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COVID-19 – Pennsylvania Decision May Have Harsh Unintended Consequences for Insurance Industry

Pennsylvania
April 17, 2020
April 17, 2020
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Most commercial property policies require that the loss in business revenue be caused by the physical loss, damage or destruction of property.  Typically, this coverage extends to damage caused by natural disasters, and environmental contamination cases.  But does COVID-19 qualify as a natural disaster?  In Friends of DeVito v. Wolf, the Pennsylvania Supreme Court was faced with this question on emergency motion.  The court determined that COVID-19 qualifies as a “natural disaster” under the Emergency Management Services Code, which vests the Governor with emergency management powers.

The court found that “the specific disasters in the definition of ‘natural disaster’ themselves lack commonality, as while some are weather related (e.g., hurricane, tornado, storm), several others are not (tidal wave, earthquake, fire, explosion).”  Further, that “the only commonality among the disparate types of specific disasters referenced is that they all involve ‘substantial damage to property, hardship, suffering or possible loss of life.’” “In this respect, the COVID-19 pandemic is of the ‘same general nature or class as those specifically enumerated,’ and thus is included, rather than excluded, as a type of ‘natural disaster.’”

This decision will have unintended and far reaching consequences for the insurance industry in that insureds will likely cite to it in making arguments that damages caused by COVID-19, just like damages from hurricanes and fire, constitute “direct physical loss of or damage to property.”  This decision does not reach this conclusion, nor does it even analyze that question. Rather, the decision focuses on the number of deaths and infections from COVID-19 in analyzing whether COVID-19 falls under a statutory definition of “natural disaster” that includes “suffering and possible loss of life.” The Supreme Court of Pennsylvania did not discuss, much less determine whether COVID-19 causes property damage.