Court Opinion

ID: 9839248
Source: CourtListenerOpinion
Date Created: 2023-09-12 17:09:00.933321+00
Date Added: 2024-06-11T09:12:53.992725
License: Public Domain

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  NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT OP 65.37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:

                                       -4-
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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.

                                          - 11 -
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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.

____________________________________________

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.

                                          - 18 -
J-A09038-23

      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

                                     - 19 -
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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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