BIG RED MANAGEMENT CORP v. ZURICH AMERICAN INSURANCE COMPANY

Filing 60

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE KAREN S. MARSTON ON 1/7/22. 1/7/22 ENTERED AND COPIES E-MAILED.(jaa, )

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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

BIG RED MANAGEMENT CORP., on
behalf of itself and all others similarly
situated,

CIVIL ACTION

NO. 20-2113-KSM
Plaintiff,
v.
ZURICH AMERICAN INSURANCE
COMPANY,
Defendant.

MEMORANDUM
MARSTON, J.

January 7, 2022

Plaintiff Big Red Management Corporation (“Big Red”) brings breach of contract and
declaratory judgment claims against its insurer, Defendant Zurich American Insurance Company
(“Zurich”), seeking coverage for lost business income caused by government closure orders
issued in response to the COVID-19 pandemic. (Doc. No. 40.) Presently before the Court is
Zurich’s motion to dismiss Big Red’s claims. (Doc. No. 41.) For the reasons below, Zurich’s
motion is granted.
I.

BACKGROUND
Big Red manages over a dozen restaurants in and around Philadelphia. (Doc. No. 41-2 at

12.) From July 2019 through July 2020, its restaurants were covered by a Property Portfolio
Protection, General Liability Coverage and Business Automobile Policy (“the Policy”) issued by
Zurich. (Doc. No. 40 ¶ 2.)

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A.

The Policy

The Policy is an “all-risk” policy, which means that it covers loss caused by any
“fortuitous cause or event” that is not specifically excluded from coverage. (Doc. No. 41-2 at
59.) The Policy enumerates eighteen “Excluded Causes of Loss,” including “microorganisms”
(the “Microorganism Exclusion”):
We will not pay for loss or damage consisting of, directly or
indirectly caused by, contributed to, or aggravated by the presence,
growth, proliferation, spread, or any activity of “microorganisms”,
unless resulting from fire or lightning. Such loss or damage is
excluded regardless of any other cause or event, including a
“mistake”, “malfunction”, or weather condition, that contributes
concurrently or in any sequence to the loss, even if such other cause
or event would otherwise be covered. . . .
(Id. at 79.) The Policy defines “Microorganism” as including “any type or form of organism of
microscopic or ultramicroscopic size including, but not limited to, fungus, wet or dry rot, virus,
algae, or bacteria, or any by-product.” (Id. at 65 (emphasis added).) Notwithstanding the
Microorganism Exclusion, the Policy includes additional coverage that will pay for physical loss
and the cost of repair “when ‘microorganisms’ are the result of a ‘covered cause of loss.’” (Id. at
91 (emphasis added).)
The Policy also includes additional coverage for the loss of “business income” and “extra
expenses” caused by “Civil Authority” (the “Civil Authority Coverage”):
We will pay for the actual loss of “business income” you sustain for
up to the number of days shown on the Declarations for Civil
Authority resulting from the necessary “suspension”, or delay in the
start, of your “operations” if the “suspension” or delay is caused by
order of civil authority that prohibits access to the “premises” or
“reported unscheduled premises”. That order must result from a
civil authority’s response to direct physical loss of or damage to
property located within one mile from the “premises” or “reported
unscheduled premises” which sustains a “business income” loss.
The loss or damage must be directly caused by a “covered cause of
loss.”
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(Id. at 128; see also id. at 137 (providing additional coverage for “extra expenses” incurred due
to acts of Civil Authority subject to the same conditions as the loss of “business income”
additional coverage).)
B.

