Pennsylvania Federal Court Takes a Bite Out of Restaurant’s COVID/Business Interruption Coverage Claims Against Insurance Broker
A Pennsylvania federal court recently dismissed claims asserted against an insurance broker for breach of contract and declaratory judgment in connection with a COVID-related business interruption loss in State Street Restaurant Group, Inc. v. The Cincinnati Casualty Co., et al., (M.D. Pa., Civil No. 3:20-CV-816). Marshall Dennehey attorneys Timothy Ventura and Dana Gittleman represented defendants AssuredPartners of New Jersey, LLC d/b/a Kincel & Co. The court granted Kincel’s motion to dismiss, determining that State Street lacked a viable breach of contract claim against our client and that the derivative declaratory judgment claim also failed as a matter of law.
In its complaint, State Street alleged bad faith against its insurer, Cincinnati Casualty Company, and declaratory judgment and breach of contract against Cincinnati and Kincel, based upon Cincinnati’s denial of State Street’s insurance claim for loss of business income arising from COVID-related shutdown and governmental orders mandating the closure of all non-essential businesses.
State Street alleged that Kincel breached the insurance policy/its coverage obligations under the policy. Yet, the policy itself unequivocally stated that the parties to the insurance policy contract were the plaintiff, as policyholder, and Cincinnati, the insurer—notably, not Kincel—and the plain language of the policy did not impose any duty or coverage obligations upon Kincel.
In the Magistrate Judge’s opinion, adopted by Judge Mariani, the court concluded that Kincel was not a party to the contract and had not agreed to undertake any responsibilities or liabilities for Cincinnati’s coverage determinations. Kincel merely acted as an agent for a plainly disclosed principal (Cincinnati) and facilitated the contract between the parties thereto.
State Street’s declaratory judgment count sought a declaration that State Street’s COVID-related business losses were insured under the policy and that Kincel was obligated to pay for these losses. Given the inextricable entwinement of the breach of contract and declaratory judgment allegations at issue—and in the absence of a viable breach of contract claim against Kincel—the court dismissed State Street’s declaratory judgment claim against Kincel as well.
Notably, the complaint contained fact averments regarding purported misrepresentations made by Kincel post-loss regarding claim submission, i.e, indicating to the plaintiff that the business interruption loss likely would not be covered by the insurer because there was no physical property damage, but that they would still submit the claim regardless. However, the plaintiff’s complaint did not assert any tort theories against Kincel for negligence—e.g, failure to procure adequate coverage that would have indemnified for the lost business income due to government-mandated closures due to COVID—or for negligent misrepresentation.
The scope of this decision exceeds pandemic-related litigation and, in fact, blunts plaintiffs’ potential arguments about an insurance broker’s purported breach of an insurance policy to which it is not a party, in concert with recent Pennsylvania federal court opinions.
Fundamental contract law provides that a party cannot be liable for breach of a contract to which it was not a party. See Electron Energy Corp. v. Short, 597 A.2d 175, 177 (Pa. Super. 1991) (internal citations omitted). Pennsylvania courts have held that an insurance broker who is not a party to the insurance contract (policy) cannot be liable for a breach of that contract. See Kearns v. Minn. Life Ins. Co., 75 F. Supp. 2d 413, 422 (E.D. Pa. 1999); Conquest v. WMC Mortgage Corp., 247 F. Supp. 618, 640 (E.D. Pa. Mar. 30, 2017); Wilson v. Hartford Cas. Co., 2020 WL 5820800 at *9 (E.D. Pa. Sept. 30, 2020).
While it may seem intuitive to insurance brokers that they are not parties to the insurance policy, affirmative steps may be undertaken to mitigate the risk of a potential breach of contract claim, such as clearly communicating the insurance broker’s role in the insurance transaction; avoiding issuing coverage opinions or analyses, deferring such coverage and claim determinations to the insurer; and submitting their customer’s claims, regardless of the broker’s impression as to coverage.
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