In a January 6, 2023 precedential decision, the Third Circuit ruled in a consolidated appeal of 14 cases that Pennsylvania and New Jersey businesses are not entitled to coverage for Covid-related business interruption losses, holding that the loss of use of a property’s intended business purpose is not a “physical loss of or damage to” property sufficient to trigger coverage. For the same reasons, the panel held that the insured businesses could not establish “civil authority” coverage, particularly where access to the insured properties was not prohibited. Because coverage was not triggered, the panel did not reach the issue of whether the policies’ virus exclusions applied.

Following the Third Circuit’s 2002 Port Authority decision, the panel reasoned that the virus did not physically alter or damage the business properties; rather the respective governors’ closure orders limited the activities of the business properties. As such, the business properties remained intact and functional and were not destroyed either in whole or in part.

Notably, the panel stressed that “physical damage to” property must include a distinct, demonstrable and physical alteration of the structure at issue, where “physical loss of” property means a failure to maintain tangible possession of the structure.

The Third Circuit panel acknowledged that the Pennsylvania Superior Court recently issued two differing decisions on the coverage issue, but stated that the same did not preclude or affect its ruling. The panel predicted that the Pennsylvania Supreme Court would likely follow the overwhelming majority of state and federal jurisdictions in finding that the pertinent policy language is unambiguous and does not provide coverage under the circumstances presented.

A copy of the Third Circuit’s January 6, 2023 decision can be found here.