The Closure Orders

On March 6, 2020, Governor Tom Wolf issued a “Proclamation of Disaster Emergency”
recognizing the threat of “imminent disaster and emergency” the COVID-19 pandemic posed to
the Commonwealth of Pennsylvania.1 See Pa. Office of the Governor, Proclamation of Disaster
Emergency (Mar. 6, 2020), https://www.governor.pa.gov/wp-content/uploads/2020/03/
20200306-COVID19-Digital-Proclamation.pdf. Despite recognizing the potential for
emergency, the Governor did not issue any closure orders at that time. (Doc. No. 40 ¶ 13.) The
Montgomery County Commissioners issued a similar “Declaration of Disaster Emergency” on
March 8, 2020, but, like the Governor, did not issue any closure orders. (Id. ¶ 14.)
On March 14, 2020, the Pennsylvania Department of Community and Economic
Development issued guidance advising non-essential businesses in Bucks, Chester, Delaware,
and Montgomery counties to close and advising restaurants to remain open for takeout and
delivery only. See Pa. Dep’t of Cmty. & Econ. Dev., Wolf Administration Issues Guidance to
Non-essential Businesses as Part of COVID-19 Mitigation Efforts (Mar. 14, 2020),
https://dced.pa.gov/newsroom/wolf-administration-issues-guidance-to-non-essential-businessesas-part-of-covid-19-mitigation-efforts/. The City of Philadelphia issued the first closure order on
March 16, 2020; however, this order allowed “[f]ood establishments” to remain open for “online

1

The Court will take judicial notice of the state and local declarations and closure orders. On a
motion to dismiss, courts may take judicial notice of “matters of public record,” such as the declarations
and orders. See Sturgeon v. Pharmerica Corp., 438 F. Supp. 3d 246, 258 (E.D. Pa. 2020); United States
ex rel. Spay v. CVS Caremark Corp., 913 F. Supp. 2d 125, 139–40 (E.D. Pa. 2012).

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and phone orders for delivery and pick-up.” See City of Phila., City Announces New Restrictions
on Business Activity in Philadelphia (Mar. 16, 2020), https://www.phila.gov/2020-03-16-cityannounces-new-restrictions-on-business-activity-in-philadelphia/. On March 19, 2020, the
Commonwealth followed suit and issued an order requiring all non-life sustaining businesses to
close (together with the City of Philadelphia’s March 16, 2020 order, the “Closure Orders”). See
Pa. Office of the Governor, Order of the Governor of the Commonwealth of Pennsylvania
Regarding the Closure of All Businesses that Are Not Life Sustaining (Mar. 19, 2020),
https://www.governor.pa.gov/wp-content/uploads/2020/03/20200319-TWW-COVID-19business-closure-order.pdf. As with the City of Philadelphia’s order, the Commonwealth’s order
allowed “[b]usinesses that offer carry-out, delivery, and drive-through food and beverage service
[to] continue.” Id.
C.

Big Red’s Losses

Big Red claims that, “[a]s a consequence of the [COVID-19] Pandemic (including
specifically damage to property caused by the coronavirus), and the various [Closure] Orders
issued in the Commonwealth, Plaintiff and the Additional Insureds have suffered Covered
Losses under the Policy.” (Doc. No. 40 ¶ 25.) Big Red submitted a claim under the policy for
the business income and extra expenses it lost while the Closure Orders were in effect. (Id. ¶
30.) Zurich denied its claim on July 28, 2020 (id. ¶ 31), and Big Red filed suit (Doc. No. 1).
II.

ANALYSIS
A.

Legal Standard
1.

Motion to Dismiss

To survive a motion to dismiss under Rule 12(b)(6), “a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Zuber v.
Boscov’s, 871 F.3d 255, 258 (3d Cir. 2017) (quotation marks omitted). In reviewing a motion to
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dismiss, the court must accept as true the factual allegations in the complaint and all reasonable
inferences that can be drawn from those allegations. Id. However, the court is not “compelled to
accept unsupported conclusions and unwarranted inferences, or a legal conclusion couched as a
factual allegation.” Castleberry v. STI Grp., 863 F.3d 259, 263 (3d Cir. 2017) (quotation marks
omitted). “[T]hreadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
As a general matter, a district court ruling on a motion to dismiss may not consider
matters extraneous to the pleadings.” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410,
1426 (3d Cir. 1997). “However an exception to the general rule is that a document integral to or
explicitly relied upon in the complaint may be considered without converting the motion to
dismiss into one for summary judgment.” Id. (cleaned up). Similarly, the Court “may consider
an undisputably authentic document that a defendant attaches as an exhibit to a motion to dismiss
if the plaintiff's claims are based on the document.” Pension Benefit Guar. Corp. v. White
Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
2.

