By Daphne Zhang

Law360 (March 31, 2021, 9:09 PM EDT ) Cincinnati Insurance Co. won its bid to toss four Philadelphia businesses' consolidated class actions seeking COVID-19-related loss coverages, after a Pennsylvania federal judge ruled that the virus and state closure orders did not damage the businesses' properties.

U.S. District Judge Michael M. Baylson closed the cases on Tuesday, holding that the four businesses — a bar, a catering service company, a roller-skating park and a gym — failed to show that they incurred "direct physical loss," a precondition for coverage under their commercial property policies with Cincinnati Insurance.

The businesses, Milkboy Philadelphia, Peachtree Catering and Events, Chester County Sports Arena and Cornerstone Health and Fitness, only demonstrated financial losses but nothing "physical," the judge said. Finding coverage for them would stretch the phrase "direct physical loss" beyond its plain meaning to cover economic losses, he said.

In his decision to shoot down the businesses' suits, Judge Baylson held that a heavily cited Missouri federal case against the same insurer, Studio 417 Inc. v. Cincinnati Insurance Co. , doesn't apply to the Philadelphia businesses' claims.

According to court records, the businesses relied on the Missouri federal court's ruling, which favored a broad definition of "direct physical loss" by finding that the presence of the virus itself provided a basis for coverage. But Judge Baylson said on Tuesday that the case is not persuasive.

"As far as this court is aware, Studio 417 is the only COVID-19 business interruption case where a federal court denied the insurer's motion to dismiss," he said. "The other courts' willingness to find a 'direct physical loss' appears contrary to the plain language of the policies, especially when compared to similar cases in the Third Circuit."

MilkBoy, a bar that also serves as a music venue, filed its proposed class-action suit last April, seeking to represent Cincinnati customers nationwide that had business income, extended business income, extra expense or civil authority insurance policies. Subclasses would cover customers that were either denied claims for losses related to the closure orders or were seeking a declaratory judgment that such claims should be covered.

MilkBoy has argued that Pennsylvania courts have found that a "loss of use," such as an accumulation of gasoline, constitutes a physical loss of access to the property that can trigger coverage, and that the virus causing COVID-19 is no different. Cincinnati asked the court last July to toss the suit, saying the policy only covers physical damage, not a virus transmitted from human to human.

In December, the court consolidated MilkBoy's case with Peachtree Catering's proposed class action, finding that the two businesses' Cincinnati insurance policies contain identical language. On Tuesday, Judge Baylson added Chester County Sports Arena's and Cornerstone Health's cases to his decision in granting summary judgment to Cincinnati in Milkboy and Peachtree's proposed class action, finding that the businesses hold similar policies and present the same legal issue. 

In the order, the judge said the fact that most federal courts have held that COVID-19 losses are not covered under property policies is sufficient for this court to toss the suits and rule that the businesses are not entitled to coverage.

The four businesses have argued that their property suffered a direct physical "loss of use" after being forced to shut down by government mandates. However, Judge Baylson said they showed nothing physical but purely economic losses.

"Government orders in response to a virus simply do not fit this physicality requirement," the judge said.

Representatives for the parties could not be immediately reached for comment. 

The businesses are represented by Daniel E. Bacine, Mark R. Rosen, Jeffrey A. Barrack, Stephen R. Basser and Meghan J. Talbot of Barrack Rodos & Bacine.

Cincinnati Insurance Co. is represented by Lawrence M. Silverman of Litchfield Cavo LLP.

The case is MilkBoy Center City LLC v. The Cincinnati Insurance Co. et al., case number 2:20-cv-02036; Stone Soup Inc. v. The Cincinnati Insurance Co., case number 2:20-cv-02614; Chester County Sports Arena v. The Cincinnati Insurance Co., case number 2:20-cv-02021; Cornerstone Warrington v. The Cincinnati Insurance Co., case number 2:20-cv-02398 in the U.S. District Court for the Eastern District of Pennsylvania.

--Additional reporting by Jeff Sistrunk. Editing by Nicole Bleier.

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