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