Interpretation of Insurance Contract

Under Pennsylvania law, the interpretation of a contract of insurance is a matter of law
for the courts to decide.’” Allstate Prop. & Cas. Ins. Co. v. Squires, 667 F.3d 388, 391 (3d Cir.
2012) (quoting Paylor v. Hartford Ins. Co., 640 A.2d 1234, 1235 (1994)); see also Pa. Env’t Def.
Found. v. Pennsylvania, 255 A.3d 289, 304 (Pa. 2021). Courts applying Pennsylvania law are
required to give effect to a contract’s clear and unambiguous language. 401 Fourth St., Inc. v.
Invs. Ins. Grp., 879 A.2d 166, 171 (Pa. 2005); see also Wilson v. Hartford Cas. Co., 492 F. Supp.
3d 417, 426 (E.D. Pa. 2020). A contract’s terms “are ambiguous if they are subject to more than
one reasonable interpretation when applied to a particular set of facts.” Madison Constr. Co. v.

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Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999); see also Atain Ins. Co. v. E. Coast Bus.
Fire, Inc., Civil Action No. 17-2545, 2018 WL 637579, at *2 (E.D. Pa. Jan. 31, 2018) (“Contract
language is ambiguous if it is reasonably capable of more than one meaning.”). However, courts
must not “distort the meaning of the language or resort to a strained contrivance in order to find
an ambiguity,” and must give effect to a contract’s clear and unambiguous terms. Madison
Constr. Co., 735 A.2d at 106.
B.

Discussion

Zurich argues that Big Red cannot state a claim for breach of contract and is not entitled
to a declaratory judgment for four reasons: (1) the Civil Authority Coverage does not apply to
losses caused by “microorganisms”; (2) the Civil Authority Coverage does not apply because
Big Red has not alleged that there has been any physical loss of or damage to its properties;
(3) the Civil Authority Coverage does not apply because the Closure Orders were issued in an
attempt to mitigate COVID-19, not in response to a direct physical loss of or damage to property
within one mile from the premises of any of Big Red’s restaurants; and (4) the Civil Authority
Coverage does not apply because the Closure Orders did not “prohibit access” to Big Red’s
restaurants. (Doc. No. 41.)
Big Red responds that the Civil Authority Coverage applies to its losses because (1) the
Microorganism Exclusion does not apply to the Civil Authority Coverage; (2) Big Red incurred
physical loss of or damage to its restaurants from the threat of COVID-19; (3) the Closure Orders
were issued in response to the “direct physical loss or damage” caused by COVID-19; and
(4) the Closure Orders “prohibited access” to their restaurants. (Doc. No. 42.) Big Red also
argues that its “reasonable expectations” that its losses were covered supersede the plain
language of the Policy. (Id. at 30–31.)

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The Court considers the parties’ arguments in turn.
1.

