BRANZINO, INC. v. SENECA INSURANCE COMPANY, INC.
Filing
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MEMORANDUM OPINION. SIGNED BY HONORABLE PAUL S. DIAMOND ON 2/6/24. 2/6/24 ENTERED AND COPIES E-MAILED.(va)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
BRANZINO, INC.,
Plaintiff,
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v.
SENECA INSURANCE COMPANY, INC.,
Defendant.
Diamond, J.
Civ. No. 20-4912
February 6, 2024
MEMORANDUM OPINION
Branzino, Inc. a restaurant, sues its insurer, Defendant Seneca Insurance Company for
Breach of Contract and Bad Faith, alleging that Seneca wrongfully refused coverage for business
losses caused by COVID-19 related government closure orders. (Compl.) Seneca moves for
summary judgment, urging that the Third Circuit’s recent decision in Wilson v. USI Insurance
Service LLC “explicitly foreclose[s] Plaintiff’s claim.” 57 F.4th 131 (3d Cir. 2023); (Doc. No. 26
at 2.) I agree that because Branzino cannot show direct physical loss or damage to its insured
property, Wilson precludes coverage, as does the Policy’s Virus Exclusion. Accordingly, I will
dismiss on those alternate grounds.
I.
BACKGROUND
I have construed the evidence most favorably to Branzino.
A. Policy Provisions
From January 31, 2020 to January 31, 2021, Seneca insured Branzino’s restaurant
premises. (Statement of Undisputed Material Facts, Doc. Nos. 11, 14 at ¶ 3.) The Seneca Policy
includes a “Business Income” provision, which applies to income losses from the suspension of
operations caused by “direct physical loss of or damage to property . . . caused by a Covered Cause
of Loss.” (Id. at 000044.) It also includes an “Extra Expense” provision, which covers “necessary
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expenses [incurred] during the period of restoration that . . . would not have [been] incurred if there
had been no direct physical loss or damage to property caused by . . . a Covered Cause of Loss.”
(Id.)
The Policy’s “Additional Civil Authority Coverage” provision protects against “loss of
Business Income [sustained] and necessary Extra Expense caused by action of civil authority that
prohibits access” to the premises provided that: (1) access “to the area immediately surrounding
the damaged property is prohibited by civil authority as a result of the damage;” 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.” (Id. at 000045 (emphasis
added).) Covered Cause of Loss is defined as “direct physical loss unless the loss is excluded or
limited in this policy.” (Id. at 000025, 000058; Statement of Undisputed Material Facts, Doc. Nos.
11, 14 at ¶¶ 8-9.)
The Policy excludes from coverage damage caused by “Ordinance or Law,” “Acts or
decisions,” or “Virus or Bacteria." (Policy at 000055, 000058, 000061.) Under the Ordinance or
Law Exclusion, Seneca will not cover losses or damage caused “directly or indirectly” by
“compliance with any ordinance or law . . . whether the loss results from [] an ordinance or law
that is enforced even if the property has not been damaged.” (Policy at 000058.) Under the Acts
or Decisions Exclusion, Seneca will not pay for loss or damage caused by “[a]cts or decisions,
including the failure to act or decide, of any person, group, organization or governmental body.”
(Id. at 000061.) Under the Virus or Bacteria Exclusion, Seneca will not pay for “loss or damage
caused by or resulting from any virus.” (Id. at 000055.)
B. Factual Allegations
In March 2020, Pennsylvania Governor Tom Wolf ordered the closure of nonessential
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businesses to stop the spread of COVID-19. (Doc. No. 1 Ex. 2.) Restaurants and bars were ordered
to close their dine-in facilities, but could offer “carry-out, delivery, and drive-through food and
beverage service.” (Id.) Although Branzino initially “closed the Restaurant premises . . . and
ceased all business operations,” it eventually restarted operations and even profited. (Doc. No. 1
Ex. A ¶ 15; Doc. No. 14 at 14 ¶¶ 55-56.) To recover COVID-related business losses and expenses,
Branzino sought coverage from Seneca under the Policy’s Business Income and Extra Expense
provisions which, as I have discussed, provide coverage for “direct physical loss of” or “damage
to the [insured] property.” (Doc. No. 1 Ex. A ¶ 17.)
