J-A09038-23
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT OP 65.37
THE SCRANTON CLUB : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
v. :
:
TUSCARORA WAYNE MUTUAL :
GROUP, INC., SUSQUEHANNA :
CAPITAL CORP., TUSCARORA WAYNE :
INSURANCE COMPANY, TUSCARORA :
WAYNE MUTUAL INSURANCE :
COMPANY : No. 238 MDA 2021
Appeal from the Order Entered January 25, 2021,
in the Court of Common Pleas of Lackawanna County,
Civil Division at No(s): 20 CV 2469.
BEFORE: PANELLA, P.J., OLSON, J., and KUNSELMAN, J.
MEMORANDUM BY KUNSELMAN: FILED: SEPTEMBER 12, 2023
The Scranton Club appeals from the order sustaining the preliminary
objections filed by Tuscarora Wayne Mutual Group, Inc., et al. and dismissing
this action. The Scranton Club was seeking a declaration that its insurance
policy provided coverage for losses sustained, including business income,
during the pandemic. Upon review, we reverse in part and affirm in part.
The trial court set forth the following relevant facts:
The Scranton Club operates a private social club, limited to selling
alcoholic beverages and food to its members and to the members’
guests, at its premises located at 404 North Washington Avenue,
Scranton, and “also has a catering license and hosts various
events on a regular basis, including but not limited to private
parties, showers, and receptions,” at those premises. [I]t
purchased a commercial insurance policy from defendant,
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Tuscarora Wayne Insurance Company (“Tuscarora”), which
afforded all risk coverage for the time period of January 19, 2020,
through January 19, 2021. The Scranton Club maintains that the
commercial policy provided property, business, personal property,
business income, extra expense, as well as additional coverages,
as reflected by the 118 page policy that is attached as an exhibit
to the complaint.
The declaration pages set forth the various coverages, forms,
endorsements, and monetary limits of insurance for [T]he
Scranton Club’s Commercial Package Policy.
Trial Court Opinion, 1/25/21, at 3-4 (quotations omitted).
Specifically, relevant provisions of the insurance policy regarding
coverage and exclusions provided as follow:
Building and Personal Property Coverage
A. Coverage
Will pay for direct physical loss of or damage to Covered Property
at the premises described in the Declarations caused by or
resulting from any Covered Cause of Loss.
***
Business Income (and Extra Expense) Coverage
A. Coverage
1. Business Income
***
We will pay for the actual loss of Business Income you
sustain due to the necessary “suspension” of your
“operations” during the “period of restoration.” The
suspension must be caused by direct physical loss of or
damage to the property at premises . . . The loss or damage
must be caused by or result from a Covered Cause of Loss.
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2. Extra Expense
***
b. Extra Expense means necessary expenses you
incur during the “period of restoration” that you would
not have incurred if there had been no direct physical
loss or damage to property caused by or resulting from
a Covered Cause of Loss.
We will pay Extra Expense (other than the expense
to repair or replace property) to:
(1) Avoid or minimize the “suspension” of
business and to continue operation at the
described premises or at replacement
premises or temporary location including
relocation expenses and costs to equip and
operate the replacement location.
(2) Minimize the “suspension” of business if
you cannot continue “operation.”
We will also pay Extra Expense to repair or replace
property, but only to the extent it reduces the
amount of loss that otherwise would have been
payable under this Coverage Form.
***
5. Additional Coverages
a. Civil Authority
***
When a Covered Cause of Loss causes damage to
property other than property at the described premises,
we will pay for the actual loss of Business Income you
sustain and necessary Extra Expense caused by action of
civil authority that prohibits access to the described
premises, provided that both of the following apply:
(1) Access to the area immediately surrounding
the damaged property is prohibited by civil
authority as a result of the damage, and the
described premises are within that area but
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are not more than one mile from the
damaged property; and
(2) The action of civil authority is taken in
response to dangerous physical conditions
resulting from the damage or continuation of
the Covered Cause of Loss that caused the
damage, or the action is taken to enable a
civil authority to have unimpeded access to
the damaged property.