The Microorganism Exclusion Applies

Zurich argues that the Civil Authority Coverage is barred by the Microorganism
Exclusion. (Doc. No. 41 at 18.) Big Red puts forth several arguments as to why the
Microorganism Exclusion does not apply. (Doc. No. 42 at 13–14.)
First, Big Red argues that the Policy includes “explicit provisions granting coverage for
losses from microorganisms.” (Id. at 13.) Big Red is correct that the Policy includes $25,000 of
additional standalone coverage related to microorganisms (Doc. No. 41-2 at 91), but it
mischaracterizes the scope of that coverage. This standalone additional coverage provides that
Zurich “will pay . . . when ‘microorganisms’ are the result of a ‘covered cause of loss’ . . . .” (Id.
(emphasis added).) Big Red does not allege that COVID-19 was the result of some other
covered cause of loss; rather, it alleges that COVID-19 caused its business losses. Because
COVID-19, the relevant microorganism, was not the result of a covered cause of loss, the
additional standalone coverage does not apply.
Next, Big Red argues that the Microorganism Exclusion is ambiguous and must be
construed in favor of coverage because it does not specifically exclude Big Red’s alleged cause
of loss. (Doc. No. 42 at 16–17.) Big Red argues that its cause of loss was not COVID-19 itself
but rather the threat of COVID-19 and the Microorganism Exclusion only excludes “viruses,”
not the threat of viruses. (Id.) But nowhere in the Amended Complaint does Big Red allege that
the threat of COVID-19 caused its losses. (See generally Doc. No. 40.) Instead, Big Red alleges
that the “Pandemic . . . and the various Orders issued in the Commonwealth” caused its losses.
(Id. ¶ 25.) Even if Big Red had alleged that its losses were caused by the threat of COVID-19,
the Microorganism Exclusion is not ambiguous. The Microorganism Exclusion excludes losses
“directly or indirectly caused by . . . microorganisms [including viruses].” (Doc. No. 41-2 at 79.)
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The “threat of COVID-19” unquestionably stems from the fact of the virus (without the COVID19 virus there would be no threat of a COVID-19 pandemic), so the “threat of COVID-19” falls
squarely within the Microorganism Exclusion, and the Microorganism Exclusion is not
ambiguous. See Certain Underwriters at Lloyd’s of London Subscribing to Policy No. SMP3791
v. Creagh, 563 F. App’x 209, 211 (3d Cir. 2014) (affirming the district court’s conclusion that a
substantially similar microorganism exclusion was not ambiguous and barred coverage); TAQ
Willow Grove, LLC v. Twin City Fire Ins., 513 F. Supp. 3d 536, 547 (E.D. Pa. 2021) (dismissing
the plaintiff’s claim for lost business income during COVID-19 closures because a virus
“directly or indirectly” caused the plaintiff’s losses and the policy’s virus exclusion was
“unambiguous in the context of losses caused by COVID-19”); Brian Handel D.M.D., P.C. v.
Allstate Ins. Co., 499 F. Supp. 3d 95, 100 (E.D. Pa. 2020) (dismissing the plaintiff’s claim for
business revenue lost during COVID-19 closures because the plaintiff’s alleged loss was caused
directly or indirectly by a virus, COVID-19).
Finally, Big Red argues that even if the Microorganism Exclusion applies, the Closure
Orders, not COVID-19, caused Big Red’s losses. (Doc. No. 42 at 18–19.) But the
Commonwealth and the City of Philadelphia issued the Closure Orders to stop the spread of the
virus, so the Closure Orders fall under the Microorganism Exclusion, and Big Red’s losses are
not covered under the Policy.2 See Frank Van’s Auto Tag, LLC v. Selective Ins. Co. of the Se.,
516 F. Supp. 3d 450, 460 (E.D. Pa. 2021) (“[T]he plain text of the provision bars coverage for

2

The Microorganism Exclusion includes an anti-concurrent causation clause, which provides that
“such loss or damage is excluded regardless of any other cause or event . . . that contributes concurrently
or in any sequence to the loss.” (Doc. No. 41-2 at 79.) Big Red argues that this provision cannot be
enforced as a matter of public policy. (Doc. No. 42 at 18.) However, the Court need not consider this
argument. The Closure Orders are not a separate cause of Big Red’s losses because they were “indirectly
caused” by COVID-19. See Ultimate Hearing Sols. II, LLC v. Twin City Fire Ins. Co., 513 F. Supp. 3d
549, 565 (E.D. Pa. 2021) (“Even if the virus was not the direct cause of Plaintiffs’ losses, it was at least an
indirect cause, which is sufficient to bar coverage under the virus exclusion clause.”).

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loss or damage caused ‘indirectly’ by any virus. . . . [T]he March 2020 Closure Orders were
issued with the plan to stem the spread of COVID-19.”); Hums. & Res., LLC v. Firstline Nat’l
Ins. Co., 512 F. Supp. 3d 588, 601 (E.D. Pa. 2021) (concluding that the plaintiff’s claims for
business income lost during COVID-19 closures were not covered because the causes of loss fell
under the virus exclusion even though the plaintiff’s purported causes of loss were the virus and
the entry of the closure orders); TAQ Willow Grove, 513 F. Supp. 3d at 547 (“TAQ next argues
the virus exclusion applies only to exclude damages caused by a virus. The exclusion does not
apply to exclude the damages TAQ alleges it suffered as a result of the Civil Authority orders.
This effort to circumvent the virus exclusion fails.”).
Accordingly, the Microorganism Exclusion applies and bars coverage for Big Red’s
claimed losses.
2.