In denying coverage, Seneca determined that: (1) Branzino’s “inability to operate [its]
business due to government mandates related to COVID-19 does not arise out of direct physical
loss or damage to the covered premises due to a covered loss,” and thus, “business income loss
and/or extra expense coverage does not exist for this claim under the Policy;” (2) Branzino’s claim
does not relate to the Civil Authority provision because “access to the insured premises must be
prohibited by action of civil authority in response to nearby property damage resulting from a
Covered Cause of Loss;” (3) even if coverage existed, the Policy’s Virus Exclusion provision
“exclude[s] coverage for any property damage, business income loss, extra expense, or action of
civil authority claim caused by or resulting from any virus;” and (4) the Policy’s Acts or Decisions
Exclusion provision “excludes coverage for all loss or damage caused by or resulting from acts or
decisions, including the failure to act or decide, of any person, group, organization or governmental
body.” (Doc. No. 1 Ex. 3 (alterations and internal quotations omitted).)
C. Procedural History
Branzino brought suit in Pennsylvania state court on July 21, 2020; on November 5, 2020,
Seneca removed to this Court. (Doc. No. 1.) On November 30, 2020, Seneca moved for summary
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judgment. (Doc. No. 10.) Once the matter was fully briefed, I placed it in suspense pending the
Third Circuit’s decision in Wilson, a consolidated appeal (of 14 similar COVID-19-related
coverage actions), in which the Circuit addressed whether under Pennsylvania law, a “business’
inability to use their properties for their intended business purposes constituted ‘physical loss of’
property as that phrase is used in the [various insurance] policies.” See Wilson, 57 F.4th at 140;
(Doc. Nos. 10, 14, 15, 17.) Predicting how the Pennsylvania Supreme Court would rule, the
Wilson Court held that it did not. Wilson, 57 F.4th at 140.
Taking this matter from suspense, I asked the Parties to address Wilson’s application here.
(Doc. No. 24.) Once again, the matter is fully briefed. (See Doc. Nos. 10, 14, 15, 25, 26.)
II.
LEGAL STANDARDS
A. Summary Judgment
Summary judgment is warranted if the moving party shows that “there is no genuine issue
as to any material fact and the moving party is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). An issue is material only if it
could affect the result of the suit under governing law. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986).
Summary judgment is also warranted when the movant shows that there is an absence of
evidence to support the non-movant’s case. Celotex, 477 U.S. at 325. The non-moving party
“must [then] rebut the motion with facts in the record and cannot rest solely on assertions made in
the pleadings, legal memoranda, or oral argument.” Berckeley Inv. Grp., Ltd. v. Colkitt, 455 F.3d
195, 201 (3d Cir. 2006); Est. of Smith v. Marasco, 318 F.3d 497, 514 (3d Cir. 2003) (opposing
party “must present affirmative evidence—whether direct or circumstantial—to defeat summary
judgment”); see also Liberty Lobby, 477 U.S. at 252 (“The mere existence of a scintilla of evidence
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in support of the plaintiff’s position will be insufficient; there must be evidence on which the jury
could reasonably find for the plaintiff. The judge’s inquiry, therefore, unavoidably asks whether
reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a
verdict.”).
B. Policy Interpretation
In construing an insurance policy, I must, as with most contracts, “ascertain the intent of
the parties as manifested by the language of the written instrument,” reviewing the policy in its
entirety and in accordance with the plain and ordinary meaning of its terms. Am. Auto. Ins. Co.
v. Murray, 658 F.3d 311, 320 (3d Cir. 2011) (quotation marks omitted) (applying Pennsylvania
law); Riccio v. Am. Republic Ins. Co., 705 A.2d 422, 427 (Pa. 1997). Where the policy language
is clear and unambiguous, I apply its terms as written. 401 Fourth Street v. Inv’rs Ins. Group, 879
A.2d 166, 171 (Pa. 2005).
Ambiguous provisions—those “reasonably susceptible of different constructions”— must
be construed in favor of the insured and against the insurer. Hutchison v. Sunbeam Coal Corp.,
513 Pa. 192, 519 A.2d 385, 390 (1986); see Med. Protective Co. v. Watkins, 198 F.3d 100, 104
(3d Cir. 1999) (applying Pennsylvania law). I may not “rewrite the terms of a policy or give them
a construction in conflict with the accepted and plain meaning of the language of the policy,” or
“distort the meaning of the language or resort to a strained contrivance in order to find an
ambiguity.” Imperial Cas. & Indem. Co. v. High Concrete Structures, Inc., 858 F. 2d 128, 131 (3d
Cir. 1981); Madison Const. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999).
Rather, I “interpret the policy so as to avoid ambiguities and give effect to all of its provisions.”
Murray, 658 F.3d at 321.
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III.