As additional coverage, the policy also covers “Extended Business
Income” after operations resume and while working on generating business
income to the level before the loss.
For purposes of Business Income (and Extra Expense) Coverage, the
policy set forth the following relevant definitions:
3. “Period of restoration” means the period of time that:
a. Begins:
(1) 72 hours after the time of direct physical loss or damage
for Business Income Coverage; or
(2) Immediately after the time of direct physical loss or
damage for Extra Expense Coverage;
caused by or resulting from any Covered Cause of Loss at the
described premises; and
b. Ends on the earlier of:
(1) The date when the property at the described premises
should be repaired, rebuilt or replaced with reasonable
speed and similar quality; or
(2) The date when business is resumed at a new permanent
location.
***
6. “Suspension” means:
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a. The slowdown or cessation of your business activities; or
b. That a part or all of described premises is rendered
untenantable if coverage for Business Income Including
“Rental Value” or “Rental Value” applies.”
Both the “Building and Personal Property Coverage” and the “Business
Income (and Extra Expense) Coverage” apply where there is a “Covered Cause
of Loss,” which the policy states as follows:
Causes of Loss – Special Form
A. Covered Causes of Loss
When Special is shown in the declarations, Covered Causes of Loss
means Risks of Direct Physical Loss unless the loss is:
1. Excluded in Section B., Exclusions; or
2. Limited in Section C., Limitations;
One such Exclusion provided:
Exclusion of Loss Due to Virus or Bacteria
A. The exclusion set forth in Paragraph B, applies to all coverage
under all forms and endorsements that comprise this Coverage
Part or Policy, including but not limited to forms or
endorsements that cover property damage to buildings or
personal property and forms or endorsements that cover
business income, extra expense or action of civil authority.
B. We will not pay for loss or damage caused by or resulting from
any virus, bacterium or other micro-organism that induces or
is capable of inducing physical distress, illness or disease.
R.R. at 32a, 75a, 82a-105a.
In the spring of 2020, Governor Wolf issued a stay-at-home order due
to the COVID-19 pandemic. As a result, The Scranton Club was required to
cease its normal operations and close its business. It sustained a “substantial
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loss [in] revenues” and was forced to “furlough or layoff [] the majority of its
employees.”
The Scranton Club filed an insurance claim with Tuscarora based upon
the foregoing insurance policy provisions. Tuscarora denied these claims
because The Scranton Club did not suffer any “direct physical loss of or
damage to” the insured premises as required under the Building and Personal
Property Coverage and Business Income (and Extra Expense) Coverage.
Additionally, Tuscarora cited the policy’s Virus Exclusion as a basis for denial
of coverage.
The Scranton Club filed this lawsuit seeking a declaration that its losses
in connection with the closure orders and interruption of its business stemming
from the pandemic were insured losses under the policy. Additionally, The
Scranton Club filed a breach of contract claim alleging that Tuscarora’s denial
of coverage constituted a breach of its obligations under the insurance policy.
Lastly, The Scranton Club claimed that Tuscarora acted in bad faith when it
denied coverage under the policy.
Tuscarora filed preliminary objections in the nature of a demurrer to all
three claims. It argued: coverage was barred by the policy’s Virus Exclusion;
The Scranton Club failed to allege any actual physical damage to establish
“direct physical loss of or damage to” its property; the Civil Authority coverage
did not apply because the governmental orders must be issued as a result of
damage to other property and in response to “dangerous physical conditions”
resulting from such damage; and, because the policy did not afford coverage,
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there was no basis for The Scranton Club’s bad faith claim. Although the trial
court overruled the objection based on the Virus Exclusion, it sustained
Tuscarora’s objections as to Tuscarora’s coverage arguments. Consequently,
the court dismissed The Scranton Club’s complaint in its entirety.
The Scranton Club filed this timely appeal. The Scranton Club and the
trial court complied with Pennsylvania Rule of Appellate Procedure 1925.
