Ungarean v. CNA & Valley Forge Ins. Co.

323 A.3d 593

Timothy A. UNGAREAN, DMD d/b/a Smile Savers Dentistry, PC, Individually and on Behalf of a Class of Similarly Situated Persons, Appellee

v.CNA AND VALLEY FORGE INSURANCE COMPANY, Appellants

Timothy A. Ungarean, DMD d/b/a Smile Savers Dentistry, PC, Individually and on Behalf of a Class of Similarly Situated Persons, Appellee

v.CNA and Valley Forge Insurance Company, Appellants

No. 11 WAP 2023

No. 12 WAP 2023

Supreme Court of Pennsylvania.

Argued: April 10, 2024

Decided: September 26, 2024

Appeal from the Order of the Superior Court entered November 30, 2022, at Nos. 490 WDA 2021, 948 WDA 2021, affirming the Order of the Court of Common Pleas of Allegheny County entered March 26, 2021, at No. GD-20-006544, Christine A. Ward, Administrative Judge - Civil Division.

Stephen E. Goldman, Esq., Robinson & Cole, L.L.P., Wystan M. Ackerman, Esq., Elizabeth Ryan Sue Lin Leong, Esq., for Amicus Curiae American Property Casualty Insurance Assocation et al.

Mark Alan Aronchick, Esq., Matthew Aaron Hamermesh, Esq., Hangley, Aronchick, Segal, Pudlin & Schiller, for Amici Curiae American Property Casualty Insurance Assocation et al., National Association of Mutual Insurance Companies, Insurance Federation of Pennsylvania, Pennsylvania Association of Mutual Insurance Companies, and Philadelphia Indemnity Insurance Company.

Harvey Bartle IV, Esq., Franco A. Corrado, Esq., Brady Sherrod Edwards, Esq., Paul Anton Zevnik, Esq., Morgan, Lewis & Bockius, LLP, for Amicus Curiae Walters & Mason Retail, Inc.

John Norig Ellison, Esq., Reed Smith LLP, for Amici Curiae Penn National Gaming, Inc., Penn Entertainment, Inc. f/k/a Penn National Gaming, Inc., Boscov’s Department Store, LLC, Shaner Gr and United Policyholders.

James Christopher Martin, Esq., Reed Smith LLP, for Amicus Curiae Penn Entertainment, Inc. f/k/a Penn National Gaming, Inc., Boscov’s Department Store, LLC, Shaner Gr.

Ilana H. Eisenstein, Esq., Brett Michael Feldman, Esq., Matthew Aaron Goldberg, Esq., Timothy Paul Pfenninger, Esq., DLA Piper, H. Christopher Boehning, Esq., James Durling, Esq., Kannon K. Shanmugam, Esq., Brian M. Lipshutz, Esq., for Appellants CNA and Valley Forge Insurance Company.

John P. Goodrich, Esq., Goodrich & Associates, P.C., James C. Haggerty, Esq., Haggerty, Goldberg, Schleifer & Kupersmith, P.C., Scott B. Cooper, Esq., Jonathan Shub, Esq., for Appellee Timothy A. Ungarean DMD, d/b/a Smile Savers Dentistry, PC.

TODD, C.J., DONOHUE, DOUGHERTY, WECHT, MUNDY, BROBSON, McCAFFERY, JJ.

OPINION

JUSTICE BROBSON

In this discretionary appeal, we must decide whether Timothy A. Ungarean, DMD D/B/A Smile Savers Dentistry, PC (Ungarean), individually and on behalf of a class of similarly situated persons, is entitled to coverage under his commercial property insurance policy with CNA and Valley Forge Insurance Company (CNA and CNA Policy) for financial losses sustained due to the COVID-19 pandemic and Pennsylvania’s non-essential business shutdown in March 2020. After careful review, we conclude that Ungarean is not entitled to insurance coverage under the plain and unambiguous language of the CNA Policy because his business properties covered thereunder did not sustain any physical loss or damage. Accordingly, we reverse the judgment of the Superior Court and remand to the Superior Court with instructions to remand to the trial court to enter summary judgment in CNA’s favor.

I. FACTUAL AND PROCEDURAL BACKGROUND

Ungarean owns and operates Smile Savers Dentistry, PC, a dental practice with offices in Pittsburgh and Aliquippa (Covered Properties). Ungarean purchased a commercial property insurance policy from CNA that provided coverage for certain business- and property-related losses of his dental practice for the period between April 1, 2019, and April 1, 2020. In March 2020, Governor Tom Wolf (Governor) is sued several orders related to the COVID-19 pandemic directing, inter alia, all non-essential businesses to close until further notice. Except for emergency dental procedures, Ungarean closed his dental practice, which he claims caused a drastic loss in income to his business, the furloughing of employees, and other harmful consequences. Ungarean filed a claim with CNA pursuant to the CNA Policy to recoup those losses. CNA denied coverage on the basis that the Covered Properties did not suffer any physical damage or harm.