DISCUSSION
Under Pennsylvania law, “an insured bears the initial burden to make a prima facie
showing that its claim falls within the policy’s grant of coverage.” State Farm Fire & Cas. Co. v.
Est. of Mehlman, 589 F.3d 105, 111 (3d Cir. 2009) (applying Pennsylvania law). If the insurer
then denies coverage, it must show that the policy does not cover the claim or that an exclusion
applies. Id.
Branzino initially sought coverage under the Seneca Policy’s “Business Income Loss and
Extra Expense” provisions. (Doc. No. 1 at 7 ¶ 17.) It now contends for the first time that it is also
entitled to coverage under the Policy’s “Civil Authority Provision,” and that Seneca’s denial of
coverage is barred by the doctrine of regulatory estoppel. (Doc. No. 25 at 4.)
A. Wilson
Branzino urges that Pennsylvania’s closure orders “caused the direct physical loss
[Branzino sustained], not COVID-19.” (Doc. No. 14 at 35.) The Wilson Court held, however,
that “loss of use” caused by government COVID closure orders is not “direct physical loss” as
required by the Policy language at issue here. See Wilson 57 F.4th at 143.
In Wilson, the insured businesses—including those providing food services—“sought to
recover [from their insurers] losses caused by the pandemic and the resulting government closure
orders.” URBN US Retail LLC v. Zurch Am. Ins. Co., No. 21-4807, 2023 WL 4237077, at * 4
(E.D. Pa. Jun. 28, 2023). These businesses invoked their policies’ business income and extra
expense provisions, which allowed coverage only for “direct physical loss or damage to” the
insured properties. Wilson, 57 F. 4th at 138. Although the subject policies were “not all identical,
[the Court could] discern no material difference[s] among them for [] purpose[s] of this dispute.”
Id. at 138 n.1. Moreover, although the rulings were governed by Pennsylvania law, the Circuit
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declined to certify the underlying questions to the Pennsylvania Supreme Court. Id. at 138.
The Wilson Court first ruled that “loss of use caused by government edict and untethered
to the physical condition of the premises is not a physical loss or damage to the properties” within
the meaning of the subject policies. Id. at 143. Rather, under Pennsylvania law, “physical damage
to property” means “a distinct, demonstrable, and physical alteration of its structure.” Id. at 142
(citing Port Authority of New York and New Jersey v. Affiliated FM Ins. Co., 311 F.3d 226, 235
(3d Cir. 1998)). The insured must show that “the functionalities of their properties were nearly
eliminated or destroyed, that the structures were made useless or uninhabitable, or that there was
an imminent risk of either of those things happening.” Id. That the insureds “lost the ability to
use their properties for their intended business purposes because the governors of the states in
which they operated issued orders closing or limiting the activities of nonessential businesses” did
not mean the properties were physically damaged or destroyed. Id. To the contrary, the insured
properties remained “intact and functional.” Id. Functionality, the Court ruled, meant “operational
utility,” not “intended business purpose at or within a property that is physically unaffected.” Id.
at 145.
Finally, the Wilson Court concluded that civil authority provisions did not afford coverage
because such provisions required: (1) “physical loss or damage to a property other than the insured
premises;” and (2) “that an action of civil authority prohibited access to the insured premises
because of that loss or damage.” Id. at 147. (emphasis added). Because “the closure orders merely
prohibited certain uses of the buildings,” the “businesses ha[d] not met either requirement.” Id.
B. The Seneca Policy Does Not Provide Coverage
Because Branzino (like the Wilson insureds) seeks to recover losses resulting from
COVID-19 closure orders, Seneca argues that Wilson “explicitly foreclose[s Branzino’s] claim.”
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(See, e.g., Compl. ¶¶ 15-16; Doc. No. 14 at 17; Doc. No. 26 at 2.) Branzino responds that: the
terms “physical loss” and “damage” remain ambiguous; Wilson departs from Pennsylvania case
law defining “loss;” disputed issues of fact preclude summary judgment; the restaurant is entitled
to Civil Authority coverage; and no Policy Exclusions apply. I do not agree.
In Branzino’s view, “physical loss” as used in the Policy can encompass “loss of use absent
damage.” (Doc. No. 25 at 2.) The restaurant offers a Pennsylvania Superior Court Panel ruling
that, “at a minimum, [it is] reasonable to find that [the insured’s] loss of the use of his [business]
due to COVID-19 and the governmental orders equated to a direct physical loss of his property.”
