On January 15, 2021, in 1 S.A.N.T., Inc. v. Berkshire Hathaway, Inc. & National Fire & Marine Ins. Co., the U.S. District Court in the Western District of Pennsylvania granted a motion to dismiss a restaurant's proposed class action seeking property coverage for losses due to COVID-19, finding that restaurants limited to takeout service did not suffer a direct, physical loss that would trigger their insurance policies ( (W.D. Pa. Jan. 15, 2021)).

Plaintiff 1 S.A.N.T., Inc., d/b/a Town & Country and d/b/a Gatherings Banquet and Event Center (1 S.A.N.T.), a restaurant and tavern operator, bought commercial property insurance for lost business income from Defendant National Fire & Marine Insurance Company (National Fire) for a policy term of June 1, 2019 to June 1, 2020 (Policy). As a result of the COVID-19 pandemic, many state and local governments, including Pennsylvania, issued mandatory closures for nonessential businesses, including restaurants (see COVID-19: Select State and Local Business Closures and Reopenings Tracker (US)).

1 S.A.N.T. claimed that it suffered substantial losses of business income as a result of Pennsylvania's closure order which prevented it from serving customers on premises, and gave National Fire notice of its claim for business interruption coverage. National Fire denied the claim on June 4, 2020.

1 S.A.N.T. filed a putative class action lawsuit against National Fire seeking coverage for lost business income resulting from the suspension or reduction of its operations because of the COVID-19 pandemic.

National Fire moved to dismiss, arguing in relevant part that 1 S.A.N.T. did not sustain “direct physical loss of or damage to Covered Property” necessary to trigger coverage under the Policy.

The court granted National Fire's motion to dismiss.

Because the Policy did not define the term "direct, physical loss of" or "direct, physical damage to," the court looked to the dictionary definitions of each of those words and found that 1 S.A.N.T. had not suffered a direct, physical loss under the common definitions of those words.

The court also rejected 1 S.A.N.T.'s argument that:

Specifically, the court held that the ubiquity theory could not broaden the policy definition of "direct physical loss of or damage to" property.

The court went on to note that the ubiquity theory was inconsistent with 1 S.A.N.T.'s pleading because the facts pled by 1 S.A.N.T. establish that the virus was not so physically ubiquitous as to prevent access to or operations at the property. In particular, the court noted that:

This case is part of a nationwide wave of insurance coverage litigation filed in the spring and summer of 2020 seeking declaratory judgments that business interruption policies covered losses due to the COVID-19 pandemic and the resulting government-issued closure orders . In fact, the court in this case noted what it called a growing body of case law rejecting a definition of “direct physical loss of or damage to” that would provide coverage for economic losses unrelated to physical impact to the property (see, e.g., Prime Time Sports Grill, Inc. v. Dtw 1991 Underwriting Ltd., (M.D. Fla. Dec. 17, 2020) and Newchops Rest. Comcast LLC v. Admiral Indem. Co., (E.D. Pa. Dec. 17, 2020)).

While this ruling and others like it may well be appealed, as of now it appears that in most cases business interruption insurance does not apply to lost income suffered due to the COVID-19 pandemic. We will, however, continue to cover these cases as the law develops.