On appeal, Scranton raises the following issues:
1. Whether the trial court erred as a matter of law in sustaining
the [Tuscarora’s] preliminary objections in the nature of a
demurrer as to [The Scranton Club’s] claims based on a conclusion
that []the Scranton Club failed to allege any “direct physical loss
of or damage to” its property so as to state a cognizable claim for
insurance coverage?
2. Whether the trial court erred as a matter of law in sustaining
[Tuscarora’s] preliminary objections in the nature of a demurrer
as to [The Scranton Club’s] claims seeking to recover under the
Civil Authority coverage provided by the policy?
3. Whether the trial court erred as a matter of law in sustaining
[Tuscarora’s] preliminary objections in the nature of a demurrer
as to The Scranton Club’s claim for first–party bad faith liability
pursuant to 42 Pa. Cons. Stat. Ann. §8371?
Scranton’s Brief at 5.
Our role with respect to an appeal from preliminary objections is as
follows:
A preliminary objection in the nature of a demurrer is properly
sustained where the contested pleading is legally insufficient.
Preliminary objections in the nature of a demurrer require the
court to resolve the issues solely on the basis of the pleadings; no
testimony or other evidence outside of the complaint may be
considered to dispose of the legal issues presented by the
demurrer. All material facts set forth in the pleading and all
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inferences reasonably deducible therefrom must be admitted as
true.
In determining whether the trial court properly sustained
preliminary objections, the appellate court must examine the
averments in the complaint, together with the documents and
exhibits attached thereto, in order to evaluate the sufficiency of
the facts averred. The impetus of our inquiry is to determine the
legal sufficiency of the complaint and whether the pleading would
permit recovery if ultimately proven. This Court will reverse the
trial court's decision regarding preliminary objections only where
there has been an error of law or abuse of discretion. When
sustaining the preliminary objections will result in the denial of
claim or a dismissal of suit, the preliminary objections may be
sustained only where the case is free and clear of doubt.
Hill v. Ofalt, 85 A.3d 540, 547-548 (Pa. Super. 2014) (quotation marks,
citations, and corrections omitted).
Additionally, in an action arising under an insurance policy, we observe
that “it is a necessary prerequisite . . . for the insured to show a claim within
the coverage provided by the policy.” Betz v. Erie Ins. Exch., 957 A.2d
1244, 1256 (Pa. Super. 2008) (citing Miller v. Boston Ins. Co., 218 A.2d
275, 278 (Pa. 1966)). As such, we are limited to considering the provisions
of the policy itself.
Because coverage language varies from policy to policy, we must
consider the language of the policy issued in each case. See Bishops, Inc.
v. Penn Nat. Ins., 984 A.2d 982, 993 (Pa. Super. 2009) (noting that “every
holding arising from application of an insurance policy to a given set of facts
is specific to that policy and those facts,” and “a case may be of great value
or little to the extent that the circumstances at issue are analogous to those
in the current case”), appeal denied, 20 A.3d 482 (2011). Furthermore,
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“‘[w]here an insurer relies on a policy exclusion as the basis for its denial of
coverage . . . , the insurer has asserted an affirmative defense, and
accordingly, bears the burden of proving such defense.’” Spece v. Erie Ins.
Grp., 850 A.2d 679, 682 (Pa. Super. 2004) (quoting Madison Construction
Co. v. Harleysville Mutual Ins. Co., 735 A.2d 100, 106 (Pa. 1999)).
In its first issue, The Scranton Club claims that the trial court erred in
sustaining Tuscarora’s preliminary objections on the basis that it did not allege
any “direct physical loss of or damage” to its property, so as to state a claim
for coverage. Specifically, The Scranton Club claims it sustained a “direct
physical loss of . . . property” when it was prohibited from hosting and serving
customers on its premises during the pandemic and government ordered
shutdown. Scranton’s Brief at 23. According to The Scranton Club, “direct
physical loss of . . . property” does not require that it show some physical
damage to or alteration of the property, as Tuscarora argues and the trial
court concluded, to trigger coverage for loss of business income. Id. at 25.