COVID-19 Did Not Cause Direct Physical Loss of or Damage to
Property

In the alternative, the Court finds that Big Red’s losses are not covered by the Policy
because COVID-19 did not cause “direct physical loss of or damage to property.” (See Doc. No.
41 at 22.)
Big Red concedes that the Policy only offers coverage where “there is a physical loss of
or damage to property” (Doc. No. 42 at 19) but argues that the “imminent threat” of COVID-19
at its restaurants caused such loss and/or damage (id. at 19–27). Notably, Big Red does not
argue that COVID-19 was ever present at any of its restaurants. (See id.) Zurich responds that
the “mere ‘threat’ of virus” does not—and cannot—constitute direct physical loss of or damage
to property. (Doc. No. 43 at 17.)
The Court agrees with Zurich. “Direct physical loss” occurs when the insured structure
“has been rendered uninhabitable and unusable”; however, “when the structure continues to
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function, there is no physical loss that would be eligible for coverage.” Lansdale 329 Prop., LLC
v. Hartford Underwriters Ins. Co., 537 F. Supp. 3d 780, 781 (E.D. Pa. 2021) (quoting Port Auth.
of N.Y. & N.J. v. Affiliated FM Ins. Co., 311 F.3d 226, 235 (3d Cir. 2002)). Likewise, “direct
physical damage” occurs when there is “a distinct, demonstrable, physical alteration of the
property.” Id. “[F]or Plaintiffs to assert an economic loss resulting from their inability to
operate their premises as intended within the coverage of the Policy’s ‘physical loss’ provision,
the loss and the bar to operation from which it results must bear a causal relationship to some
physical condition of or on the premises and that the premises must be uninhabitable and
unusable, or nearly as such.” Hums. & Res., 512 F. Supp. 3d at 599–600.
Courts presented with this issue in the context of COVID-19 insurance cases have
uniformly held that neither COVID-19 nor the threat thereof causes physical loss of or damage to
property. See, e.g., Spring House Tavern, Inc. v. Am. Fire & Cas. Co., --- F. Supp. 3d ---, CIVIL
ACTION NO. 20-2872, 2021 WL 2473939, at *4 (E.D. Pa. June 16, 2021); Lansdale 329 Prop.,
537 F. Supp. 3d at 781; Shantzer v. Travelers Cas. Ins. Co. of Am., 531 F. Supp. 3d 920, 925
(E.D. Pa. 2021); Tria WS LLC v. Am. Auto. Ins. Co., 530 F. Supp. 3d 533, 540–41 (E.D. Pa.
2021); Frank Van’s Auto Tag, 516 F. Supp. 3d at 457; Ultimate Hearing Sols. II, 513 F. Supp. 3d
at 558; Indep. Rest. Grp. v. Certain Underwriters at Lloyd’s of London, 513 F. Supp. 3d 525,
532–33 (E.D. Pa. 2021); ATCM Optical, Inc. v. Twin City Fire Ins. Co., 513 F. Supp. 3d 513,
521 (E.D. Pa. 2021); Newchops Rest. Comcast LLC v. Admiral Indem. Co., 507 F. Supp. 3d 616,
624 (E.D. Pa. 2020); Brian Handel D.M.D., 499 F. Supp. 3d at 99–100.
Here, Big Red has not sufficiently alleged facts supporting its allegation that the threat of
COVID-19 actually caused physical loss of and/or damage to its properties. (Doc. No. 40 ¶¶ 28–
29.) If the presence of COVID-19 does not cause physical loss of or damage to property, the

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threat of COVID-19 certainly does not cause such loss or damage. Accordingly, the Civil
Authority Coverage does not apply, and Big Red’s claims fail.
3.

