Court Orders Limited Discovery Before Ruling on Insurers’ Motions to Dismiss COVID-19 Claims

    Conceding it was an unusual step, the federal district court ordered that limited discovery take place before ruling on the insurers’ motions to dismiss the insureds’ business interruption claims due to COVID-19. Philadelphia Eagles Limited Partnership v. Factory Mut. Ins. Co., 2022 U.S. Dist. LEXIS 225729 (E.D. Pa. Dec. 15, 2022). 

    The Philadelphia Eagles submitted claims to its insurer, Factory Mutual Insurance Company, for large loss of of revenue due to COVID-19. Similarly, the Philadelphia 76ers submitted claims to Hartford Fire Insurance Company for losses due to COVID-19. The insurers denied claims. When suits were filed, the two insurers moved to dismiss.

    Although the two cases were separate with separate policy language, they presented similar legal and procedural issues. The court noted the Third Circuit had previously decided that large quantities of a dangerous particles could constitute a distinct loss to the owner if the quantity “is such as to make the structure uninhabitable and unusable.” Port Authority of New York and New Jersey v. Affilliated FM Ins. Co, 311 F. #d 266 (3d Cir. 2002). If, however, there was not a large quantity of the dangerous particles to make the building unusable, the owner did not suffer a loss. 

    The court also considered two decision recently issued by the Pennsylvania Superior Court. In one case, the court determined that “physical loss or damage” required some kind of physical alteration. MacMiles, LLC v. Erie Ins. Exchange, 2022 Pa. Super. 203 (2022) (en banc). In a second case, the court ruled that “physical loss” could include deprivation from use of the insured property. Ungarean v. CNA and Valley Forge, Ins. Co., 2022 Pa. Super. 204 (2022). The Superior Court noted that Ungarean’s contention that “direct physical loss” should mean something different from “direct physical damage” was reasonable and properly adopted by the lower court. 

    Here, unlike the insured in MacMiles, both the Eagles and the 76ers alleged physical damage to the properties due to the presence of COVID-19 on the surfaces and in the air of their properties. However, the Ungarean decision suggested that omission was not fatal to an insured’s position. 

    The court wished to delay decisions on the issue and allow the insureds to initiate limited discovery without ruliing on the motions to dismiss. Allowing discovery constituted fairness to the insureds without prejudice to the insurers. It was also possible that the Pennsylvania Supreme Court could take up one or both of the lower court decisions and issue a ruling.