Claim Under All-Risk Policy For Coverage for COVID-Related Business Losses Dismissed

In the case 4431, Inc. v. Cincinnati Ins. Co., No. 5:20-CV-04396 (E.D.  Pa. Dec. 3, 2020 Leeson, J.), the court dismissed a Plaintiff’s Complaint for failure to state a claim in a case where the Plaintiff was seeking insurance coverage for COVID-related business income losses.  The court found that there was a lack of evidence of any direct “physical loss” required to implicate the coverage provisions of the policy.   

According to the Opinion by Judge Joseph F. Leeson, Jr., the Plaintiffs were owners and operators of restaurants in Pennsylvania that were forced to close due to state orders issued in response to the COVID-19 pandemic.  Those closures allegedly resulted in losses for each restaurant. 

The Plaintiffs sought a recovery under their “all risk” property insurance policies with the carrier.   The Complaint in this matter contained both a request for a declaratory judgment as well as breach of contract claim.   

The court additionally noted that, where a federal court Complaint contains claims for both legal and declaratory relief, a district court must determine whether the legal claims are independent of the declaratory claims.  If the legal claims are found to be independent, the court has an obligation to hear those claims, subject to exceptional circumstances.   However, if the legal claims are dependent upon the declaratory claims, the court retains the discretion to decline jurisdiction of the entire action.   

In this matter, the court found that the Plaintiffs’ breach of contact claim was independent of their claim for declaratory relief in that the breach of contract claim was sufficient in and of itself to invoke the court’s subject matter jurisdiction and was capable of being adjudicated without the requested declaratory relief.    

The court went on to find that the Plaintiff’s were not entitled to coverage under the policy because their premises had not suffered a direct “loss” as that term was defined in the policies as “accidental physical loss or accident physical damage.”  

Judge Leeson referred to two (2) other recent cases from the Eastern District of Pennsylvania reaching the same result when construing similar contractual language.   

Anyone wishing to review a copy of this decision may click this LINK. The companion Order can be viewed HERE

Source:  “Digest of Recent Opinions.”  Pennsylvania Law Weekly (Dec. 24, 2020).