The Closure Orders Were Not Issued in Response to Direct Physical
Loss of or Damage to Property

In the alternative, the Civil Authority Coverage does not apply because the
Commonwealth and the City of Philadelphia issued the Closure Orders in response to the
COVID-19 virus, not in response to physical loss or damage to property. (See Doc. No. 41 at
22.) Big Red contends that the Closure Orders were issued in response to the physical loss of or
damage to property caused by COVID-19. (Doc. No. 42 at 20.)
Although the Closure Orders were issued to mitigate the spread of COVID-19, see
Friends of Danny Devito v. Wolf, 227 A.3d 872, 889–90 (Pa. 2020), COVID-19 does not cause
physical loss of or damage to property, see supra Section II.B.2. “The instigation of the
[closure] orders prohibiting access must be a physical condition in a nearby property. Loss of
utility is not structural or physical. Nor is the mere possibility of the presence of the virus in
nearby properties or the public’s anxiety about indoor spaces.” Paul Glat MD, P.C. v.
Nationwide Mut. Ins. Co., 531 F. Supp. 3d 908, 914–15 (E.D. Pa. 2021); see also, e.g., Spring
House Tavern, 2021 WL 2473939, at *5; Tria WS LLC, 530 F. Supp. 3d at 540–41; Frank Van’s
Auto Tag, 516 F. Supp. 3d at 457; Moody v. Hartford Fin. Grp., Inc., 513 F. Supp. 3d 496, 509
(E.D. Pa. 2021); Toppers Salon & Health Spa, Inc. v. Travelers Prop. Cas. Co., 503 F. Supp. 3d
251, 257 (E.D. Pa. 2020).
Because the Closure Orders were not issued in “response to direct physical loss of or
damage to property,” the Civil Authority Coverage does not apply, and Big Red’s claims fail.

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4.

The Closure Orders Did Not Prohibit Access to Big Red’s Restaurants

Finally, the Closure Orders do not fall within the Civil Authority Coverage because Big
Red was allowed to continue operations under the Closure Orders by offering takeout and
delivery. (See Doc. No. 41 at 27.) The Policy only provides Civil Authority Coverage where the
governmental orders “prohibit[ed] access” to the insured property. (See Doc. No. 41-2 at 128,
137.) Big Red argues that the Closure Orders prohibited access to its restaurants because they
barred in-person dining and it has not alleged that it offered takeout service. (Doc. No. 42 at 29.)
Courts in this District disagree as to whether the Closure Orders “prohibited access” to
restaurants such that the Civil Authority Coverage should apply. Compare Newchops Rest.
Comcast, 507 F. Supp. 3d at 623 n.23 (“The restaurants were essentially closed to the public,
prohibiting the insureds from conducting their usual business. Because it is unclear whether
access need be total or substantially prohibited, the policy language is ambiguous. Accordingly,
because we must construe the ambiguity in favor of the insureds, we conclude that any restriction
of access, total or partial, to the properties satisfies the prohibited access element of the civil
authority provision.”) with 4431, Inc. v. Cincinnati Ins. Cos., 504 F. Supp. 3d 368, 386 (E.D. Pa.
2020) (“[I]t is clear that Plaintiffs’ ability to continue limited takeout and delivery operations at
the premises precludes coverage under the Civil Authority provision: a prohibition on access to
the premises, which is a prerequisite to coverage, is not present.”).
Because Big Red has failed to satisfy other prerequisites to Civil Authority Coverage, see
supra Section II.B.1–3, we need not rule on this argument.
5.

Big Red’s Reasonable Expectations Do Not Supersede the Plain
Language of the Policy