Instead, The Scranton Club maintains that the policy covered its loss of use
of the property. Id. at 28. The Scranton Club further argues that, given the
conflicting interpretations of the parties, at a minimum, the policy language
at issue is ambiguous. Id. at 38. Therefore, dismissal of its complaint was
improper.
The trial court ruled that The Scranton Club did not allege any facts to
establish that it incurred a “direct physical loss of or damage to property” as
required to establish coverage under the policy. After surveying various cases
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involving a policy requiring “physical loss of or damage to” property, the court
noted that to trigger coverage, there must be “some form of physical damage
to [The Scranton Club’s] premises that rendered it uninhabitable or unusable.”
Trial Court Opinion, 1/25/21, at 34. The court further opined that the policy’s
definition of “period of restoration” contemplated that there would be some
physical damage that required repair, rebuilding, or replacement, thereby
lending support to the requirement that there be some physical damage or
alteration to the property. The court noted that The Scranton Club did not
allege any damage or alteration to its property or that any repair, restoration,
or replacement of the premises occurred during the period of restoration.
Consequently, the trial court held that The Scranton Club failed to allege facts
to establish a claim within coverage of the policy.1 Id. at 36. We disagree.
At the time of the trial court’s decision in this matter, there was no
Pennsylvania appellate precedent addressing the applicability of insurance
policies to the economic losses incurred by businesses as a result of the
pandemic. Even common pleas court cases had not addressed the merits of
the substantive issues raised herein. The trial court noted this and
consequently considered decisions from the federal courts. Id. at 20, 22, 30.
____________________________________________
1 The trial court also maintained that The Scranton Club did not argue that
“direct physical loss of or damage to” property included “loss of use of its
property,” and as such has been waived for appeal purposes. Trial Court
Opinion, 5/3/21, at 6; Scranton’s Brief at 29. However, our review of the
record reveals that The Scranton Club did raise this argument with the trial
court. See R.R. 325a-30a.
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However, since then, this Court, sitting en banc, decided Ungarean v.
CNA, 286 A.3d 353 (Pa. Super. 2022), appeal granted, 2023 WL 4530116
(2023).2 There, Ungarean sought coverage for economic losses that his dental
practice sustained as a result of closing it during the COVID-19 pandemic as
mandated by the Governor under his CNA policy. CNA denied coverage
claiming that Ungarean did not suffer any “direct physical loss of or damage
to” property. Ungarean filed a declaratory judgment action seeking a
declaration that his pandemic-related business losses were covered under the
CNA Policy’s Business Income, Extra Expense and Civil Authority provisions.
Upon Ungarean’s motion for summary judgment, the trial court granted it,
declaring that he had suffered a direct physical loss of his dental practice and
was entitled to coverage under the policy.
Upon CNA’s appeal, we affirmed. In particular, we agreed with the trial
court that Ungarean’s loss of business income during the pandemic fell within
the scope of his insurance policy’s business income coverage due to
suspension of operations caused by “direct physical loss of or damage to”
property even though the property did not incur any actual physical damage.
Critical to that decision, was the meaning of the phrase “direct physical loss
____________________________________________
2 We also decided MacMiles, LLC d/b/a Grant Street Tavern v. Erie Ins.
Exch., 286 A.2d 331 (Pa. Super. 2022), appeal granted, 2023 WL 4528617
(2023), where we found no coverage. However, the policy in that case
differed from the policy in Ungarean and the present case.
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of or damage to property” as the policy did not define any of the terms therein,
particularly “damage” and “loss.” To resolve this, the trial court stated:
This [c]ourt [begins] its analysis [of what the phrase ‘direct
physical loss of . . . property’ reasonably means] with the terms
“damage” and “loss,” as these terms are the crux of the disputed
language . . . . “[D]amage” is defined as “loss or harm resulting
from injury to person, property, or reputation,” and “loss” is
defined as “DESTRUCTION, RUIN ... [and/or] the act of losing
possession [and/or] DEPRIVATION ...”
