The business interruption litigation arena is heating up and a recent Pennsylvania Supreme Court decision certainly has the potential to advance the ball for policyholders seeking coverage for lost business income and extra expense as a result of COVID-19 even though it did not involve an insurance dispute. In Friends of DeVito, et al. v. Tom Wolf, Governor, et al., (the case details), Pennsylvania business owners sought emergency relief against the governor’s executive order closing nonessential businesses related to COVID-19.
The business owners took the position that the governor exceeded his statutory authority by issuing the executive order. The court found “the governor is vested with broad emergency management powers under the Emergency Code.” The court noted that the governor is “responsible for meeting the dangers to this commonwealth and people presented by disasters,” and the governor may, by proclamation or executive order, declare a state of emergency. Once the declaration of disaster is made, the governor has “expansive emergency management powers,” including the power to control ingress and egress in a disaster area.
Finding in favor of the governor, the Pennsylvania Supreme Court made these important findings and conclusions:
- COVID-19 qualifies as a “natural disaster,” defined as “[a]ny hurricane, tornado, storm, flood, high water, wind-driven water, tidal wave, earthquake, landslide, mudslide, snowstorm, drought, fire, explosion or other catastrophe, which results in substantial damage to property, hardship, suffering or possible loss of life.”
- There is “no merit” to the businessowner’s argument that the governor lacked authority to control ingress and egress to and from a disaster area because there had not been any “disasters” in the areas in which their businesses were located. Specifically, the court explained the businessowner’s argument ignored “the nature of this virus and the manner in which it is transmitted” because “[t]he virus spreads primarily through person-to-person contact, has an incubation period of up to fourteen days, one in four carriers of the virus are asymptomatic, and the virus can live on surfaces for up to four days. Thus, any location (including Petitioners’ businesses) where two or more people can congregate is within the disaster area.”
- The governor has the authority to declare “the entirety of the Commonwealth a disaster area.”
The decision in Friends of DeVito is important to policyholders because the court noted that the coronavirus is an “other catastrophe which results in substantial damage to property, hardship, suffering or possible loss of life.” This is important because policyholders must traditionally demonstrate physical loss or damage in order to trigger business interruption coverage. If courts concede that coronavirus is a catastrophe that can result in substantial damage to property, as the court did in Friends of DeVito, it gets policyholders one step closer to coverage for lost business income and extra expense.
The decision is also important because the court upheld the authority of the governor to control ingress and egress throughout the state. Many business interruption policies afford coverage for civil authority, which generally pays for loss of income or extra expenses as a result of a government denying you access to your business due to a covered loss at a location owned by someone else. Again, the holding of Friends of DeVito is supportive of the argument that a state or local government’s order with regard to prohibiting access to a workplace may trigger coverage for civil authority.
Importantly, the court also rejected the argument that there must be a confirmed case of virus at any particular location. Rather, the court explained that the virus and the risk of the virus is everywhere. To the extent that insurers take the position that physical loss or damage to a property would require a demonstration of a positive COVID-19 test at the property, the holding of Friends of DeVito is again helpful to policyholders that may not be able to meet the burden of demonstrating a positive test finding.
The lawyers of LeMaster & Ahmed PLLC are here to help businesses nationwide present the best available arguments for business interruption coverage related to COVID-19 business income and extra expense losses. Contact us at our Houston location at 832-356-7983 or our DFW location at 972-483-0410. You can also message us any inquiries directly on our website.
***The foregoing is not meant to serve as legal advice relating to your insurance coverage issue. Please contact one of our lawyers if you have questions specific to your particular insurance issue.
