By Matt Fair

Law360 (June 24, 2021, 6:28 PM EDT) -- A Pennsylvania state judge has shot down claims from Philadelphia-based Spector Gadon Rosen Vinci PC seeking insurance coverage for financial losses it says it sustained after being forced to shut its doors last year as the coronavirus pandemic first swept across the country.

Judge Nina Padilla in the Philadelphia County Court of Common Pleas agreed with Valley Forge Insurance Co that Spector Gadon's offices in Center City must have suffered some form of physical damage in order to trigger coverage for loss of income under its policies.

"There must be some issue with the physical premises which precludes or impedes the business operations of the premises as intended," she said in a decision docketed June 18.

She added that even if there had been confirmed cases of COVID-19 at Spector Gadon's office, that still wouldn't clear the bar for the firm to secure coverage under its policy.

"Even if COVID-19 was present at the subject property, and there is no evidence that was the case, SGRV's claim for coverage would still fail because the virus did not create a distinct, demonstrable, physical alteration of the property," the judge said.

Spector Gadon filed suit last May alleging that a stay-at-home order inked by Gov. Tom Wolf last spring requiring most non-essential businesses to close as a result of the pandemic triggered coverage obligations on the part of Valley Forge.

The complaint said that its policy with the insurer covered "loss of business income" that occurs during a "period of restoration" after it was required to suspend operations.

The policy also explicitly outlines that such a suspension can be the result of actions of civil authorities in response to "direct physical loss of or damage" within five miles of the firm's office, the complaint added.

While Spector Gadon argued in a motion for summary judgment that its policy only required a loss of use of its property and not a physical alteration, Judge Padilla pointed to a Third Circuit decision from 2002 — Port Authority of New York and New Jersey v. Affiliated FM Insurance Co. — finding that the presence of asbestos in a building was not enough to establish a direct physical loss absent some physical alteration of the structure itself.

She also pointed to what she said was a "growing body of case law" stemming from the COVID-19 pandemic finding that some physical damage or alteration to the property was required to trigger business interruption coverage.

Daniel Dugan, an attorney with Spector Gadon representing the firm in the litigation, said he intended to pursue an appeal to the Pennsylvania Superior Court.

"It's a very disappointing order that we intend to appeal," he said.

He noted that, while some coronavirus-related coverage cases have been decided in favor of insurers, policyholders had recently notched victories in at least two cases in Allegheny County.

"It is particularly disappointing in light of the two recent decisions from the common pleas court in Allegheny County that were directly on point, raised the identical issues as in our case, and decided there was coverage," he said.

In the first case, which was decided in March, Judge Christine Ward found that a dental practice that was forced to shut down as a result of the pandemic had indeed suffered both a "direct" and a "physical" loss of use of its property.

Judge Ward in May handed down a second decision in favor of a Pittsburgh tavern on the same grounds.

An attorney for Valley Forge did not immediately return a message seeking comment on Thursday.

Spector Gadon is represented by its own Daniel Dugan and Neal R. Troum.

Valley Forge is represented by Robert Runyon and Daniel Grossman of Timoney Knox LLP.

The case is Spector Gadon Rosen Vinci PC v. Valley Forge Insurance Co., case number 200501636, in The Court of Common Pleas of Philadelphia County, Pennsylvania.

--Additional reporting by Emma Cueto. Editing by Michael Watanabe.

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