Based upon the above-provided definitions, it is clear that
“damage” and “loss,” in certain contexts, tend to overlap. This is
evident because the definition of “damage” includes the term
“loss,” and at least one definition of “loss” includes the terms
“destruction” and “ruin,” both of which indicate some form of
damage. However, [ ] in the context of this [CNA Policy], the
concepts of “loss” and “damage” are separated by the disjunctive
“or,” and, therefore, the terms must mean something different
from each other. Accordingly, in this instance, the most
reasonable definition of ‘loss’ is one that focuses on the act of
losing possession and/or deprivation of property instead of one
that encompasses various forms of damage to property, i.e.,
destruction and ruin. Applying this definition gives the term “loss”
meaning that is different from the term “damage.” Specifically,
whereas the meaning of the term “damage” encompasses all
forms of harm to [Ungarean's] property (complete or partial), this
[c]ourt conclude[s] that the meaning of the term “loss” reasonably
encompasses the act of losing possession [and/or] deprivation,
which includes the loss of use of property absent any harm to
[the] property.
Id. at 360 (quoting the Court of Common Pleas of Allegheny County).
Considering the trial court’s analysis of the ordinary meaning of the
operative words, “loss” and “damage,” and the fact that CNA wrote the phrase
in the disjunctive, this Court concluded that “direct physical loss” had a
different meaning than “direct physical damage.” Id. We further observed
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that the definition of “loss” includes the loss of possession or deprivation of
the property, whereas damage does not, and, as such, the phrase “loss of
property” included the act of being deprived of the physical use of one’s
property.” Id.
We further agreed with the trial court’s rejection of CNA’s argument that
the “period of restoration” provisions in the policy supported its claim that
there must be physical damage or alteration to the property to trigger
coverage. Instead, as the trial court concluded, “period of restoration” related
to the time limits for coverage and not the meaning of “physical loss of or
damage to.” Id. at 361. Therefore, we held that Ungarean’s loss of the use
of his property for his dental practice equated to a direct physical loss of his
property, despite the fact that there was no physical damage or alteration to
the property, to trigger coverage. The policy therefore provided coverage.
Id. at 360.
Importantly, the pertinent provisions of the policy involved in this case
are virtually identical to the policy provisions in Ungarean. First, the policy
provides coverage “for direct physical loss of or damage to” covered property
at the premises. It also provides coverage for loss of business income and
extra expense incurred due to the suspension of an insured’s operations
caused by a “direct physical loss of or damage to” the covered property. The
policy issued by Tuscarora also does not provide a definition for the phrase
“direct physical loss or damage to property” or any of the terms used therein.
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Applying the analysis and interpretation of this phrase adopted in
Ungarean, we conclude the trial court erred in determining that The Scranton
Club was required to allege some physical damage or alteration to its property
to trigger coverage. Instead, The Scranton Club’s allegation that it lost the
use of its property during the pandemic was sufficient, as a matter of law.
Additionally, as in Ungarean, Tuscarora’s argument that the definition
of “period of restoration” changes the interpretation and indicates that
physical damage is required, is unpersuasive. The definition of “period of
restoration” does not apply to the policy’s “Building and Personal Property
Coverage.” It does, however, apply to the policy’s Business Income (and
Extra Expense) Coverage, but we agree that The Scranton Club need not plead
or show a change to the property’s physical characteristics. Therefore, the
trial court erred in sustaining Tuscarora’s preliminary objections on this basis.
Tuscarora argues, however, that coverage is barred by the policy’s Virus
Exclusion, and as such is not obligated to cover any of The Scranton Club’s
claimed losses or expenses. Consequently, it maintains that the trial court
erred in concluding that it could not determine, as a matter of law, that the
Virus Exclusion applied and asks this Court on appeal to reverse the trial
court’s decision in that regard. Tuscarora’s Brief at 36.