Last, in an effort to circumvent the plain language of the Policy, Big Red argues that,
even if it is not entitled to coverage under the terms of the Policy, it reasonably expected that
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“the[] losses caused by the threatened presence of a virus or by a related closure order would be
covered,” and their reasonable expectations supersede the terms of the Policy. (Doc. No. 42 at
32.) Zurich responds that Big Red has not—and cannot—identify any factual support for its
“reasonable expectations” and that the Court should not rewrite the terms of an unambiguous
contract. (Doc. No. 23.)
Pennsylvania courts have adopted the “reasonable expectations doctrine.” See Downey v.
First Indem. Ins., 214 F. Supp. 3d 414, 423 (E.D. Pa. 2016). The Third Circuit has explained the
doctrine:
Pennsylvania case law . . . dictates that the proper focus for
determining issues of insurance coverage is the reasonable
expectations of the insured. In most cases, the language of the
insurance policy will provide the best indication of the content of the
parties’ reasonable expectations. Courts, however, must examine
the totality of the insurance transaction involved to ascertain the
reasonable expectations of the insured. As a result, even the most
clearly written exclusion will not bind the insured where the insurer
or its agent has created in the insured a reasonable expectation of
coverage.” However, this aspect of the doctrine is applied “in very
limited circumstances” to protect non-commercial insureds from
policy terms not readily apparent and from insurer deception.
Absent sufficient justification, . . . an insured may not complain that
his or her reasonable expectations were frustrated by policy
limitations that are clear and unambiguous.
Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330, 344 (3d Cir. 2005) (emphases added).
As the Third Circuit made clear in Liberty Mutual, the doctrine is applied only “in very
limited circumstances,” such as where an insurer unilaterally changes the terms of the contract or
engages in other underhanded behavior at the expense of the insured. See, e.g., UPMC Health
Sys. v. Metro Life Ins. Co., 391 F.3d 497, 502–03 (3d Cir. 2004).
Here, the plain language of the Policy bars coverage. Big Red has not alleged that it
reasonably expected the Policy to cover these losses, nor has it alleged that Zurich or its agents
“created in [Big Red] a reasonable expectation of coverage,” or unilaterally changed the terms of
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the policy, so the reasonable expectations doctrine will not save its claims. See Lansdale 329
Prop., 537 F. Supp. 3d at 780 (holding that the reasonable expectations doctrine did not apply
where “Plaintiffs have offered no basis in fact for their ‘reasonable expectations’ argument other
than their general argument . . . that they believed their policies covered ‘all risks’”); Moody, 513
F. Supp. 3d at 507–08 (“But Moody Jones has not pleaded facts that lead the Court to conclude
that Twin City or its agent created in the insured a reasonable expectation of coverage that is not
supported by the terms of the policy. . . . While Moody Jones alleges that it sought coverage for
business interruption losses, it points to no facts that it actually applied and paid for a wholly
different kind of policy than what it received.”). Contra Hums. & Res., 512 F. Supp. 3d at 588
(holding that the reasonable expectations doctrine may apply where the plaintiff alleges that it
“purchased the Policy with an expectation that it was purchasing a policy that would provide
coverage in the event of business interruption and extended expenses, such as that suffered by
Plaintiff as a result of COVID-19”).
Because the reasonable expectations doctrine is inapplicable, Big Red’s claims fail.
6.

Big Red’s Claims Are Dismissed with Prejudice

Big Red specifically requested that any dismissal “should be without prejudice so that
Plaintiff may move for leave to amend to address any issues that the Court raises in its ruling.”
(Doc. No. 42 at 33.) “Leave to amend should be freely granted,” Wilson v. Hartford Cas. Co.,
492 F. Supp. 3d 417, 429 (E.D. Pa. 2020) (citing Forman v. Davis, 371 U.S. 178, 182 (1962));
however, “[l]eave to amend may be denied . . . if amendment would be futile,” Alvin v. Suzuki,
227 F.3d 107, 121 (3d Cir. 2000). Here, the Policy is clear—Big Red’s COVID-19 related losses
are not covered, so amendment would be futile, and the Court will dismiss Big Red’s claims with
prejudice. See, e.g., Boscov’s Dep’t Store v. Am. Guarantee & Liab. Ins. Co., -- F. Supp. 3d --,
Civil No. 5:20-cv-03672-JMG, 2021 WL 2681591, at *10 (E.D. Pa. June, 30, 2021) (dismissing
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COVID-19 insurance case with prejudice); Moody, 513 F. Supp. 3d at 513 (same); Wilson, 492
F. Supp. 3d at 429 (same).
III.

CONCLUSION
For the reasons above, Zurich’s motion to dismiss is granted. An appropriate order

follows.

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