Ungarean v. CAN, 286 A.3d 353, 356 (Pa. Super. Ct. 2022); (see Doc. No. 25 at 2.) The Wilson
Court deemed Ungarean and an inconsistent opinion authored by the same Panel “less [than]
useful,” and chose instead to predict how the Pennsylvania Supreme Court would decide this
coverage question. 57 F.4th at 144 n.7.
I am thus obligated to follow the Wilson ruling that “loss of use of intended purpose under
the circumstances presented . . . is not a physical loss of property within the meaning of the
policies.” Wilson, 57 F. 4th at 143. Like the insureds in Wilson, Branzino “lost the ability to use
[its] propert[y] for [its] intended use”—dine-in services—yet remained partially open and even
profited during the closure period. Id. at 142; (Statement of Undisputed Material Facts, Doc. Nos.
11, 14 at ¶¶ 28-29.) Moreover, the closure orders here (which were the same as those addressed
in Wilson) did not alter the “physical condition of the premises . . . [they] simply prohibited the
business[] from using [its] propert[y] in [a] certain way[].” Id. at 143. Plainly, Branzino’s claims
turn on the same policy language and circumstances as those addressed by the Third Circuit.
Accordingly, under Wilson, the coverage Branzino seeks is precluded.
Although Branzino urges that there “are disputed issues of fact that preclude summary
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judgment,” it presents no apposite factual disputes. (Doc. No. 25 at 3-4.) For instance, it argues
that:
[T]here is disputed issue of fact as to whether the actions of the Commonwealth . .
. caused Plaintiff’s property to be rendered ‘useless or uninhabitable.’ At the very
least, there was an imminent risk of the property becoming useless or uninhabitable
due to the shutdown orders. As a result, there was the substantial reduction in use
as contemplated by Port Authority and Wilson.
(Doc. No. 25 at 3-4.) As I have discussed—and the Wilson Court concluded—this “disputed issue”
has nothing to do with whether there was physical or structural damage to the restaurant property,
or whether the property was “uninhabitable.” Indeed, it is undisputed that: (1) “restaurants could
remain partially operational” during the pendency of the COVID orders; and (2) Branzino “made
some profit while Governor Wolf’s Order was in effect.” (Doc. No. 14 at 11.)
Branzino further argues that it is still entitled to “Additional Coverage” under the Policy’s
Civil Authority provision. (Doc. No. 25 at 4.) Like the insureds in Wilson, however, Branzino
has failed to establish that the closure orders caused “physical loss or damage to a property other
than the insured premises.” Wilson, 57 F. 4th at 147. Accordingly, no “Additional Coverage” is
available to Branzino.
In sum, because Branzino has failed to show that it is entitled to coverage, it has also failed
to make out a prima facie coverage claim. See Est. of Mehlman, 589 F.3d at 111; see also Robinson
v. Allstate Prop. & Cas. Ins. Co., 306 F. Supp. 3d 672 (E.D. Pa. 2018) (granting summary judgment
in favor of insurer where the insured could not show coverage existed).
C. Exclusions
In the alternative, I conclude that Branzino’s coverage claim—predicated on expenses and
losses caused by the Commonwealth’s COVID-related closure orders—is barred by the Policy’s
Virus Exclusion, which precludes payment for “loss or damage caused by or resulting from any
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virus.” (Policy at 000055 (emphasis added).) The Exclusion applies to “all coverages under all
forms and endorsements that comprise this . . . Policy.” (Id.) Branzino urges that “because [its]
losses were not caused by COVID-19 [itself, but rather the government closure orders,] and the
Policy language is non-specific . . . the loss at issue should be covered because it is not particularly
excluded.” (Doc. No. 14 at 39.) I disagree.
Branzino’s losses undoubtedly resulted from COVID-19. Courts in this Circuit have held
that “a claim of loss due to governmental civil authority orders cannot circumvent the Virus
Exclusion, as the closure orders were issued to stop the spread of the virus, and thus fall under the
exclusion.” Abington Kids Creative Learning Ctr., Inc. v. Utica Nat’l Ins. Grp., No. 22-cv-01095,
2023 WL 2539656, at *5 (M.D. Pa. Mar. 16, 2023) (internal quotations omitted); see also Picone
v. Nationwide Mutual Ins. Co., No. 21-cv-700, 2022 WL 1537351, at *6 (M.D. Pa. Apr. 27, 2022);
Frank Van’s Auto Tag, LLC v. Selective Ins. Co. of the Southeast, 516 F. Supp. 3d 450, 459-60
(E.D. Pa. Jan. 28, 2021). I agree.
