By Mike Curley

Law360 (August 10, 2020, 1:41 PM EDT) -- A Philadelphia bar and music venue is firing back against its insurer's bid to throw out a suit seeking coverage for losses resulting from government orders to shut down business over COVID-19, saying findings in the Pennsylvania courts and the Third Circuit support a finding that a virus can cause a "physical loss" to property.

In a response filed Friday, MilkBoy Center City LLC urged the Eastern District of Pennsylvania to shoot down Cincinnati Casualty Co.'s bid for a dismissal, saying its policy does not state that it requires a physical or "structural" alteration to its property to trigger coverage under the "all risks" policy.

In addition, the governor's shutdown orders trigger the policy, as they are themselves a response to a "covered cause of loss" under the policy, according to the filing.

"There can be no reasonable dispute that the closure orders were taken in response to dangerous physical conditions," the restaurant argued. "It is difficult to fathom a more dangerous physical condition than a pandemic."

In prior cases, MilkBoy argued, Pennsylvania courts have found that a "loss of use," such as an accumulation of gasoline, constitutes a physical loss of access to the property that can trigger coverage, and that the virus causing COVID-19 is no different.

And while Cincinnati argued that COVID-19 doesn't cause damage because it can be cleaned off, MilkBoy argued Friday that whether the site has been remediated is a factual issue and not one for the dismissal stage.

MilkBoy, a bar, restaurant and music venue, filed the proposed class action suit in April, seeking to represent Cincinnati customers nationwide that had business income, extended business income, extra expense or civil authority insurance policies. Subclasses would cover customers that were either denied claims for losses related to the closure orders, or were seeking declaratory judgment that such claims should be covered.

MilkBoy's suit had originally included the Cincinnati Insurance Co., Cincinnati Indemnity Co. and Cincinnati Financial Corp. as defendants, before they were voluntarily dropped from the suit in May, according to court documents.

Cincinnati Casual asked the court in July to throw out the suit, saying the policy only covers physical damage, not a virus transmitted from human to human.

In Friday's filing, MilkBoy also argued that while many business interruption policies include exclusions for viruses, its policy with Cincinnati does not, and if the insurer wanted to exclude coverage for events involving viruses, it could have easily included such language.

In addition, the restaurant argued that the civil authority provision in the policy should trigger coverage, as the business was forced to close by the governor's may shutdown orders, which were in turn triggered by a "covered cause of loss" in COVID-19.

Just because the closure orders were designed to prevent harm, as opposed to responding to harm, does not pull them out from the civil authority provision of the policy, the restaurant argued.

"Cincinnati cannot dispute that the access to the MilkBoy property was prohibited by virtue of the closure orders," the restaurant argued. "Courts have found that where the order of a civil authority requires an insured's premise to close, there has been a prohibition of access to the insured's business sufficient to trigger coverage for business losses."

Finally, MilkBoy argued that even if the language of the policy appears to preclude coverage, the court should find that the restaurant's reasonable expectation of coverage should override the language.

The restaurant said that it bought the policy for all risks, and was under the expectation that events such as the COVID-19 pandemic would be covered, and the court should move the case forward as that is not an issue that can be decided at the dismissal stage.

A spokesperson for Cincinnati declined to comment Monday.

Representatives for MilkBoy could not immediately be reached for comment Monday.

The issue of "physical loss" has been at the center of numerous suits filed in the last several months over coverage stemming from COVID-19, with policyholders arguing that the virus and shutdown orders constitute a physical loss and insurers claiming that phrase only applies to damage to property.

Earlier in July, a Michigan federal judge sided with insurers, dismissing a $650,000 suit and telling a restaurant that it did not suffer physical loss or damage due to the virus or shutdown orders, the first time one of the suits has been decided on the merits.

And last week, a D.C. judge also sided with insurers, ruling that Erie Insurance Exchange did not owe COVID-19 business interruption coverage because the mayor's order to shut down nonessential businesses was not a physical loss.

MilkBoy is represented by Daniel E. Bacine, Mark R. Rosen, Jeffrey A. Barrack, Stephen R. Basser and Meghan J. Talbot of Barrack Rodos & Bacine.

Cincinnati Casualty is represented by Lawrence M. Silverman of Litchfield Cavo LLP.

The case is MilkBoy Center City LLC v. The Cincinnati Insurance Co. et al., case number 2:20-cv-02036, in the U.S. District Court for the Eastern District of Pennsylvania.

--Additional reporting by Matthew Santoni and Jeff Sistrunk. Editing by Rebecca Flanagan.

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