Insurance Alert: Policyholders Find COVID-19 Property Coverage Ally in Pennsylvania Supreme Court

It has been well-chronicled that policyholders looking to their property business interruption insurance to cover losses arising from the COVID-19 pandemic will face resistance from insurers on the issue of whether the policyholder has suffered “direct physical loss or damage” to covered property. While it may take months, or years, of litigation to sort through the variations in policy language, underlying facts, and scientific support that will determine the success of these claims, policyholders can find support in both governmental orders related to the pandemic as well as court orders addressing other aspects of this crisis.

A welcome form of support materialized recently in the Pennsylvania Supreme Court. The Court’s decision in Friends of DeVito v. Wolf, PA S. Ct. No. 68 MM 2020 (available here) should be cited by policyholders in Pennsylvania, and nationally, to support their claim that the COVID-19 virus causes “physical loss or damage” to property.  In DeVito, the Court addressed the legality of Pennsylvania Governor Tom Wolf’s Executive Order compelling the shutdown of non-essential businesses. The DeVito petitioners challenged the Governor’s statutory and constitutional authority to order the shutdown, requesting that it be vacated.

In evaluating the petition, the Court engaged in a lengthy analysis of the Governor’s authority to issue the order, which derives from the Governor’s power to issue an emergency declaration in response to a “natural disaster.” “Natural disaster” is defined in the applicable Pennsylvania statute as: “[a]ny hurricane, tornado, storm, flood, high water, wind-driven water, tidal wave, earthquake, landslide, mudslide, snowstorm, drought, fire, explosion or other catastrophe which results in substantial damage to property, hardship, suffering or possible loss of life.” 35 Pa.C.S. § 7102 (emphasis added).  Although a disaster akin to the COVID-19 pandemic was not one of the specifically identified disasters, the Court determined that it fell within the “other catastrophe” catch-all language. The Court found that the pandemic shared the same common characteristics as the other identified natural disasters, in that they all involve “substantial damage to property, hardship, suffering or possible loss of life.”

The Court further rejected the petitioners’ argument that, even if the pandemic is properly classified as a “disaster,” there was no basis to classify the specific location of the petitioners’ individual businesses as a disaster area. In so doing, the Court noted the prevalence of the COVID-19 virus in all areas of the state – even those in which it may not be readily apparent:

More fundamentally, Petitioners’ argument ignores the nature of this virus and the manner in which it is transmitted. The virus spreads primarily through person-to-person contact, has an incubation period of up to fourteen days, one in four carriers of the virus are asymptomatic, and the virus can live on surfaces for up to four days. Thus, any location (including Petitioners’ businesses) where two or more people can congregate is within the disaster area.

(Id. at p. 26) (emphasis added). And, the Court noted that “[t]he virus can live on surfaces for up to four days and can remain in the air within confined areas and structures.” (Id. at p. 27) (citing Coronavirus Disease 2019, “Symptoms,” CDC, https://www.cdc.gov/coronavirus/2019-ncov/symptoms-testing/symptoms.html National Institutes of Health, “Study suggests new coronavirus may remain on surfaces for days,” (Mar. 27, 2020)).

As we have previously advised, policyholders have viable arguments that “physical loss or damage” can result from the COVID-19 virus in several ways, including physically transforming the air through respiratory droplets and physically attaching itself to surfaces and structures (Insurance Alert: How Do I Get Business Interruption Covered: Does COVID-19 Constitute Direct Physical Damage or Loss? - March 27, 2020) By declaring circumstances leading to the COVID-19 pandemic to be a “natural disaster” leading to physical loss to property, equivalent to damage caused by traditionally-covered destructive forces such as tornados, fire, and explosions, the Pennsylvania Supreme Court has given policyholders a powerful tool in their arsenal to pursue coverage for business interruption losses arising from this pandemic. 

It will be important to follow whether any additional forms of assistance arise from governmental directives and court orders addressing issues arising from this pandemic. In the meantime, policyholders should continue to consult the terms of the policies, document any property damage and loss of income traceable to the pandemic, and consult with their brokers and legal professionals regarding the advisability of making a claim for insurance coverage.