With the outbreak of the Covid-19 pandemic in 2020, businesses across the country were forced to close their doors and turn to their commercial property insurance companies to request coverage. With their properties rendered unusable for their intended (and insured) business purposes, these insureds reasonably expected their “all risk” policies to provide the promised “business income” protection due to the “physical loss” of their properties. However, the insurance industry denied coverage almost everywhere, leading to a surge in lawsuits across the country — including in Pennsylvania.
On November 30, 2022, the Pennsylvania Supreme Court issued two decisions purporting to address the same legal question raised in the vast majority of those cases — whether the term “physical loss” in a commercial property policy can reasonably be construed to mean it denotes the loss of use of the property for the intended business purpose. Curiously, the Superior Court’s decisions are in Hungarian v CNA & Valley Forge Insurance Co., No. 490 WDA 2021, No. 948 WDA 2021, 2022 Pa. Great. LEXIS 467 (Pa. Super. Ct. Nov. 30, 2022) and MacMiles, LLC v. Erie Insurance Exchange, No. 1100 WDA 2021, 2022 Pa. Great. LEXIS 469 (Pa. Super. Ct. Nov. 30, 2022) reached opposite and seemingly contradictory conclusions, leaving the issue far from settled in Pennsylvania.
In March 2021, Judge Ward of the Pennsylvania Court of Common Pleas for Allegheny County issued two detailed opinions awarding summary judgment to separate business owners (dentist Ungarean and pub owner MacMiles) for Covid-19-related losses, arguing that the The term “physical loss” as used in their commercial property policies was reasonably susceptible to an interpretation that included “loss of use” of property resulting in coverage for the insured’s loss of business income. See Hungarian vs. CNA & Valley Forge Ins. co, No. GD-20-6544, 2021 Pa. Dist. & Centy. Dec. LEXIS 2 (Pa. Com. Pl. March 22, 2021); MacMiles, LLC v Erie Ins. Exchange, No. GD-20-7753, 2021 Pa. Dist. & Centy. Dec. LEXIS 4377 (Pa. Com. Pl. May 25, 2021). The insurers appealed to the Pennsylvania Superior Court, which consolidated the two cases into one en banc hearing in April 2022.
On November 30, 2022, the same nine judges en banc Panel issued conflicting decisions in Hungarian and MacMiles. In Hungarian, a majority of five judges affirmed that “physical loss” of property can include deprivation of use of property of the type caused by the pandemic, with four judges dissenting. In MacMileshowever, a majority of five judges accepted the dissent Hungarianwho believes that the “physical loss” of property necessarily requires a physical change in the structure of the property or some other condition that renders the property unusable or uninhabitable.
In Hungarian, the Supreme Court upheld the Court of Common Pleas’ decision, stating that it was in “complete agreement” with that court’s “conclusions” and “reasonings,” ruling that “Hungarian is owed coverage for its COVID-related business losses pursuant to.” is the specific conditions” of the policy. 2022 Pa. Great. LEXIS 467, at *2. The Supreme Court found the Court of Common Pleas’ analysis of the meaning of “direct bodily loss” both “simple” and “compelling” and was “convinced that the reasoning of the trial court is correct and a reasonable interpretation of the CNA policy.” results,’ and in particular, ‘direct physical loss’. ID. at 11. Citing the trial court, the Supreme Court stated that “the most reasonable definition of ‘loss’ is one that focuses on loss of possession and/or deprivation of property, rather than one encompassing various forms of property damage includes, iedestruction and ruin.” ID. at 10. “Specifically, while the meaning of the term ‘harm’ includes all forms of harm [Ungarean’s] property (full or partial), this [c]our conclusion[s] that the meaning of the term “loss” reasonably includes the act of loss of possession [and/or] Deprivation, which includes loss of use of property without any damage [the] Property.” ID. Therefore, the Supreme Court concluded: “It is at least reasonable to conclude that Ungarean’s loss of use of his dental practice due to COVID-19 and the government orders amounted to a direct physical loss of his property.” ID. at *13 (quotations omitted).
In MacMilesjust like the directive in question in Hungarian, the policy provided coverage for “direct physical ‘loss’ or damage to covered property on premises”, including loss of income due to “‘business interruption’ resulting directly from ‘loss’ of or damage to property on premises. ” 2022 Pa. Great. LEXIS 469, at *6. Borrowing from Pennsylvania’s rules for building insurance policies, but primarily based on decisions from outside of Pennsylvania, the MacMiles The majority explained that the term “physical loss” “does not cover the mere loss of use of commercial property unaccompanied by physical alteration or some other intrinsic condition of the property that renders the property itself unusable or uninhabitable”. ID. um 2. To reach this conclusion, the majority relied on what they called the “near-universal majority of courts that have dealt with this issue” that had “reach.”[ed] the same result.” ID. Without identifying any distinctive political language, four of the judges had been in the majority Hungarian agreed to the detention MacMilesnoting that the different decisions were based “exclusively” on the political language at issue in each case. See ID. at *21-22 (Panella, J., matched).
First, for the reasons already discussed, it is difficult to reconcile the Superior Court’s decision Hungarian with his decision MacMiles.
Second, the analysis of the majority in MacMileslike the dissent in Hungarian, appears to be skipping a crucial step in applying Pennsylvania’s principles to insurance policy construction. Under Pennsylvania law, when a policy is subject to more than reasonable interpretation, it is ambiguous and must be “construed in favor of the policyholder and against the insurer.” Kurach v. Truck Ins. Exchange, 235 A.3d 1106, 1116 (Pa. 2020). Whether a political term is ambiguous does not depend on “which ones”. [interpretation] is ‘right’ or ‘wrong’.” Prudential Prop. & Cas. Into the. Co. v. sartno, 903 A.2d 1170, 1177 (Pa. 2006). Rather, the focus is on whether the policy could be construed to provide coverage. See ID. The fact that a proposed construction against reporting “is not inappropriate” does not preclude a finding of ambiguity – unless it is “the just reasonable interpretation of the language used.” Betz v. Erie Ins. Exchange, 957 A.2d 1244, 1254 (Pa. Super. Ct. 2008) (emphasis added). Nor the MacMiles The majority didn’t address the obvious meaning of the Hungarian opinion of the majority. In order to rule in this way, the Superior Court inevitably concluded that its own opinion had to be submitted on the same day Hungarian was a unreasonable interpretation.
Third, because of this split, it seems highly likely (and necessary) that the Pennsylvania Supreme Court would accept the certification cases for review. If that is the case Hungarian The Opinion, with its persuasive analysis of Pennsylvania Insurance Principles and its exclusive reliance on Pennsylvania Insurance Principles, was intended to guide the Court in achieving the reasonable expectations of Pennsylvania policyholders. In fact, there may be no better evidence that policy language is at least ambiguous (and therefore construed in favor of the insured under Pennsylvania law) than nine Superior Court judges arriving at conflicting conclusions Hungarian and MacMiles. For businesses across the country, and in Pennsylvania in particular, a favorable ruling would come as a welcome relief.