By Matt Fair

Law360 (March 25, 2021, 9:19 PM EDT) -- A Pennsylvania state judge on Thursday granted a Pittsburgh-area dental practice's bid to hold an insurance unit of CNA Financial Corp. liable for financial losses suffered by a proposed class of businesses after the pandemic forced them to close last year.

Judge Christine Ward of the Allegheny County Court of Common Pleas rejected arguments from CNA that the Smile Savers Dentistry PC hadn't suffered "direct physical loss of or damage to" its property as a result of the pandemic as required to trigger coverage under its policy.

"Plaintiff's loss of use of its property was both 'direct' and 'physical,'" Judge Ward concluded in granting the business summary judgment. "The spread of COVID-19, and a desired limitation of the same, had a close logical, causal [and] consequential relationship to the ways in which plaintiff materially used its property and physical space."

Smile Savers and its owner, Dr. Timothy Ungarean, filed suit in June as part of a nationwide tidal wave of litigation aimed at bringing insurance policy provisions related to business interruptions to bear on pandemic-related financial losses.

Ungarean said he was forced to shut his doors under an emergency order inked by Gov. Tom Wolf last March mandating the closure of nonessential businesses in order to slow transmission of the highly contagious coronavirus.

CNA and its affiliate, Valley Forge Insurance Co., had looked to dodge the lawsuit on summary judgment by arguing that the "physical loss" language in its policy required damage to a business's physical premises and could not be applied solely to economic damage.

So far, a majority of courts that have addressed the issue around the country have sided with insurers, including a ruling by a federal judge in the Western District of Pennsylvania tossing out a would-be class action from an Altoona-area hospital on grounds that it hadn't suffered any physical damage because of the pandemic.

But Judge Ward ruled on Thursday that the policy language was not limited solely to actual physical damage.

"While defendants are of course correct to point out that the terms 'direct' and 'physical' modify the terms 'loss' and 'damage,' this does not somehow necessarily mean that the entire phrase 'direct physical loss of or damage to property' requires actual harm to plaintiff's property in every instance," she said.

Instead, she said that the terms 'loss' and 'damage' had distinct meanings, and could not be read to mean the same thing.

"[The defense's] interpretations fail to give effect to all of the insurance contract's terms and … render the phrase 'direct physical loss of' duplicative of the phrase 'direct physical … damage to,'" she said.

The judge also rejected arguments that the so-called civil authority provision of the policy, which provides coverage in the event of an interruption in business caused by the actions of a government entity, did not apply to Ungarean's claims because he had not completely lost access to his business.

"The governor's orders directed individuals to stay home and required businesses to essentially close their doors absent emergencies," the judge said. "Although plaintiff's business … was technically permitted to remain open to conduct certain limited emergency procedures, this does not change the fact that an action of civil authority effectively prevented, or forbade by authority, citizens of the commonwealth from accessing plaintiff's business in any meaningful way."

Lastly, the judge rejected arguments that the practice's claims were doomed by policy language excluding coverage for "contamination."

She ruled that it wasn't any actual contamination that had caused Ungarean to lose access to his business.

"The cause for the loss of use of property was not the contamination of property," she said. "Rather, the cause of the loss of use of property was the risk of person-to-person transmission of COVID-19, which necessitated social distancing measures and fundamentally changed the way businesses utilized physical space."

An attorney representing Ungarean, Scott Cooper of Schmidt Kramer PC, said he looked forward to what he believed would be an inevitable appeal of the decision.

"We are very pleased after a year we are finally making progress and, since the insurance company will certainly appeal, hope we can expedite the appellate process," he said. "This is a significant case because it is the first we know of which the state trial court has thoroughly addressed the physical loss or damage issue, civil authority and exclusion. Federal courts in Pennsylvania have, but we hope that the Pennsylvania Supreme Court will have the final decision on the issue this year."

A representative for CNA did not immediately respond to a message seeking comment.

Ungarean and the proposed class are represented by James C. Haggerty of Haggerty Goldberg Schleifer & Kupersmith PC, Scott B. Cooper of Schmidt Kramer PC, John P. Goodrich of Jack Goodrich & Associates PC and Jonathan Shub of Shub Law Firm LLC.

Valley Forge Insurance and CNA are represented by Robert M. Runyon III and Daniel J. Grossman of Timoney Knox LLP and William Pietragallo II of Pietragallo Gordon Alfano Bosick & Raspanti LLP.

The case is Timothy Ungarean v. CNA et al., case number GD-20-006544, before the Court of Common Pleas of Allegheny County, Pennsylvania.

--Additional reporting by Matthew Santoni. Editing by Jill Coffey.

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