Maryland Court Echoes Jurisdictions Across the Country, Over the Interpretation of Business Interruption Coverage, as it relates to Covid-19.

06/06/2022


GPL Enterprise, LLC v. Certain Underwriters at Lloyd’s, et al., No. 302, Sept. Term 2021. Opinion by Arthur, J.

    In a recently reported opinion issued by the Court of Special Appeals of Maryland, a three-judge panel concluded that a commercial property insurance policy designed to cover “direct physical loss or damage to” property does not apply to the lost revenue of a restaurant, which was forced to shut its doors during the pandemic.

    The underlying dispute, in this case, arose from an insurance claim made by GPL Enterprise, LLC (hereinafter "GPL"), which operates a restaurant called The Anchor Bar. Two weeks after Governor Larry Hogan issued an emergency order closing all Maryland restaurants and bars, GPL filed a claim with their insurance company. GPL's claim sought coverage for direct physical harm, loss, or damage to their premises, which they claim resulted from Covid -19 and Governor Hogan’s emergency order. The insurance carrier denied GPL’s claim, presumably citing an absence of “direct physical loss of or damage to” the property itself, as a pre-condition for coverage.

    As a result, GPL filed a two-count complaint in the Circuit Court for Frederick County alleging breach of contract and requesting the Court declare the parties’ rights under the policy. The insurance providers prevailed on a motion to dismiss at a hearing on April 27th. GPL appealed that decision.

    The policy in question is a commercial property insurance policy. The primary purpose of which is to protect the property that the insured uses in its business “against direct physical loss or damage as a result of fire, vandalism, meteor strike, etc.” In addition, the policy included business interruption coverage for the loss of income and additional expenses incurred from the direct loss or damage. The meaning of “direct physical loss of or damage to” property is the central issue in this case. As the court sought to answer, whether the Governor’s order or the Covid-19 virus resulted in direct physical loss of or damage to GPL’s property.

    No Maryland appellate court had decided this issue. However, numerous other courts around the country had ruled on similar issues, which the Court of Special Appeals deemed virtually identical to GPL’s claim. The Court of Special Appeals cited numerous cases that determined that language, which is practically identical to that of GPL’s insurance policy, was unambiguous. The Court pointed to the inclusion of the term “physical” as a clear indicator that some form of a material alteration to the property must be present for the insurance claim to be viable.

    The Court noted that, unlike a fire or meteor strike, the Governor’s order had no tangible or physical impact on GPL’s restaurant or the property inside it. As a result, the pre-condition that GPL show a  “direct physical loss of or damage to” the business, which was needed in order to obtain business-interruption coverage, had not been satisfied. This opinion shows how courts in Maryland have fallen in line with other jurisdictions across the country as insurance providers and businesses attempt to establish new boundaries in the wake of COVID-19.

            -- Scott Mitchell, Law Clerk