Law360 (March 31, 2021, 6:23 PM EDT) -- The owners of Tria wine bars in Philadelphia can't tap into coverage with American Automobile Insurance Co. for pandemic-related losses, a Pennsylvania federal judge ruled, using a New York judge's example of an unruly teenager to conclude that their proposed class action does not allege a physical loss tied to the COVID-19 pandemic and government orders.
U.S. District Judge Wendy Beetlestone dismissed the suit with prejudice on Tuesday, finding that Tria WS LLC, Tria TR LLC and Alaska Café LLC's inability to use their wine bars and tap rooms under orders to close down to fight the spread of the coronavirus was not a "direct physical loss of or damage to" the properties, according to the ruling.
The judge quoted from a December ruling by U.S. District Judge John P. Cronan in New York, who equated the actual damages scenario to one in which a teenager breaks curfew and is punished by parent who take away the keys to their car.
In that ruling, Judge Cronan found that in such a situation, the teen loses the ability to use the car, but the car hasn't been directly lost or physically damaged. That case is now on appeal at the Second Circuit, court records show.
Similarly, Judge Beetlestone concluded that the policies in question in the Tria suit describe coverage for a "period of restoration" that prevents the business from operating, finding that other terms in the policies also indicate that the insurance coverage wasn't triggered by the pandemic or related shutdowns.
"The terms 'repair,' 'rebuild,' and 'replace' strongly suggest that the insured property must have suffered some negative change in its physical condition rendering the property unsatisfactory and requiring restoration," the judge said.
Back in September, the three companies filed an amended complaint, alleging that American Automobile is responsible for their business interruption losses. The owners lost revenue and incurred additional operating costs during the shutdowns before they regained use of the wine bars and tap rooms, according to the suit.
The owners brought claims for breach of contract and bad faith against American Automobile. The insurer moved to dismiss, arguing that there was no physical loss to the wine bars and tap rooms. American Automobile also said the pandemic-related losses were barred under a virus exclusion.
In Tuesday's ruling, Judge Beetlestone tossed the suit, finding that the owners could not show the inability to fully use their restaurants was caused by a "direct physical loss of" the properties triggering coverage.
The judge said the three owners were required to show that their "loss of use" was tied to a change to their properties' condition, "such as where a fire burns down an insured restaurant or a thief steals all of the restaurant's cooking equipment, thereby rendering the property unusable for its intended purpose."
The policyholders also are owed no civil authority coverage, Judge Beetlestone ruled, saying they were not stopped from entering the wine bars or tap rooms. Rather, the state's government orders allowed the restaurants to offer delivery food services and would later permit limited in-person dining.
Adam J. Gomez of Grant & Eisenhofer PA, counsel for the owners, told Law360 on Wednesday that his clients looked forward to further guidance from the appellate court in their case.
"While we are disappointed with the decision, particularly in light of the growing disagreement amongst courts across the country on these issues, we appreciate the court's thoughtful consideration," he said.
Since the start of 2021, policyholders and insurers in Pennsylvania suits have seen a mixed bag of results. A state judge granted summary judgment to a Pittsburgh-area dental practice in its suit for pandemic-related losses. That judge found the inability to use the dental office was both "direct" and "physical."
However, a Pennsylvania federal judge held a medical center was not owed business interruption coverage. The judge cited the policy's virus exclusion and also found there was no physical loss to the property. A similar result was entered by a federal judge in an auto business's COVID-19 business interruption suit.
Counsel for American Automobile declined to comment on Wednesday.
The owners of the wine bars and tap rooms are represented by Adam J. Gomez, Tudor I. Farcas and M. Elizabeth Graham of Grant & Eisenhofer PA.
American Automobile is represented by Joseph Kernen and Brian M. Robinson of DLA Piper LLP.
The case is Tria WS LLC et al. v. American Automobile Insurance Co., case number 2:20-cv-04159, in the U.S. District Court for the Eastern District of Pennsylvania.
--Additional reporting by Matt Fair, Melissa Angell and Daphne Zhang. Editing by Peter Rozovsky.
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