The Honorable J. Curtis Joyner, in his decision dated January 8, 2021, in the case of Humans & Resources, LLC, d/b/a Cadence Restaurant vs. Firstline National Insurance Company, 20-CV-2152 (USDC, EDPA) denied the insurer’s motion to dismiss the policy holder’s declaratory judgment complaint which seeks damages for business interruption losses related to COVID-19 and the stay-at-home orders issued by the Governor of Pennsylvania and the Mayor of Philadelphia. The Court’s decision is seemingly overreaching as it ignored the plain unambiguous policy language to allow the policy holder to maintain a claim based on its assertion that it reasonably believed the policy would provide coverage for its losses.
In reaching its decision, the Court acknowledged that the subject “All Risk” policy required that the loss suffered by the business was caused as a result of some actual physical property damage or loss. The Court appreciated that the insured restaurant did not suffer any actual physical loss and that civil authority coverage was not triggered. Moreover, the subject policy contained a virus exclusion that excluded claims for losses resulting from viruses such as COVID-19. To reach its goal-oriented result, the Court applied Pennsylvania’s Doctrine of Reasonable Expectations and held that the policy holder’s “reasonable expectations” may have superseded the unambiguous policy language and exclusions.
“Under this doctrine, Pennsylvania courts have acknowledged the inherent disparity of bargaining power that exists between an insurer and insured, as well as the complexity of policy terms and conditions in insurance contracts,” and that “[t]his dynamic sometimes ‘forces the insurance consumer to rely upon the oral representations of the insurance agent’ which may or may not accurately reflect the contents of the written document.”
Although “in most cases, the language of the insurance policy will provide the best indication of the content of the parties’ reasonable expectations,” the courts must nevertheless “examine the ‘totality of the insurance transaction involved to ascertain the reasonable expectations of the insured.'”
Rational minds must question how a policy holder could have had a “reasonable” expectation that it purchased coverage for the claimed losses when the policy language expressly excluded coverage for those claims and where the Court concluded the policy language was not ambiguous and has been upheld in other cases.
The Court’s overreaching decision is disturbing. It was seemingly issued in contradiction with principles of both contract and insurance law. In fact, the Court, expressly stated in its decision that interpretation of contracts is generally an issue of law for the court. We note that the Court did not grant the policy holder summary judgment but merely denied the carrier’s motion to dismiss on the pleadings. Consequently, the Court allowed discovery to proceed. Insurers in Pennsylvania and throughout the country must hope that the case is either dismissed at trial or through appeals that will undoubtedly be filed.