In a motion to dismiss filed Wednesday, Selective argued that the policy it sold to C.A. Spalding Co. was not designed to respond to losses stemming from the government-mandated closures imposed in March by Pennsylvania Gov. Tom Wolf, and C.A. Spalding's closure due to the pandemic does not trigger coverage because the policy has a specific virus exclusion.
Selective contended that the metal fabricator failed to allege that the coronavirus existed on its property but "only that the societal need for social distancing required them to shut its doors," according to the motion. The insurer added that C.A. Spalding was not able to prove that its claimed losses created the need for restoration or reconstruction of its property, so there was no physical loss.
"The plaintiff here failed to plead that any relevant property was actually contaminated with COVID-19, but rather that it could not use its property because of executive orders and a viral pandemic," the insurer said. "Even if actual COVID-19 contamination could, in theory, constitute direct physical loss or damage, the mere risk of such contamination would fail to qualify as such."
Pennsylvania-based C.A. Spalding sued Selective in April, claiming that its business loss from the COVID-19-related state-mandated closure should be covered by its policy with Selective. The company closed March 23 in response to the government's orders.
The metal fabricator, which provides materials for customers including the U.S. military, argued that the coronavirus causes direct physical damage by citing an April 17 Pennsylvania Supreme Court decision, which deemed COVID-19 a natural disaster that causes physical losses covered by property insurance.
In the motion filed Wednesday, Selective also said C.A. Spalding did not demonstrate revenue loss due to the pandemic or government-mandated closures, since it could not show that any contracts were canceled or that it was unable to get new customers.
The insurer contended that the metal fabricator is not a "mom and pop" retail store that relies on shoppers' foot traffic, but contracts with customers.
"Unlike city sidewalk retail businesses, the income earned by a major heavy industry and defense contractor such as plaintiff is not dependent upon its customers being physically present inside its walls," it argued in the motion.
The insurer added that its policy excludes loss caused by "ordinance or law," which also prevents coverage for state-mandated closures.
C.A. Spalding's attorney, Richard Golomb, told Law360 in a Thursday statement that his client's complaint "has been properly and sufficiently plead and is consistent with the law and insurance policy." Golomb added that they are evaluating whether to respond by opposition to the motion to dismiss or filing an amended complaint.
David Sampson, CEO at American Property Casualty Insurance Association, said in a statement that COVID-19-related closure losses for businesses with fewer than 100 employees are between $255 billion and $431 billion per month, which dwarfs the $4.5 billion in premiums they have paid for commercial property risks.
Sampson said pandemics are not insurable because they are too unpredictable to underwrite. "Insurers did not price policies to include such coverage, and policyholders did not pay premiums to have this coverage," he added.
A representative for Selective Insurance did not immediately respond to a request for comment Thursday.
C.A. Spalding is represented by Arnold Levin, Laurence S. Berman, Frederick Longer and Daniel Levin of Levin Sedran & Berman LLP and Richard M. Golomb and Kenneth J. Grunfeld of Golomb & Honik PC.
Selective Insurance is represented by David Smith, Theresa E. Loscalzo, and Raymond J. Hunter of Schnader Harrison Segal & Lewis LLP.
The case is C.A. Spalding Co. v. Selective Insurance Group Inc. et al., case number 2:20-cv-01967, in the U.S. District Court for the Eastern District of Pennsylvania.
--Editing by Kelly Duncan.
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