In one of two separate opinions filed Thursday, U.S. District Judge Gerald McHugh wrote that the "virus exclusion" in the AMCO Insurance Co. policy issued to Philadelphia deli Fuel Recharge Yourself Inc. prevented coverage of the business's claims for income lost to the coronavirus pandemic.
"Fuel argues that the provision is ambiguous because a 'pandemic' and the numerous follow-on consequences from a pandemic (including government closures) differ meaningfully from a virus," Judge McHugh wrote. "This is a distinction without a difference under the language of the exclusion."
Meanwhile, U.S. District Judge Gene Pratter declined jurisdiction over a similar case brought by suburban Philadelphia clothing boutique Julie's Bottega against Selective Insurance Inc., ruling that it was still unclear how state courts interpreted Pennsylvania law on whether the pandemic caused "direct physical loss" and so she would let the case be refiled in state court.
"To the extent that this court can avoid a potentially inconsistent decision with those reached by state courts, it will step back and refrain from adding a square to an already disjointed patchwork of decisions," Judge Pratter wrote.
The lawsuits were among hundreds filed in the state since the start of the pandemic seeking court declarations over whether businesses' insurance policies cover their losses. Like some others whose insurers cited virus exclusions in their denials, Fuel argued that the virus exclusions should be inapplicable to a pandemic, and had been misrepresented to state regulators by insurance trade groups that presented the language for approval years earlier.
But Judge McHugh rejected those claims Thursday. He said the insurers hadn't wavered from their assertions that the virus exclusion was only meant to "clarify" that disease-causing agents were precluded from coverage, and had not deceived regulators.
"Both before regulators and this court alike, [AMCO] has argued that the policy at issue does not cover disease-causing agents," he wrote. "And plaintiff acknowledges that in the insurers' submission to regulators, the companies identified 'the specter of pandemic or hitherto unorthodox transmission of infectious material' as their motivation to secure approval for a virus exclusion."
Although the deli claimed the state-ordered closures should have triggered the AMCO policy, Judge McHugh said the virus exclusion covered those as well, since the closure orders stemmed directly from the virus. And he rejected Fuel's argument that Pennsylvania's "reasonable expectations" doctrine allows the insured's interpretation of the policy to supersede language that might otherwise bar coverage, since the judge said the deli hadn't shown that the insurer gave it any expectations that it would otherwise cover pandemic-related losses.
"In general, the doctrine applies where the insurer unilaterally changed the scope of coverage after plaintiff had purchased the policy or where other affirmative representations by the carrier or its representative created an expectation of coverage," Judge McHugh wrote. "In the absence of such allegations here, I must look to the written policy to determine whether plaintiff's expectations were reasonable."
Meanwhile, rather than weigh whether Selective Insurance owed Julie's Bottega coverage for the clothing shop's losses during the pandemic, Judge Pratter declined jurisdiction under the Declaratory Judgment Act and said the case could be refiled in state court.
"Insurance is a creature of state law," she wrote. "The very issues the court is presented with and asked to resolve are novel questions of state law. The commonwealth's appellate courts have not yet articulated the contours of COVID-19 related insurance coverage."
Judge Pratter said she would rather not predict how state courts might rule on whether the pandemic causes a "direct physical loss," or issue a decision that could affect interpretation of state law down the road. While other federal courts — including her colleague the same day — had decided to weigh in based on general principles of contract interpretation, Judge Pratter said there were deeper issues involving state law that state courts were still grappling with.
"Insurance disputes arising from government shutdown orders described as intending to address the pandemic pose a new slate of state-law specific issues," she said. "The alleged losses here are not the stuff of run of the mill insurance disputes. … The court is mindful of the compelling public interest in having these issues adjudicated by the commonwealth courts when it has discretion to decline jurisdiction."
Counsel for the businesses and the insurers did not immediately respond to requests for comment Friday.
Fuel Recharge Yourself is represented by Sol H. Weiss and Stanford B. Ponson of Anapol Weiss.
AMCO Insurance is represented by William T. Salzer of Swartz Campbell LLC.
Julie's Bottega and Jul-Bur Associates Inc. are represented by Arnold Levin, Daniel C. Levin, Fred S. Longer and Laurence S. Berman of Levin Sedran & Berman and Kenneth J. Grunfeld and Richard M. Golomb of Golomb & Honik.
Selective Insurance is represented by David Smith, Raymond J. Hunter and Theresa E. Loscalzo of Schnader Harrison Segal & Lewis LLP.
The cases are Fuel Recharge Yourself Inc. v. AMCO Insurance Co. et al., case number 2:20-cv-04477, and Jul-Bur Associates Inc. et al. v. Selective Insurance Co. of America et al., case number 2:20-cv-01977, in the U.S. District Court for the Eastern District of Pennsylvania.
--Editing by Bruce Goldman.
Correction: An earlier version of this article misidentified Judge Pratter.
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