A. Trial Court Proceedings

Ungarean subsequently filed a class action complaint under the Declaratory Judgments Act¹ in the Court of Common Pleas of Allegheny County (trial court), seeking a declaration that the CNA Policy—through the Business Income and Extra Expense Endorsement and the Civil Authority Endorsement—covers his pandemic-related business losses. Ungarean filed a motion for summary judgment, and CNA responded by filing a cross-motion for summary judgment. Following argument, the trial court issued an order granting Ungarean’s motion for summary judgment and denying CNA’s cross-motion for summary judgment.

In an accompanying memorandum opinion,² the trial court first considered whether Ungarean was entitled to coverage under the Business Income and Extra Expense Endorsement of the CNA Policy, which requires Ungarean to show "direct physical loss of or damage to" the Covered Properties for coverage to apply. To that end, Ungarean contended that "direct physical loss of … property" is not limited to the physical alteration of or damage to the Covered Properties but also included the loss of use of the Covered Properties. Ungarean further asserted that, because that interpretation was reasonable, the trial court was required to find in his favor. In response, and in line with its initial denial of Ungarean’s coverage claim, CNA generally submitted that "direct physical loss of or damage to" the Covered Properties required the physical alteration of or harm thereto.

In its analysis,³ the trial court focused on the fact that the "two [relevant] phrases are separated in the [CNA Policy] by the disjunctive ‘or’ "—i.e., "direct physical loss of or damage to" property—and it concluded, therefore, that those terms must have different meanings. (Trial Ct. Op. at 12.) Lacking definitions in the CNA Policy for the terms "direct," "physical," "damage," and "loss," the trial court applied dictionary definitions to conclude that Ungarean’s interpretation was persuasive:

Based upon [those dictionary definitions], it is clear that "damage" and "loss," in certain contexts, tend to overlap. This is evident because the definition of "damage" includes the term "loss," and at least one definition of "loss" includes the terms "destruction" and "ruin," both of which indicate some form of damage. However, as noted above, in the context of this insurance contract, the concepts of "loss" and "damage" are separated by the disjunctive "or," and, therefore, the terms must mean something different from each other. Accordingly, in this instance, the most reasonable definition of "loss" is one that focuses on the act of losing possession and/or deprivation of property instead of one that encompasses various forms of damage to property, i.e., destruction and ruin. Applying this definition gives the term "loss" meaning that is different from the term "damage." Specifically, whereas the meaning of the term "damage" encompasses all forms of harm to [the Covered Properties] (complete or partial), this [c]ourt conclude[s] that the meaning of the term "loss" reasonably encompasses the act of losing possession [and/or] deprivation, which includes the loss of use of property absent any harm to property.

In reaching [this] conclusion, this [c]ourt also consider[s] the meaning and impact of the terms "direct" and "physical." Ultimately, this [c]ourt determine[s] that the ordinary, dictionary definitions of the terms "direct" and "physical" are consistent with the above interpretation of the term "loss." As noted previously, "direct" is defined as "proceeding from one point to another in time or space without deviation or interruption … [and/or] characterized by close logical, causal, or consequential relationship …," and "physical" is defined as "of or relating to natural science … having a material existence … [and/or] perceptible especially through the senses and subject to the laws of nature …." Based upon these definitions it is certainly reasonable to conclude that[Ungarean] could suffer "direct" and "physical" loss of use of [the Covered Properties] absent any harm to property.

(Id. at 13-14 (some alterations in original) (footnotes omitted).)

As applied to Ungarean, the trial court opined that his loss of use of the Covered Properties was both "direct" and "physical" because "[t]he spread of COVID-19, and a desired limitation of the same, had a close logical, causal, and/or consequential relationship to the ways in which [Ungarean] materially utilized [the Covered Properties] and physical space." (Id. at 14.) Thus, contrary to CNA’s contention that Ungarean merely suffered economic losses, the trial court reasoned that any economic losses were secondary to Ungarean’s physical loss of use of the Covered Properties.

The trial court also rejected CNA’s contention that the definition of "period of restoration" in the CNA Policy indicated that tangible damage is required for Business Income and Extra Expense coverage. (See CNA Policy, Business Income and Extra Expense Endorsement ("We will pay for the actual loss of Business Income you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration.’ ").) Although conceding that the definition of "period of restoration" ends on the date when the premises "should be repaired, rebuilt or replaced with reasonable speed and similar quality," the trial court noted that the COVID-19 pandemic required numerous physical changes to business properties across the Commonwealth, including, but not limited to, "the installation of partitions, additional handwashing/sanitization stations,...