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Companies await Md. high court ruling on COVID insurance coverage

The Cordish Companies, which owns the Live Casino & Hotel Maryland in Hanover and about 30 other Maryland properties, says its losses from Gov. Larry Hogan’s pandemic closing orders exceeded tens of millions of dollars. (Submitted)

At least three Maryland companies that lost business during the pandemic are awaiting a decision by the state’s top court on whether their financial hit was insured under the “physical loss or damage” coverage provisions of their insurance policies under Maryland law.

Two of the companies – Bel Air Auto Auction Inc. and The Cordish Companies Inc. – have petitions for review pending before the U.S. Supreme Court.

Bel Air and Cordish argue that the 4th U.S. Circuit Court of Appeals wrongfully ruled against their claim of insurance coverage without waiting for the Maryland Court of Appeals to determine if the COVID-19 compelled closure of their businesses constituted covered physical damage under the state’s insurance law.

The claim of the third company, Tapestry Inc., is pending in U.S. District Court in Baltimore, where Judge George L. Russell III has asked the Maryland high court to decide the coverage issue.

The Court of Appeals heard arguments Sept. 9 and is expected to render its decision by Aug. 31. The case is Tapestry Inc. v. Factory Mutual Insurance, Misc. No. 1 September Term 2022.

Tapestry operates 15 stores in Maryland and owns several high-end brands, including Coach, Kate Spade New York and Stuart Weitzman.

In the Bel Air and Cordish cases, U.S. district court judges denied their request to ask the Maryland Court of Appeals before deciding on their own that the physical damage provision does not apply to virus-related financial losses. The 4th Circuit upheld the denials of insurance coverage, saying the issue was clear, and that input from Maryland’s top court was unnecessary.

In their petitions for Supreme Court review, Bel Air and Cordish said a Court of Appeals decision is necessary because physical damage insurance coverage is undefined under Maryland law.

Both companies have urged the Supreme Court to stay the 4th Circuit’s decisions in their cases pending the Court of Appeals’ ruling.

“The question of law before the Maryland Court of Appeals in Tapestry and in Bel Air’s appeal are essentially the same and present an issue that is solely a question of Maryland insurance contract law,” Bel Air’s lead attorney wrote.

“While federal courts have the power to adjudicate cases based on Maryland law as to the parties before it, a federal court’s doing so cannot conclusively determine any questions of Maryland law that would be binding precedent in other cases,” added Lawrence J. Gebhardt, of Gebhardt & Smith LLP in Baltimore. “Only the Maryland Court of Appeals can conclusively state what Maryland law is and have its pronouncement constitute binding precedent in all federal or state cases based on Maryland law.”

Cordish’s lead attorney said justice requires that the Supreme Court grant the company’s request and stay the 4th Circuit’s ruling.

“It would be manifestly unjust for the present petition to be denied and Cordish’s claim forever dismissed, only to see the merits of Cordish’s case be validated by the Maryland Court of Appeals in just a few weeks, if not days,” wrote Daniel J. Healy, of Anderson Kill PC in Washington. “In that event, another litigant with the exact same contractual rights as Cordish would be paid, but Cordish would not.”

The insurers for Bel Air and Cordish have each waived their right to respond to the companies’ request for Supreme Court review unless the justices request a response.

The pending high court petitions are docketed as Bel Air Auction Inc. v. Great Northern Insurance Co., No. 22-392, and The Cordish Companies Inc. v. Affiliated FM Insurance Co., No. 22-424.

In Bel Air’s case, U.S. District Judge Richard D. Bennett said in April 2021 that the insurance issue involved a straightforward application of “basic principles of Maryland contract law” that did not require a certified question to the state’s high court.

“Quite simply, this court is unpersuaded that the COVID-19 virus in some way physically altered Bel Air’s covered properties or the surrounding areas in a manner that triggers coverage under the plain language of the policy,” Bennett added. “A mere loss of use of property is not ‘physical damage’ within the meaning of Maryland law.”

Bel Air, which holds a weekly car auction, said its losses came from cancellation of its live in-person auctions and the closure of its on-site restaurant during Gov. Larry Hogan’s stay-at-home and safer-at-home orders between March 2020 and the summer of 2021.

In Cordish’s case, U.S. District Judge Ellen L. Hollander said she agreed with Bennett. “Economic loss alone is not sufficient to trigger coverage; physical alteration to the property is necessary,” Hollander wrote last November.

Cordish, which owns the Live Casino & Hotel Maryland in Hanover and about 30 other Maryland properties, said its losses from the governor’s orders exceeded tens of millions of dollars.

The 4th Circuit upheld the district court decisions, prompting the companies to seek Supreme Court review.