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The Pennsylvania Supreme Court has reversed lower court rulings and denied a dentist’s bid for insurance coverage for loss of use of his offices due to the COVID-19 pandemic.

The high court concluded in a case involving CNA and Valley Forge Insurance Co. that the dentist is “not entitled to insurance coverage under the plain and unambiguous language of the CNA Policy because his business properties covered thereunder did not sustain any physical loss or damage.”

In March 2020, Governor Tom Wolf issued several orders related to the COVID-19 pandemic directing all non-essential businesses to close until further notice. Except for emergency dental procedures, Timothy A. Ungarean, DMD, owner of Smile Savers Dentistry, closed his dental practice, which he claimed caused a drastic loss in income to his business, the furloughing of employees, and other harmful consequences.

Ungarean filed a claim with CNA to recoup those losses. CNA denied coverage on the basis that the covered properties did not suffer any physical damage or harm. Ungarean subsequently filed a class action complaint seeking a declaration that the CNA policy covers his pandemic-related business losses.

A trial court granted Ungarean summary judgment, concluding that Ungarean’s interpretations of the CNA policy and its exclusions were, at the very least, reasonable, and that CNA had failed to demonstrate that the endorsements and exclusions clearly and unambiguously prevented coverage.

The appellate Superior Court in an opinion in 2022 agreed with the trial court that “direct physical loss of or damage to the property” is ambiguous, that the disjunctive “or” indicates a separate meaning of “loss” and “damage,” and that Ungarean’s interpretation of the CNA policy was reasonable and, therefore, controlling.

State Court Splits on COVID Coverage: Yes on Dentist, No on Tavern

CNA filed a petition seeking the Supreme Court’s review.

CNA claimed that the Superior Court erred in its interpretation of the phrase “direct physical loss of or damage to property” in the policy. Specifically, CNA emphasizes that, “under the unambiguous meaning of ‘physical’ loss or damage,” a physical alteration or deprivation to the subject property is required. CNA insisted that the loss of use of the covered properties’ intended business purpose as a result of Governor Wolf’s COVID-19 non-essential business shutdown is insufficient under the policy to afford Ungarean coverage.

Ungarean, on the other hand, insisted that the trial court and Superior Court properly interpreted the CNA policy to afford him coverage, reiterating that the disjunctive “or” in the CNA policy means that “loss of” and “damage to” property must have different meanings.

Ungarean claimed he was entitled to coverage because he physically lost the ability to use the properties. In other words, he argued, contrary to CNA’s interpretation, physical damage was not required for coverage. In support of his interpretation, Ungarean insisted that the policy is ambiguous because it is susceptible to two reasonable interpretations— i.e., that of CNA and that of Ungarean.

In rejecting Ungarean’s arguments, the Supreme Court went right to the point that for coverage to apply, there must be a “direct physical loss of or damage to” the property. The high court determined that the “only reasonable interpretation” of the operative phrase “direct physical loss of or damage to property” in the CNA policy is that there must be either (1) a physical disappearance, partial or complete deterioration, or absence of a physical capability or function of the property (loss), or (2) a physical harm or injury to the property (damage). In other words, a physical alteration to the subject property is a threshold requirement for coverage to apply under the CNA policy.

The Supreme Court concluded that the language of the CNA policy is “not ambiguous because it is subject to only one reasonable interpretation.” That is, for coverage to apply under the CNA policy, there must be a physical alteration to the subject property as a result of a direct physical loss or damage necessitating repairs, rebuilding, or entirely replacing the property.

The court noted that Ungarean did not lose access to his properties during the government-ordered COVID-19 shutdown whatsoever; Ungarean could enter the properties at will and his business remained open for emergency dental procedures. The only loss Ungarean sustained, rather, was pure economic loss because the government-ordered COVID-19 shutdown prevented Ungarean from operating his properties at their full potential. That partial closure, however, had nothing to do with the physical attributes of the properties, as required by the CNA policy for insurance coverage, the high court found.

“Stated differently, the sole reason Ungarean’s business suffered financial losses during the period in question was due to the government-ordered shutdown, not any alleged physical condition,” the court stated.

The court concluded that Ungarean is not entitled to insurance coverage under the plain and unambiguous language of the CNA policy because his properties did not sustain any physical loss or damage.

The Supreme Court noted that its decision is in accord with the prevailing view of other courts from varying jurisdictions. However, the court stressed, its decision “rests solely on the language of the CNA Policy and not the conclusions of other courts interpreting separate, albeit similar, insurance policy language.”

In 2022 when the Superior Court upheld coverage for Ungarean under the CNA policy, it also denied coverage for the owner of the Grant Street Tavern under a similar policy written by Erie Insurance Exchange

Topics Pennsylvania COVID-19