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Another State Appellate Court Nixes a COVID-19 Business Interruption Claim


The Court of Special Appeals of Maryland, the state’s intermediate appellate court, fell in line with several recent state and federal appellate court rulings, unanimously upholding a lower court’s decision that a restaurant’s losses resulting from COVID-19 shutdown orders aren’t recoverable under its business interruption insurance policy.

The ruling came just a few weeks after a federal judge asked the Maryland Court of Appeals—the state’s highest court—to weigh in on the issue in a separate case.

GPL Enterprise operates The Anchor Bar in Frederick, Maryland. The parent company obtained a commercial insurance policy from the underwriters at Lloyd’s of London to cover “direct physical loss of or damage to covered property,” including the restaurant, according to the state appellate court’s opinion filed May 24.

The Circuit Court for Frederick County granted Lloyd’s underwriters’ motion to dismiss and denied GPL’s motion for summary judgment in April 2021.

In Maryland’s first appellate review of the issue, a three-judge appeals panel concluded that the policy affords no coverage for purely economic losses that GPL suffered. It agreed with the circuit court’s decision that GPL did not claim to have suffered physical damage to its property or the loss of its property as result of the governor’s order, the opinion said.

“No Maryland appellate court has decided this specific question, but hundreds of courts throughout the United States have decided it in interpreting policies that are substantially identical to the policy in this case,” Judge Kevin F. Arthur wrote. ”Although the policies do not define the operative terms, those courts have held, almost unanimously, that the phrase ‘physical loss of or damage to’ property is unambiguous and that the policies afford no coverage in circumstances such as those of this case.”

Looking beyond state courts to the federal court system, the U.S. Court of Appeals for the Seventh Circuit became the latest federal appeals court to hold that pandemic-related business losses do not constitute ”physical loss of or damage to property” covered under business interruption insurance policies in April 2022.

Every other federal appeals court to address the issue thus far has reached the same conclusion as the Seventh Circuit, the opinion said.

Those include: the U.S. Court of Appeals for the Second Circuit in 10012 Holdings v. Sentinel Insurance; the Fourth Circuit in Uncork & Create v. Cincinnati Insurance; the Fifth Circuit in Terry Black’s Barbecue Dallas v. State Automobile Mutual Insurance; the Sixth Circuit in Santo’s Italian Cafe v. Acuity Insurance; the Eighth Circuit in Oral Surgeons v. Cincinnati Insurance; the Ninth Circuit in Mudpie v. Travelers Casualty Insurance Co. of America; the Tenth Circuit in Goodwill Industries of Central Oklahoma v. Philadelphia Indemnity Insurance; and the Eleventh Circuit in Gilreath Family & Cosmetic Dentistry v. The Cincinnati Insurance.

In the Maryland case, GPL made a written demand for coverage under its policy in March 2020. The company asserted that the governor’s emergency order closing indoor dining because of the COVID-19 virus caused direct physical harm, loss, or damage to its premises, according to the opinion.

Lloyd’s underwriters denied the claim and said the governor’s order and virus had not caused direct physical loss or damage to GPL’s restaurant. GPL filed the complaint in Frederick County Circuit Court after the insurers denied the coverage and alleged that the underwriters breached their contract, the opinion said.

The insurers also said there was no applicable evidence that business operations were suspended due to direct physical loss and no evidence of physical damage to the property or adjacent premises, the opinion said.

The panel said cases of direct physical loss or damage to the insured property are covered under GPL’s policy with the underwriters. For example, the policy could cover GPL’s loss of income if fire damaged the property and The Anchor Bar could not operate, the opinion said.

“Under the policy at issue in this case, the underwriters agreed to insure against the ‘physical loss of or damage to’ to the insured’s property,” Arthur wrote. “GPL did not allege facts sufficient to establish that it suffered the ‘physical loss of or damage to’ its property. Therefore, even without a virus exclusion, the policy affords no coverage.”

The panel remanded the case to the circuit court to enter a declaratory judgment consistent with its opinion.

Michele F. Hayes and Craig D. Roswell, of Niles Barton & Wilmer in Baltimore, represented the underwriters, according to an announcement on its website. The counsel did not return a request for comment before publication.

Counsel information for GPL was not readily available and could not be reached for comment before publication.

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