Pennsylvania Superior Court Affirms Finding of Direct Physical Loss in COVID-19 Claim

    After the Court of Common Pleas granted summary judgment to the insured on its business interruption claim, the Pennsylvania Superior Court affirmed. Ungarean v. CNA & Valley Forge Ins. Co., 2022 Pa. Super. LEXIS 467 (Pa. Super. Ct. Nov. 30, 2022). 

    Timothy Ungarean operated a dental practice. As a result of the pandemic, Ungarean had to close his dental practice to the public expect for emergency dental procedures. This caused a drastic loss in income, causing him to furlough employees and suffer other harmful consequences. Ungarean filed a claim with CNA for loss of business income due to the physical loss of or damage to his property. CNA denied coverage because Ungaren’s dental practice did not suffer physical damage. 

    Ungaren filed a class action suit and moved for summary judgment. The trial court granted the motion, holding that Ungaren had suffered a direct physical loss of his dentil practice and was therefore entitled to business interruption coverage under the policy.

    The trial court noted that the CNA policy provided coverage for “direct physical loss of or damage to the property . . .” CNA wrote the phrase in the disjunctive, meaning that “direct physical loss” must mean something different from “direct physical damage.” The definition of “loss” included the loss of possession or deprivation of the property, whereas damage did not. It was therefore reasonable to find that “loss of property’ included the act of being deprived of the physical use of one’s property. The Superior Court was convinced the trial court’s reasoning was correct and resulted in a reasonable interpretation of the CNA policy.    

    Further, none of the exclusions were applicable. The “contamination by other than pollutants” exclusion did not apply. Nor did the exclusion for “wet rot, dry rot, and microbes” did not apply to the facts of this case. 

    CNA also sought to invoke the “Ordinance or Law” exclusion. The exclusion barred coverage for loss due to the enforcement of “any ordinance or law regulating the construction, use or repair of any property.” The inclusion of “construction” and “repair” with “use” indicated that the exclusion related to the physical structural integrity of the property. The physical structural integrity of the properties was not at issue and the narrow application of the exclusion was unavailable to CNA. 

    Finally, because access to the property was prohibited by an action of civil authority, the Civil Authority provision applied.