Brown's had purchased commercial property insurance coverage from The Cincinnati Insurance Co. for the period from May 5, 2019, to May 5, 2020.

In his 59-page ruling, Nealon asserted that Brown's Gym had sufficiently alleged a "direct physical loss or damage" to its property due to the coronavirus pandemic and refused to dismiss breach of contract and bad-faith claims it filed against Cincinnati Insurance.

In overruling Cincinnati's preliminary objections, Nealon referenced a similar ruling involving another gym – Ridley Park Fitness, LLC v. Philadelphia Indemnity Ins. -  by Philadelphia County Judge Gary Glazer on Aug. 31, 2020.

Nealon quoted Glazer, who asserted: "At this very early stage, it would be premature for this court [to] resolve the factual determinations put forth by defendants to dismiss plaintiff's claims. Taking the factual allegations made in plaintiff's complaint as true, as this court must at this time, plaintiff has successfully pled to survive this stage of the proceedings.

"As such, the preliminary objections are overruled," said Glazer.

Nealon said the same applies here and that Cincinnati Insurance has 20 days from the court order dated July 13 to file a responsive pleading to the complaint.

Lawrence M. Silverman and Daniel G. Litchfield, of Litchfield Cavo in Philadelphia represented Cincinnati. Betsy Ertel, spokeswoman for Cincinnati Insurance, said in an emailed statement: "We respect the rights of all parties to have their issues heard and resolved in a court of law. For that reason, we do not comment on pending litigation. Cincinnati Insurance remains committed to doing our part to support the families and businesses in our agents' communities, helping them to proactively manage risks and promptly paying covered claims."

A spokeswoman for Brown's Gym said the owner was not immediately available for comment. Brown's attorneys did not respond to requests for comment.

Brown's filed suit against Cincinnati, maintaining it suffered great loss when the coronavirus shut down its entire operation. The gym maintains it is entitled to relief because it was issued an all-risk insurance policy from Cincinnati that did not have a virus exclusion.

Brown's sought to recover lost revenue under its policy. The gym alleged that COVID-19 was actually present on its covered premises and the neighboring properties, and that all public access to the insured property was prohibited as a result.

On April 16, 2020, Cincinnati denied Brown's coverage claims on the grounds that Brown's did not suffer "direct physical loss or direct physical damage" to its property, and that Brown's claims were barred by "the pollutant exclusion."

Cincinnati filed preliminary objections seeking to dismiss the gym's claims for a declaratory judgment that its coronavirus-related losses are covered by the policy, compensatory damages for breach of the insurance agreement, and extra-contractual damages for insurer bad faith under 42 Pa.C.S. Section 8371.

Nealon said while the all-risk policy does not include a virus exclusion, it does contain a "communicable disease or virus" exclusion for other "crisis event response communication expense coverage."

This created "a reasonable expectation on the part of the gym that coronavirus-related damages would be covered by the policy's business interruption coverage, but excluded from the crisis event response communication expense coverage," Nealon said.

Nealon shot down Cincinnati on all points, asserting "the gym has sufficiently alleged 'direct physical loss or damage' to its property under the 'physical contamination' theory as a necessary condition to business interruption insurance coverage."

"Furthermore, inasmuch as the gym has averred that the COVID-19 virus was also present on nearby properties and that public access to the covered premises was completely prohibited as a result, it has stated an alternate claim for 'business income' and 'extra expense' recovery under its 'civil authority' coverage," added Nealon.

"Finally, in light of the gym's assertions that the insurer misrepresented the policy terms and monetary limits to the gym and denied the gym's coverage request based upon the insurer's own economic considerations, rather than the merits of the claim, the insurer's demurrer to the gym's declaratory judgment, breach of contract, and bad faith claims will be overruled."

The topic is a touchy one nationally. Nealon said nearly 2,000 lawsuits challenging insurers' denials of such claims have been filed in federal and state courts as of June 28. He used the July 13 ruling to cite several of them and draw comparisons to the case at hand.

Editor's Note: Depending on the jurisdiction, the specific policy language, and the form of notice these cases seem to be all over the board. Last week a Texas court granted an insurer's motion to dismiss a policyholder's third amended complaint, holding that the policyholder failed to plausibly plead that it suffered a direct physical loss or damage so as to trigger coverage under the policy.