By Hannah Albarazi

Law360 (May 25, 2021, 10:26 PM EDT) -- A Pennsylvania state court judge went against the majority of COVID-19 insurance rulings when she ruled Tuesday that an insurer must cover the pandemic-related losses suffered by a downtown Pittsburgh tavern.

Allegheny County Court of Common Pleas Judge Christine Ward ruled that Erie Insurance Exchange must cover Grant Street Tavern's loss of use of its property during the COVID-19 pandemic, finding that the bar didn't need to have sustained physical damage to have suffered a direct physical loss or damage to property as covered by its insurance contract.

Judge Ward held, for at least the second time this year, that the pandemic and its associated closures were indeed a "direct" and "physical" loss of use of insured property.

An attorney for Grant Street Tavern, Scott Cooper of Schmidt Kramer PC, lauded the opinion, telling Law360 that he and the pub "hope that Erie will accept the judge's decision and finally pay the coverage that our clients, and others, paid for and need."

Matthew Cummings, a spokesperson for Erie, slammed the court's interpretation of the contract Tuesday.

"We are disappointed by the decision in this case and are evaluating our options. We disagree with the court's interpretation of the insurance contract language in this case, which is inconsistent with the vast majority of related decisions made throughout the country," Cummings told Law360.

But Judge Ward said in her order that she would not merely accept nonbinding decisions of other courts as that "amounts to an abdication of this court's judicial role."

In the spring of 2020, as COVID-19 infections began soaring across Pennsylvania and the rest of the country, the Keystone State's governor ordered nonessential businesses to close. MacMiles LLC, operating as the Grant Street Tavern, suspended its business operations and its owner filed a claim for coverage under its insurance contract shortly thereafter. Erie denied the claim.

In September 2020, the tavern sued Erie, alleging breach of contract and seeking declaratory judgment.

Erie moved for judgment on the pleadings, denying coverage for the business' losses while the tavern sought partial summary judgment in favor of coverage.

While many court rulings have gone in the insurers' favor, Judge Ward has said that under Pennsylvania law, the pandemic should be covered as "physical loss or damage" to a business's property.

In March, Judge Ward found in favor of coverage for a Pennsylvania dental practice, ruling that the pandemic and its associated closures were indeed a "direct" and "physical" loss of use of insured property, and held that language in the dental practice's CNA Financial Corp. insurance policy did not limit coverage to actual, physical damage.

But Erie argued that the loss of use of the tavern due to laws or government ordinances is not covered by the policy and that the coronavirus closure orders were no different from other laws limiting how a business can operate.

The tavern, however, said that the law-and-ordinance exemption Erie cited was intended to deny coverage for unauthorized businesses, like an unlicensed basement hair salon or an adult entertainment business opening in an area where it wasn't allowed by local zoning.

The tavern's losses, on the other hand, were due to the pandemic — a natural disaster — not a law or an ordinance, it said.

On Tuesday, Judge Ward zeroed in on the language of the insurance contract between the tavern and Erie.

"The interpretation of the phrase 'direct physical loss of or damage to' property is the key point of the parties' dispute," the judge wrote in her order.

Erie contends the phrase requires there to be some physical alteration of or demonstrable harm to the tavern's property, while the tavern contends that the phrase includes the loss of use of its property, the judge said.

Judge Ward said the court had reasonably determined that Erie's interpretation of the contract "improperly conflates" the phrases "direct physical loss of" with "direct physical ... damage to."

"Indeed, the spread of COVID-19 and social distancing measures (with or without the Governor's orders) caused Plaintiff, and many other businesses, to physically limit the use of property and the number of people that could inhabit physical buildings at any given time, if at all," the judge said.

"Thus, the spread of COVID-19 did not, as defendant contends, merely impose economic limitations. Any economic losses were secondary to the businesses' physical losses," Judge Ward said.

The tavern's interpretation of the income protection provision of the insurance contract is, "at the very least, reasonable," the judge said.

Since there are also no genuine issues of material fact regarding the tavern's loss of use and because none of the insurance contract's exclusions clearly and unambiguously prevent coverage, the tavern's bid for partial summary judgment as to its claim for declaratory judgment related to that provision is granted, Judge Ward said.

However, Judge Ward denied without prejudice the tavern's bid for partial summary judgment related to its claim for declaratory judgment pertaining to the civil authority provision of the insurance contract, finding there to be genuine issues of material fact remaining as to that provision and whether COVID-19 caused damage to property.

The judge also denied Erie's bid for judgment on the pleadings, stating that the court is not convinced that, as a matter of law, the tavern cannot prevail on its damage theory.

Cooper, the tavern's attorney, told Law360 that if Erie appeals the decision, "hopefully we can get an expedited en banc review from the Pennsylvania Superior Court or King's Bench from the Pennsylvania Supreme Court."

Cooper, who is representing other businesses in the same situation as the tavern, urged a Pennsylvania appellate panel in April to allow cases with the same question — whether businesses' losses due to the virus should be covered by their insurance company — to be coordinated before Judge Ward.
 
"Each case has the same threshold issue that needs to be decided, so even that issue being decided will go a long way towards resolving these cases," Cooper said Tuesday.

Macmiles LLC/Grant Street Tavern is represented by John P. Goodrich and Lauren Nichols of Jack Goodrich & Associates PC, James C. Haggerty of Haggerty Goldberg Schleifer & Kupersmith PC, Jonathan Shub and Kevin Laukaitis of Shub Law Firm LLC and Scott B. Cooper of Schmidt Kramer PC.

Erie is represented by Robert T. Horst, Robert M. Runyon III and Matthew B. Malamud of Timoney Knox LLC and Richard W. DiBella, Tara L. Maczuzak and Jason H. Peck of DiBella Geer McAllister Best PC.

The case is Macmiles v. Erie Insurance Exchange, case number GD-20-007753, in the Court of Common Pleas for Allegheny County, Pennsylvania.

--Editing by Jill Coffey.

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