Carriers Urge Pa. Justices To Flip Policyholder Pandemic Win

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Law360 (December 8, 2023, 8:07 PM EST) — The insurers of a Pittsburgh dental practice told the Pennsylvania Supreme Court in an appeal Friday to recognize that, like many other plaintiffs, the dentist can’t be covered for his COVID-19 losses because there was no physical damage to his office.

CNA and Valley Forge Insurance Co. said in a reply brief that a lower state appellate court was wrong in 2022 to afford Timothy Ungarean of Smile Savers Dentistry PC and a similar proposed class of plaintiffs coverage for COVID-19 losses. The insurers said that the kind of physical loss or damage needed to procure coverage “requires a distinct, demonstrable, physical alteration or a loss of tangible possession” of the property, which they said Ungarean could not show.

The insurers said that Ungarean’s claims of loss of use were insufficient to grant him coverage. They said he was not denied access to his property by public health orders, nor were such orders issued as a result of damage to his property.

“Ungarean cites cases purportedly holding that mere loss of use is covered, but most of those cases involved physical deprivation of property and the rest are at odds with persuasive appellate decisions from the same jurisdictions,” the insurers wrote.

“State and federal appellate courts have held in dozens of cases that COVID-19 and public-health orders issued to limit the spread of the virus do not cause ‘physical’ loss of or damage to property,” they added.

To bolster those claims, the insurers cited the Third Circuit’s precedential January opinion in Wilson v. USI Insurance Service LLC , in which that court decided there was no COVID-19 loss coverage for a group of Pennsylvania and New Jersey businesses. That court reasoned that loss of use was insufficient to grant coverage and predicted the supreme courts of New Jersey and Pennsylvania would agree.

The insurers also cited the Pennsylvania Superior Court’s 2022 ruling in MacMiles v. Erie Exchange , finding a Pittsburgh tavern’s COVID-19 losses weren’t covered. MacMiles appealed that ruling, and the Pennsylvania Supreme Court has grouped the tavern’s case with Ungarean for arguments.

Judge Victor P. Stabile, who authored the MacMiles opinion and the dissenting opinion in Ungarean, denied coverage to the Grant Street Tavern, reasoning that its policies do not “cover mere loss of use of commercial property unaccompanied by physical alteration or other condition immanent in the property that renders the property itself unusable or uninhabitable.”

CNA and Valley Forge wrote in their reply that the Pennsylvania Supreme Court should deny coverage to Ungarean “for the reasons given in Wilson and MacMiles.” They said the dentist showed “no basis for rejecting” the decisions in Wilson or MacMiles.

“This court should hold that Ungarean is not entitled to business-income, extra-expense, or civil-authority coverage, because he sustained no ‘direct physical loss of or damage to’ his property,” the insurers again emphasized.

The dentists’ insurance contained an exclusion for microbes, defined by the policy as “”any nonfungal micro-organism … that causes infection or disease,'” the insurers said. “As a virus, COVID-19 is a type of non-fungal microorganism,” they added, disclaiming coverage under that and other policy exclusions.

COVID-19 coverage cases have been notoriously hard to win for businesses across the country. State supreme courts in Iowa, Maryland, Massachusetts, Ohio, South Carolina, Washington and Wisconsin have previously ruled against policyholders seeking COVID-19 coverage.

This year, Louisiana justices joined pro-insurer decisions by the high courts of Connecticut, New Hampshire, Oklahoma, Nevada and the District of Columbia.

Only the Vermont Supreme Court has sided with a policyholder in reviving a suit for a shipbuilder seeking COVID-19 coverage. A Texas jury stood out in August as the only one to side with a policyholder, handing a multimillion-dollar win to Baylor College of Medicine.

Despite the setbacks, policyholder attorneys are looking forward to decisions from state supreme courts including California and New York.

Federal district courts around the country have permanently tossed about 54% of the 1,449 suits from policyholders against their insurance companies seeking pandemic loss-related coverage, according to Law360’s COVID-19 Insurance Case Tracker. Another 22% of the pandemic insurance suits filed in federal courts have been voluntarily dismissed, the tracker shows, though about 21% have yet to be fully decided.

Representatives of the businesses and insurers in MacMiles and representatives of Ungarean did not immediately respond to requests for comments Friday. Representatives of CNA and Valley Forge declined to comment on the case.

MacMiles and Ungarean are represented by James C. Haggerty of Haggerty Goldberg Schleifer & Kupersmith PC, by Scott B. Cooper of Schmidt Kramer PC, by John P. Goodrich of Goodrich & Associates PC and by Jonathan Shub of Shub Law Firm LLC.

Erie is represented by Robert T. Horst, Robert M. Runyon III and Matthew B. Malamud of Horst Krekstein & Runyon LLC; by Richard W. DiBella, Tara L. Maczuzak and Jason H. Peck of DiBella Weinheimer; by Frederick P. Santarelli of Elliott Greenleaf PC; by Adam J. Kaiser and Kristin A. Shepard of Alston & Bird LLP; and by William A. Pietragallo of Pietragallo Gordon Alfano Bosick & Raspanti LLP.

CNA and Valley Forge are represented by Robert M. Runyon III of Horst Krekstein & Runyon LLC; by Matthew A. Goldberg, Ilana H. Eisenstein, Timothy P. Pfenninger and Brett M. Feldman of DLA Piper; and by Kannon K. Shanmugam, Brian M. Lipshutz, Christopher Boehning, Matthew M. Higgins and James Durling of Paul Weiss Rifkind Wharton & Garrison LLP.

The cases are MacMiles LLC v. Erie Insurance Exchange, case number 307 WAL 2022, and Timothy A. Ungarean DMD v. CNA et al., case numbers Nos. 313 & 314 WAL 2022, in the Supreme Court of Pennsylvania.

–Additional reporting by Hope Patti, Ben Zigterman, Riley Murdock and Ganesh Setty. Editing by Amy Rowe.

By Elizabeth Daley