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Law360 (January 28, 2021, 5:34 PM EST ) A Pennsylvania federal judge Thursday granted Selective Insurance Co.'s bid to ax an auto business's suit seeking COVID-19-related coverage, ruling that the company failed to allege that government closure orders caused a physical loss and a virus exclusion bars coverage.
U.S. District Judge Gene E.K. Pratter said Frank Van's Auto Tag LLC could not show a connection between its financial loss and the physical conditions of its insured property. The judge agreed with Selective that a virus exclusion and its anti-concurrent clause precluded all damages resulting from COVID-19 and state-mandated closures.
Frank Vans' claimed that it suffered business losses due to government shutdown orders in March. Selective has denied its insurance claim by asserting the virus exclusion and stating that Frank Van's did not incur a physical loss or damage, a precondition for coverage, according to the suit.
Frank Van's had asked the court to rule that the definition of a "physical loss" is not limited to tangible changes, arguing that because the shutdown orders prevented access to and use of its business, it had sustained a physical loss covered by the policy.
Judge Pratter disagreed Thursday, saying the auto business's property does not lose utility if it continues to function. "Once the shutdown order lifted, Frank Van's could immediately resume business, without a period of restoration," so it did not incur a physical loss covered under the policy, she said.
"If the court adopts Frank Van's interpretation that coverage exists any time there is mere loss of the opportunity to function, the qualifying language of repair, rebuild or replace is rendered surplusage," Judge Pratter said.
The judge also rebuffed Frank Van's argument that the virus exclusion does not apply to the policy's civil authority provision because its loss was caused by the shutdown orders instead of the virus. The policy language is very clear that it precludes all damages caused "directly or indirectly" by any virus, the judge said.
The government closure orders were not issued due to the physical condition of Frank Van's property and the orders caused at most an intangible economic loss, not covered by Selective's policy, she said.
"This complaint does not allege any facts regarding the physical state of the premises. Instead, it alleges that it forewent business income during the closure period," Judge Pratter said. However, she allowed the business to amend its complaint within 60 days.
Counsel for the parties could not be immediately reached for comment Thursday.
Frank Van's is represented by Eric Lechtzin, Liberato Verderame and Marc H. Edelson of Edelson Lechtzin LLP and Joshua H. Grabar of Grabar Law Office.
Selective is represented by Daniel P. Lawn, David Smith, Raymond Hunter and Theresa E. Loscalzo of Schnader Harrison Segal & Lewis LLP.
The case is Frank Van's Auto Tag LLC v. Selective Insurance Co., case number 20-2740, in the U.S. District for the Eastern District of Pennsylvania.
--Editing by Orlando Lorenzo.
For a reprint of this article, please contact reprints@law360.com.