The trial court overruled Tuscarora’s demurrer based on the Virus
Exclusion. The court observed that this exclusion did not contain anti-
concurrent causation language and consequently, the efficient proximate
cause or concurrent causation doctrine applied. As such, the application of
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the Virus Exclusion here could not be determined as a matter of law. Trial
Court Opinion, 1/25/21, at 25. We agree.
Under the efficient proximate cause analysis that applies under
Pennsylvania law, a covered risk and an excluded risk may combine to cause
a loss, with the resulting loss or damage being covered by the policy. See
Trexler Lumber Co. v. Allemannia Fire Ins. Co., 136 A. 856, 858 (Pa.
1927). The trial court explained its application of this doctrine as follows:
The Scranton Club avers that the coronavirus was never present
at its insured premises and that the cause of its business losses
was the government closure orders, whereas Tuscarora asserts
that the closure orders and resulting losses were solely traceable
to COVID–19. The closure orders implemented across the nation
were in response to the transmission of COVID–19 and the desire
of state and local governments to control the further spread of
that virus. But those closure orders were not issued uniformly, or
even consistently, based upon the extent that the coronavirus was
present in each state. While Pennsylvania continued to impose
complete or partial restrictions on business activities, other states
such as Florida, Georgia, and Texas, which had comparable or
greater per capita incidence of positive COVID–19 cases, allowed
their businesses to operate without limitations or with significantly
lesser constraints. In that respect, the closure orders, rather than
the novel coronavirus itself, determined the gains or losses
experienced by the businesses in those states. Although the
parties did not raise the disparity in the various states’ closure
orders in their submissions, it is appropriate to consider that
documented variability in determining whether the law states with
certainty that COVID–19 was the proximate cause of [T]he
Scranton Club’s business losses.
Tuscarora’s virus exclusion lacks the anti–concurrent causation
language contained in the insurance policies that were analyzed
by the federal rulings cited by Tuscarora, as a result of which
Tuscarora’s demurrer may be sustained only if it is clear and free
from doubt that, based upon the allegations of [T]he Scranton
Club’s complaint, the virus exclusion bars coverage as a matter of
law. Such a conclusion would necessitate a definitive finding that
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COVID–19, not the particular closure orders issued in
Pennsylvania, was the proximate cause of [T]he Scranton Club’s
business losses. While those closure orders and the coronavirus
may have been concurring causes of [T]he Scranton Club’s
business losses, it cannot be declared as a matter of law that the
COVID–19 was the efficient proximate cause based upon the
factual allegations of the complaint.
Id. at 27-28.
The “fact-specific proximate cause determination [could not] be made
as a matter of law based upon [T]he Scranton Club’s averments, and
Pennsylvania law requires exclusionary clauses to be strictly construed in favor
of the insured.” Id. at 29. As such, we conclude that the court did not err in
overruling Tuscarora’s demurrer based upon the Virus Exclusion. See id. at
29.
In its second issue, The Scranton Club claims that the trial court erred
in sustaining Tuscarora’s preliminary objection as to its claim for coverage
under the Civil Authority provision of the policy. Scranton’s Brief at 40.
Specifically, it argues it pled that access to the area immediately surrounding
the property was prohibited by the Governor’s orders and that a state of
emergency existed throughout the Commonwealth. Id. at 42.
The Scranton Club further argues that issues of fact remained regarding
whether COVID-19 damaged any property; was actually present at any
property; and the extent to which the Governor’s orders were issued in
response to property damaged by COVID-19. Id. at 41. Consequently, The
Scranton Club maintains that it pled sufficient facts to trigger coverage and
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the trial court could not, as a matter of law, conclude that it did not establish
the existence of coverage under this provision. See id.
The trial court concluded that The Scranton Cub did not establish that
coverage existed under the Civil Authority provision. The court stated that
“coverage applies to a nearby property, other than [The Scranton Club’s]
premises, [which] sustains damage and access to the [its] property is
prohibited as a result.” Trial Court Opinion, 1/25/21, at 37. The trial court
further observed that “[T]he Scranton Club [did] not allege in its complaint
that a neighboring property was damaged by COVID-19 or a covered cause of
loss, or that access to its own property was barred by a civil authority in
response to dangerous conditions created by that adjoining property.” Id.
