No Summary Judgment on Civil Authority Provision

In The Court of Common Pleas of Allegheny County, Pennsylvania, applying Pennsylvania law, granted, in part, an insured’s motion for summary judgment finding that it was entitled to insurance coverage for losses it sustained because of COVID-19 under its policy’s business income protection provision. However, the court found that issues of fact prevented summary judgment on its claims for coverage under a civil authority provision. The insured, MacMiles, LLC d/b/a/ Grant Street Tavern (“Grant Street”), is a restaurant and bar located in Pittsburgh, Pennsylvania. Grant Street purchased an ultra plus commercial general liability policy (“Policy”) from Erie Insurance Exchange (“Erie”). The Policy is an all-risk policy that provided coverage for any direct physical loss or direct physical damage unless the loss is specifically excluded.

Between March and April 2020, Pennsylvania’s Governor issued a series of mandates and restrictions directed at businesses and citizens of Pennsylvania because of the spread of COVID-19. Grant Street suspended its business operations and submitted a claim to Erie for its losses due to the closure. Erie denied the claim. Grant Street then initiated an action against Erie asserting six causes of action—a declaratory judgment and breach of contract claim in relation to the business income protection provision of the Policy, a declaratory judgment and breach of contract claim in relation to the civil authority provision of the Policy, and a declaratory judgment and breach of contract claim in relation to the extra expense provision of the insurance policy. The parties filed cross motions for summary judgment on the claims relating to business income protection and the civil authority provisions of the policy.

The business income protection provision provided coverage for “direct physical ‘loss’ of or damage to covered property.” Erie argued that this provision required a physical altercation or demonstrable harm to the Grant Street’s property, whereas Grant Street argued that this provision also included loss of use of its property.

In its analysis, the court took careful steps to ensure that each word was given full effect. First, the court determined that presence of the disjunctive “or” implied that the meaning of “direct physical ‘loss’” had to be different than “direct physical damage.” Thus, even though the plain definitions of the words “loss” and “damage” overlap, the court held that the meaning of “loss” for the business income protection provision focused on the act of losing possession or the deprivation of property. The interpretation of the “loss” in that manner gave full effect to the disjunctive “or” and provided the term with a different meaning that “damage.”

The court also noted that the dictionary definitions of “direct” and “physical” were consistent with its interpretation of “loss.” The court explained that the spread of COVID-19 and government restrictions caused Grant Street to physically limit the use of its property and the number of customers that could be within the physical space – showing that the restrictions and the virus directly impacted how Grant Street used its physical space. The court also rejected Erie’s argument that the restrictions and virus imposed only economic limitations, explaining that the economic losses were a result of the business’s physical losses.

Erie argued that even if Grant Street’s claims fell within coverage under the Policy, the exclusion pertaining to enforcement or compliance with laws and ordinances barred coverage. The court disagreed, finding that Grant Street’s damage was not solely caused by the Governor’s orders but also based on the COVID-19 pandemic as a whole.

In sum, because Grant Street’s interpretation of the provision was reasonable and Erie failed to prove that an exception or limitation applied, the court concluded that there were no genuine issues of material fact for the business income provision claims, and it granted Grant Street’s motion for summary judgment on those issues. 

Conversely, however, the court determined that there were still genuine issues of material fact regarding whether Grant Street could sustain its claims under the civil authority provision of the Policy. Under this provision, Grant Street needed to the prove that COVID-19 was actually present on property other than its own, that the virus caused damage to the property other than its own, that the damaged property was within a mile of its property, and that the actions of the civil authority were taken “in response to dangerous physical conditions resulting from the damage [virus].” Therefore, the court denied Grant Street’s motion for summary judgment on the civil authority provision issue. MacMiles, LLC D/B/A Grant Street Tavern v. Erie Insurance Exchange, No. GD-20-7753 (Ct. Com. Pl. Pa. May 25, 2021).