According to the Opinion by Judge Terrence R. Nealon of the Lackawanna County Court of Common Pleas, the Plaintiff is a gym and fitness center which was required to close its premises and cease all business operations in compliance with state government closure orders issued in response to the COVID-19 pandemic.
The Plaintiff commenced this action against its carrier seeking to recover damages under the business income, extra expense, and civil authority coverages contained in its commercial policy for the revenues lost and the additional costs incurred as a result of the pandemic and the resulting closure Orders.
The court noted that, unlike the other Lackawanna County case on similar issues such as The Scranton Club v. Tuscarora Wayne Mut. Group, Inc., 2021 WL 454498 (C.P. Lacka. Co. 2021 Nealon, J.), appeal pending, No. 238 MDA 2021 (Pa. Super. 2021), the insurance policy in this Brown’s Gym case did not contain an exclusion in its business interruption insurance coverages for losses caused by a virus or pandemic. The court in this matter additionally noted that the gym had specifically alleged in its Complaint that the COVID-19 virus was actually present on its covered premises and the neighboring properties, and that all public access to the insured’s property was prohibited as a result.
In his decision, Judge Nealon reviewed a number of pre-pandemic appellate and state court decisions in Pennsylvania addressing coverages in cases where a property has been rendered useless or uninhabitable by an invisible source. The court noted that, under a “physical contamination” theory, the courts have concluded that invisible sources such as ammonia fumes, e-coli bacteria, carbon monoxide, gas vapors, lead intrusion, odor from cat urine, or methamphetamine cooking, which made a covered premises unusable, unsafe, or unfit for its intended use could constitute “physical loss of damage” under the terms of a commercial insurance policy.
Judge Nealon noted that, in the wake of the Coronavirus pandemic and the related government closure orders, “better reasoned decisions across the country have applied the ‘physical contamination’ theory in recognizing the applicability of business interruption insurance coverage only if the insured asserts that the COVID-19 virus was actually present on or attached to services on the covered property, and if the virus’ presence caused the insured premises to become uninhabitable, unusable, inaccessible, or unduly dangerous to use.
Based upon the Plaintiff’s allegations in this matter asserting the continuous presence of the COVID-19 virus on its property that allegedly rendered the property unusable, unsafe, inaccessible and unfit for its intended use, the court found that the gym had sufficiently alleged a “direct physical loss of damage” to its property under the “physical contamination” theory as a necessary condition to recover business interruption coverage.
The court also noted that there were other provisions in the insurance policy that created a reasonable expectation on the part of the gym that Coronavirus-related damages would be covered by the policy’s business interruption insurance coverage, but excluded from crisis event response communication expense coverage.
The court additionally found that the gym had a valid alternative claims for “business income” and “extra expense” recovery under its “civil authority” coverage.
Lastly, the court noted that, in light of the gym’s allegations that the carrier had misrepresented the terms of the policy and the monetary limits to the gym and had also denied the gym’s coverage request allegedly based upon the carrier’s own economic considerations as opposed to the merits of the claim, the court overruled the carrier’s demurrer to the gym’s declaratory judgment action as well as the claims for breach of contract and bad faith.
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