining" businesses. When it was allowed to reopen in May, its indoor capacity and offsite catering were still hobbled by limits on crowd sizes and indoor gatherings, it said.

Atlantic's policy, the suit said, contained a virus exclusion like the one created by the ISO in response to the SARS epidemic of 2002-2004, but that outbreak hadn't been nearly as wide-ranging or dramatic in its effects as COVID-19. The language of the exclusion did not appear to encompass a global pandemic, the caterer claimed.

"The ISO and the insurance industry, including defendant, do not consider the term 'virus' as used in the virus exclusion to include a pandemic in which there is omnipresent contamination by a virus as a covered cause of loss," the complaint said. "The ISO, when seeking approval for the 'exclusion of loss due to virus or bacteria,' acknowledged that it was intended for losses and damage associated with 'disease' and actual 'contamination' of the insured property. Other insurers have been much more specific in drafting and specifically using the 'pandemic' language."

"The virus exclusion was therefore never intended to exclude coverage for a pandemic as presented in this matter," it said.

Like other suits, Medure's complaint also claimed that when ISO sought state approval of the virus exclusion language, it had allegedly made misleading statements about whether property insurance policies were even intended to insure against viruses, even though other courts had previously found that viruses can cause "physical damage" to property. Because of these alleged misrepresentations, insurers should be barred from relying on the exclusion, the suit said.

It also said that the virus, though likely to have reached the catering business' two properties, was not the sole source of its losses, with the state closure orders and crowd limits causing further damage.

And also as other businesses have argued, the pandemic had caused a "physical loss" of the type that should be covered by its insurance, Medure's said.

"Instead of being able to operate plaintiff's business normally, the insured property was required to physically alter and drastically reduce operations, and even to close entirely," the complaint said. "To do anything else would lead to the emergence or reemergence of COVID-19 at the location."

Counsel for Medure's and representatives of Donegal did not immediately respond to requests for comment Tuesday.

Medure's is represented by Arnold Levin, Laurence S. Berman, Frederick Longer and Daniel Levin of Levin Sedran & Berman LLP, Richard M. Golomb and Kenneth J. Grunfeld of Golomb & Honik PC, W. Daniel "Dee" Miles III, Rachel N. Boyd and Paul W. Evans of Beasley Allen Crow Methvin Portis & Miles PC, D. Aaron Rihn of Robert Peirce & Associates PC, and Jason A. Medure of Medure Bonner Bellissimo LLC.

Counsel information for Atlantic States Insurance was not immediately available.

The case is Medure's Catering Inc. v. Atlantic States Insurance Co., case number 210200687, in the Court of Common Pleas of Philadelphia County, Pennsylvania.

--Editing by Adam LoBelia.

For a reprint of this article, please contact reprints@law360.com.

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