Branzino also urges that regulatory estoppel bars Seneca from denying coverage under the
Virus Exclusion. (Doc. No. 14. at 43.) This doctrine requires Branzino to “plead two elements:
(1) A party made a statement to a regulatory agency; and (2) Afterward, the party took a position
opposite to the one presented at the regulatory agency.” Brian Handel D.M.D., P.C. v. Allstate
Ins. Co., 499 F. Supp. 3d 95, 101 (E.D. Pa. 2020). The insurer’s statements to the regulatory
agency “must be contrary to the insurer’s position in the current litigation for regulatory estoppel
to apply.” Id. (citing Hussey Copper, LTD v. Arrowood Indem. Co., 391 F. App’x 207, 211 (3d
Cir. 2010)).
Branzino did not plead regulatory estoppel in its Complaint. (See Compl.) Rather, it raised
estoppel for the first time in opposing Seneca’s Motion for Summary Judgment. (See Doc. No.
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14.) Branzino thus acknowledges that it cannot satisfy either element, and instead asks me to
reopen discovery “on what Defendant said to Pennsylvania regulators to get the Virus Exclusion
approved.” (Doc. No. 25 at 5.)
Branzino has waived its estoppel contention. See Fegley Mgmt. & Energy, LLC v.
Cincinnati Ins. Co., No. 20-cv-4652, 2023 WL 2364726, at * 1 n.1 (E.D. Pa. Mar. 1, 2023) (“Their
inclusion of a ‘theory’ of regulatory estoppel in their opposition briefs is insufficient to amend
because ‘it is axiomatic that the complaint may not be amended by the briefs in opposition to a
motion to dismiss.’”) (citing Com. of Pa. ex re. Zimmerman v. PepsiCo, Inc., 836 F.2d 173, 181
(3d Cir. 1988); see also id. (“[T]he court will not consider the regulatory estoppel claim raised for
the first time in the plaintiffs’ responses to the motion to dismiss when no factual allegations
supporting the theory are included in the amended complaint.”). Indeed, because Branzino did not
allege that Seneca “made any arguments to the regulators . . . that discovery would be irrelevant.”
Moody v. Hartford Fin. Grp., Inc., 513 F. Supp.3d 496, 513 (E.D. Pa. 2021).
Moreover, even if estoppel is not waived, I will not reopen discovery in the circumstances
presented. The Third Circuit has set out what the court should consider before reopening discovery
after summary judgment is sought:
We have interpreted [Rule 56(d)] to require a party seeking further discovery in
response to a summary judgment motion [to] submit an affidavit specifying, for
example, what particular information is sought; how, if uncovered, it would
preclude summary judgment; and why it has not previously been obtained.
Pa., Dept. of Pub. Welfare v. Sebelius, 674 F.3d 139, 157 (3d Cir. 2012) (internal quotations and
citations omitted)). Branzino has not met these requirements. Its only contention here—that its
belated regulatory estoppel contention and additional discovery “may be enough to defeat
[Seneca’s] motion”—is not supported by affidavit, particularity, or any other explanation of why
such information had not previously been sought. (Doc. No. 14.)
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D. Bad Faith
Finally, Branzino urges that Seneca displayed bad faith in denying coverage. (See Compl.;
Doc. No. 14 at 41-43 (citing 42 Pa. C.S.A. § 8371).) As I have discussed, however, Seneca’s
refusal to provide coverage was appropriate. Branzino’s bad faith claim thus fails. See Kohler v.
Selective Fire & Cas. Ins. Co., 632 F. Supp. 3d 649 (M.D. Pa. 2022) (“[I]f a bad-faith claim is
premised solely on the denial of coverage, the claim must necessarily fail if a court finds that no
coverage exists.”) (citing Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., 244 F. App’x 424, 435
(3d Cir. 2007)).
IV.
CONCLUSION
Wilson makes clear that there is no coverage available to Branzino for its COVID-19
related losses. See Wilson, 57 F.4th at 143 n.7 (“[L]ike the overwhelming majority of state and
federal jurisdictions that have considered the issue, [we predict that the Pennsylvania Supreme
Court] would determine that the policies here are unambiguous and do not cover the businesses’
losses.”). Moreover, Seneca has shown that the Virus Exclusion applies.
I will thus grant Seneca’s Motion for Summary Judgment on these alternate grounds. (Doc.
No. 10.) In light of my decision, I will not address Seneca’s contention that other Policy
Exclusions bar coverage.
An Appropriate Order follows.
BY THE COURT.
/s/ Paul S. Diamond
_______________________
Paul S. Diamond, J.
February 6, 2024
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