The Pennsylvania Supreme Court has overturned lower court decisions, rejecting a dentist’s attempt to secure insurance coverage for the loss of use of his offices during the COVID-19 pandemic.
The ruling, involving CNA and Valley Forge Insurance Co., determined that the dentist, Dr. Timothy A. Ungarean, is not eligible for coverage because his properties “did not sustain any physical loss or damage,” as outlined in the CNA policy’s language.
In March 2020, Governor Tom Wolf mandated the closure of all non-essential businesses due to the pandemic. Except for emergency dental procedures, Dr. Ungarean, who owns Smile Savers Dentistry, shut down his practice, leading to significant financial losses, employee furloughs, and other consequences.
Ungarean filed a claim with CNA, seeking compensation for his losses, but the insurer denied the claim, arguing that the properties had not suffered physical harm. Ungarean then filed a class action suit, seeking a court declaration that his policy covered his pandemic-related business losses.
A trial court had previously ruled in Ungarean’s favor, stating that his interpretation of the CNA policy was reasonable, and that the insurer had not definitively proven that exclusions within the policy barred coverage. The Pennsylvania Superior Court later upheld this ruling in 2022, finding that the policy’s phrase “direct physical loss of or damage to the property” was ambiguous. According to the Superior Court, the use of the word “or” suggested that “loss” and “damage” were distinct concepts, and that Ungarean’s interpretation of the policy was reasonable.
CNA subsequently petitioned the Pennsylvania Supreme Court to review the case, arguing that the Superior Court had misinterpreted the policy language. The insurer asserted that “direct physical loss or damage” required some form of physical alteration or deprivation of the property, and that the government’s COVID-19 shutdown did not meet this standard.
Ungarean maintained that the lower courts had correctly interpreted the policy, emphasizing that the disjunctive “or” meant “loss of” and “damage to” property should be treated as separate terms. He argued that his inability to fully use his office space constituted a physical loss, even though no physical damage had occurred.
The Pennsylvania Supreme Court disagreed with Ungarean’s argument, ruling that for insurance coverage to apply, there must be a physical alteration to the property. The court clarified that the policy required either the physical disappearance or functional incapacity of the property (loss) or some form of physical harm or injury (damage). Without a physical alteration, no coverage could be triggered.
The court further noted that while Ungarean’s business was partially closed due to the government’s shutdown orders, he still had full access to his properties and was able to perform emergency procedures. The court concluded that the financial losses Ungarean experienced were purely economic and unrelated to any physical condition of the properties, which is a necessary criterion for insurance coverage under the CNA policy.
“Put simply, the losses sustained by Ungarean’s business were the result of the government shutdown and not any physical condition of the properties,” the court stated.
The Supreme Court’s decision aligns with similar rulings in other jurisdictions but stressed that its conclusion was based on the specific language of the CNA policy rather than the outcomes of other cases.
In its 2022 ruling, the Superior Court had also denied coverage for the owner of Grant Street Tavern, which was insured under a similar policy with Erie Insurance Exchange. While it had initially found in favor of Ungarean, the Supreme Court’s decision now definitively resolves the issue, denying coverage for pandemic-related losses under the CNA policy.