Because The Scranton Club did not allege facts to satisfy coverage
requirements, the trial court concluded that coverage was unavailable and
sustained Tuscarora’s objection. We agree.
In its complaint, The Scranton Club alleged that the entire
Commonwealth had been declared a disaster area due to COVID-19 and as
such the Governor’s orders required all entities to shut down unless they were
a life-sustaining business. The Scranton Club further alleged that there was
no evidence that the virus was present on its own property. From these
allegations, it can be inferred that businesses and properties other than The
Scranton Club were affected by COVID-19 and that, as a result, the authorities
needed to prohibit access to The Scranton Club’s property and business.
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Therefore, The Scranton Club alleged that properties other than its own were
involved.
However, for purposes of Civil Authority Coverage under the policy at
issue here, the civil authority action prohibiting access to The Scranton Club’s
premises must be in response to “damage” caused to another property. That
property must be “damaged” and there must be some ongoing “dangerous
physical condition” stemming from the “damage” to the other property. The
policy here does not provide for “direct physical loss of,” only “damage.” And,
as discussed above, the definition of “damage” that this Court has applied for
insurance coverage purposes and COVID-19 requires that there be some
injury to the property. See Ungarean, 286 A.3d at 360. The Scranton Club
did not allege that any neighboring properties sustained an injury as a result
of the virus which resulted in its property being shut down. While these facts
would have to be proven, The Scranton Club at least needed to allege these
facts in its complaint to withstand preliminary objections, but it did not.3
We therefore conclude that the trial court did not err or abuse its
discretion in determining that The Scranton Club did not establish a claim for
coverage under the Civil Authority provisions of the insurance policy.
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3 We note that, on the issue of Civil Authority Coverage, we reached a different
conclusion than we did in Ungarean. There, the policy provided for such
coverage where the civil authority action was due to “direct physical loss of or
damage to,” not only “damage” as provided for the policy issued by Tuscarora
in this case. See Ungarean, 286 A.3d at 367.
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In its third issue, The Scranton Club claims that, because the reasons
for rejecting its insurance claims were not valid, the trial court erred in
dismissing its claim for bad faith. Scranton’s Brief at 43.
The trial court concluded that because coverage was not available, The
Scranton Club could not establish a claim for bad faith. Based on our analysis
of The Scranton Club’s coverage issues, we disagree.
The trial court based its decision on the premise that, “where coverage
does not exist, the insured is unable to state a bad faith claim on the ground
that coverage was improperly denied.” Trial Court Opinion, 1/25/21, at 41.
While this is an accurate statement of the law, because we reversed the trial
court on the coverage issues, the trial court was premature in sustaining
Tuscarora’s demurrer to The Scranton Club’s claim for bad faith. In its
complaint, The Scranton Club alleged that coverage existed under the policy
and that Tuscarora’s denial was “arbitrary, unreasonable and inconsistent with
the facts and plain language of the policy and inconsistent with Pennsylvania
law.” Like the trial court, we must accept all allegations as true for purposes
of preliminary objections. Therefore, we conclude that The Scranton Club’s
claim for bad faith should proceed at this juncture of the litigation.
In sum, we conclude that the trial court: 1) erred in sustaining
Tuscarora’s preliminary objection on the basis that The Scranton Club did not
allege a “physical loss of or damage to” its property; 2) did not err in
overruling Tuscarora’s preliminary objection as to the Virus Exclusion; 3) did
not err in sustaining Tuscarora’s preliminary objection as to the Civil Authority
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J-A09038-23
coverage under the policy; and 4) erred in sustaining Tuscarora’s preliminary
objection as The Scranton Club’s bad faith claim.
Order reversed in part and affirmed in part.
President Judge Panella has joined. Judge Olson files a concurring
statement.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/12/2023
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