Judge denies agent's request to dismiss gym's COVID coverage suit
The judge ruled it is still unclear whether the 'reasonable expectations' doctrine can be applied to a commercial insured, including the gym.
In a case that may be a harbinger for others like it to come, a Lackawanna County Court of Common Pleas judge has rejected an insurance agent’s dismissal motion in a suit in which the agent has been sued for negligence by a gym that has been denied COVID-19-caused loss coverage.
In a detailed decision, Judge Terrence Nealon ruled that the agent, C.C. Young & Henkelman Insurance, must file a responsive pleading to plaintiff Brown’s Gym’s complaint. The judge turned back the agent’s preliminary objections seeking early dismissal of the claims against it, which were based on the agent allegedly failing to obtain for the gym the insurance coverage it had requested.
C.C. Young & Henkelman had argued that it didn’t owe a duty to the gym under the circumstances laid out in the gym’s complaint. The defense argued that the “reasonable expectations” doctrine relevant to the gym’s negligence claim doesn’t apply to commercial insureds, such as the gym, and that it wasn’t a party to the insurance agreement between the gym and the insurer, the Cincinnati Insurance Co.
Questions circling ‘reasonable expectations’ doctrine
As part of his ruling, Nealon found that in Pennsylvania, it is still unclear whether the “reasonable expectations” doctrine can be applied to a commercial insured, even though, so far, the Pennsylvania Supreme Court has only applied it to non-commercial insureds.
Nealon made clear that, in his view, use of the doctrine is not foreclosed by commonwealth case-law precedent he cites, but he ruled that in the Brown’s Gym and C.C. Young matter, the “success” of Brown’s negligence claims are not dependent upon “the application of the doctrine.”
Nealon also noted that the claims against C.C. Young have been pleaded in the alternative by Brown’s Gym. In its Aug. 11-filed complaint, the agent levies several primary claims against Cincinnati Insurance, including demanding a declaratory judgment that says the gym’s pandemic-related losses must be covered. Only if the gym doesn’t prevail on the insurance policy-based claims against the insurer do its negligence-based claims against C.C. Young become relevant, according to Nealon.
The alleged facts underlying Brown’s Gym’s complaint, the judge said, center on it suffering monetary losses after Gov. Tom Wolf issued a March 2020 executive order closing down nonessential businesses, including gyms, in an effort to control the rampant spread of COVID-19.
Insured contests policy coverage details
Brown’s contends in its complaint that it requested and bought an “all risk” policy from Cincinnati Insurance providing “coverages for business closure losses caused by a government order or civil authority measure,” and that policy “does not contain any policy exclusion for losses caused by a virus or pandemic,” Nealon wrote.
The gym further claimed that it bought the policy based on C.C. Young’s representations “regarding the amounts and applicability of the business income [covered], contingent business income, extra expense, and civil authority coverage under the policy,” and that it had instructed C.C. Young to obtain coverage “as broad as possible for the coverage period.”
In addressing C.C. Young’s preliminary-objection argument that, under the circumstances laid out by Brown’s Gym, it doesn’t owe the gym a duty of care, Nealon noted that under Pennsylvania’s Section 299A of the Restatement (Second) of Torts, an insurance agent is “required to exercise the skill and knowledge normally possessed by members of that profession and that an agent must “make sure that the coverage sought by the insured is the coverage received.”
Nealon also noted that C.C. Young contends that the gym’s complaint makes a reference to the “plain language of the policy,” and that C.C. Young argues that, therefore, the gym made clear that the policy’s terms were clear and unambiguous.
But Nealon then knocked down C.C. Young’s argument, writing that “the averments cited by C.C. Young have been taken out of context, and cannot be construed as conclusive judicial admissions that all provisions in the subject policy are clear and unambiguous.”
More on the ‘reasonable expectations’ doctrine
Taking up C.C. Young’s argument that the “reasonable expectations” doctrine does not apply to commercial insureds, such as Brown’s Gym, Nelaon noted that, to date, the Pennsylvania Supreme Court has “applied the ‘reasonable expectations’ approach only in instances involving non-commercial insureds.” But he further points out that the U.S. Court of Appeals for the Third Circuit has “predicted that Pennsylvania courts would apply that doctrine even where the insured is a sophisticated purchaser of insurance.”
Nealon also wrote that in a 2015 unpublished memorandum opinion cited by C.C. Young, E.E.G. v. Pennsylvania State Police, that “the Superior Court of Pennsylvania did not squarely hold that the ‘reasonable expectations’ doctrine can never apply to a commercial insured.”
Later, he stated that at this juncture in the case, regardless of whether Commonwealth courts would apply the doctrine or not, C.C. Young “is not free and clear from doubt that Brown’s is unable to recover damages from C.C. Young based upon the totality of the facts alleged in the complaint.”
Lastly, in addressing the agent’s argument that it wasn’t a party to the agreement between the gym and Cincinnati Insurance and therefore claims against it fail, Nealon noted that Brown’s Gym argues “there was a business arrangement between [Cincinnati Insurance] and [C.C. Young] to their mutual pecuniary benefit.”
Judge’s final verdict
The judge later stated that based on the contentions before him and “the asserted agency relationship between Cincinnati Insurance and C.C. Young, there is no legitimate basis” for striking certain paragraphs of the complaint, as the agent wanted.
John Mulcahey, an attorney at Munley Law in Scranton representing Brown’s Gym, said in an email, “We are encouraged by the findings of the court on CC Young & Henkelman Insurance’s Preliminary Objections.”
“Brown’s Gym purchased insurance to cover them in case their business was interrupted through no fault of their own. This has happened, and they are facing great financial losses as a result,” Mulcahey also said. The gym, he said, wants “the agent to be held accountable” for what he contended was its “misrepresenting coverage for this All Risk policy with no virus exclusion.”
Anthony Cox Jr., a lawyer with Dickie, McCamey & Chilcote in Harrisburg, is counsel to C.C. Young. He could not be reached for comment.
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