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COVID-related business loss is not ‘property damage,’ Md. appeals court says

An insurance policy’s standard coverage for lost business due to property damage does not apply to a restaurant’s loss of revenue after Gov. Larry Hogan ordered eateries closed to in-house dining in 2020 to stanch the spread of COVID-19, Maryland’s second highest court ruled Tuesday in a defeat for a Frederick bar.

The pandemic-compelled closure — though costly to Anchor Bar and its owner, GPL Enterprise LLC — resulted from neither a “direct physical loss” nor “damage to property” as stated in the eatery’s policy agreement with its insurer, Lloyd’s, the Court of Special Appeals held in its reported 3-0 decision.

The appellate court stated that Lloyd’s property-damage policy is common in the commercial insurance industry and noted that dozens of other state and federal courts have uniformly ruled the provision does not cover pandemic-related revenue loss.

“The main purpose of such a policy is to insure the property … against direct physical loss or damage as a result (for example) of a fire, an earthquake, a tornado, an ice storm, a hail storm, a meteor strike, theft, vandalism, etc.,” Judge Kevin F. Arthur wrote for the Court of Special Appeals.

“Unlike a fire or an earthquake, the (governor’s) order had no tangible, physical impact on GPL’s restaurant or the property inside the restaurant,” Arthur added. “The physical condition of the insured property was exactly the same the day after the governor issued the order as it was the day before. GPL lost one use of its property as the result of a legal prohibition on that use, not because of any actual or tangible harm to or intrusion on the property itself.”

As a reported decision, the Court of Special Appeals ruling applies not only to the Anchor Bar but to other businesses covered by a similar commercial insurance policy.

GPL’s attorney, Brian M. Maul, did not immediately return telephone and email messages Wednesday seeking comment on the court’s decision and any plans to seek review by the Court of Appeals. Maul is a Frederick solo practitioner.

Craig D. Roswell, attorney for Lloyd’s, declined to comment on the court’s decision. Roswell is with Niles, Barton & Wilmer LLP in Baltimore.

GPL submitted its ill-fated claim for insurance coverage on March 30, 2020, two weeks after Hogan issued the emergency order. Hogan did not permit restaurants to resume full in-person dining until May 2021.

The insurance policy expressly covered “direct physical loss of or damage to” Anchor Bar, as well as the loss of business and incurrence of expenses due to a suspension of operations caused by the loss or damage. The policy also covered lost income or incurred expenses if a civil authority barred access to the restaurant due to damage to adjacent property.

When Lloyd’s denied the claim, GPL filed suit in Frederick County Circuit Court, alleging breach of contract.

GPL said the governor’s order was tantamount to a physical loss that caused Anchor Bar to suspend in-person operations due to actions of a civil authority. GPL added that the insurance policy contained no coverage exclusion for financial losses caused by a virus.

Lloyd’s moved for dismissal of the lawsuit, saying the policy did not apply because Anchor Bar had suffered no direct physical loss or damage.

The circuit court agreed and granted dismissal after an April 27, 2021, hearing.

Affirming the dismissal, the Court of Special Appeals said the policy’s language is “unambiguous” and must be given “its plain, ordinary and usual meaning.”

GPL has not “alleged facts sufficient to establish that the COVID-19 virus somehow physically altered the structure of the restaurant so as to trigger coverage under the policy,” Arthur wrote.

“No repair, reconstruction, or replacement and no relocation could effectuate a return to in-person dining at GPL’s restaurant while the governor’s order was in effect,” Arthur added. “Because GPL had nothing to repair, rebuild, replace, or relocate, it follows that GPL suffered no direct physical loss of or damage to property.”

The appeals court also held that the policy’s absence of an exclusion for virus-related losses “does not imply the existence of coverage” for the COVID-19 emergency closure.

“Instead, we determine whether a policy affords coverage by looking to what the insurer agreed to insure,” Arthur wrote. “Under the policy at issue in this case, the underwriters agreed to insure against the ‘physical loss or damage to’ the insured’s property.”

Arthur was joined in the opinion by Judges Kathryn Grill Graeff and James R. Eyler, a retired jurist sitting by special assignment.

The Court of Special Appeals rendered its decision in GPL Enterprise LLC v. Certain Underwriters at Lloyd’s et al., No. 302, September Term 2021.