A D.C. Superior Court rejected a business interruption claim due to closures related to the COVID-19 pandemic. Rose's 1, LLC v. Erie Ins. Exchange, Civil Case No 2020 CA 002424 B (Order dated Aug. 8, 2020). The decision is here. 

    Plaintiffs owned a number of restaurants in the District of Coiumbia. Plaintiffs had commercial property coverage in a policy issued by Erie. The policy provided coverage for loss of income sustained due to interruption of business resulting directly from "loss or damage" to the insured property. 

    DC Mayor Bowser issued a series of orders in March 2020 which closed all non-essential businesses, including plaintiffs' restaurants. Plaintiffs filed claims with Erie. When coverage was denied, plaintiffs filed suit. Both sides moved for summary judgment. 

    The dispute centered on whether the closure of the restaurants due to the mayor's orders constituted a "direct physical loss" under the policy. Plaintiffs argued that the loss of use of the restaurants was "direct" because the closures were the direct result of the mayor's orders without intervening action. The court reasoned, however, that the orders were governmental edicts that commanded individuals and businesses to take certain actions. Standing alone and absent intervening actions by individuals and businesses, the orders did not effect any direct changes to the properties. 

    Plaintiffs argued that their losses were "physical" because the COVID-19 virus was "material" and "tangible." But plaintiffs offered no evidence that COVID-19 was actually present on their insured properties at the time they were forced to close. 

    Plaintiffs also argued "loss" incorporated "loss of use" in the policy, which only required them to be deprived of the use of their properties, not that the properties suffered physical damage. But under a natural reading of the term "direct physical loss," the words "direct" and "physical" modified the word "loss." Any "loss of use" had to be caused, without the intervention of other persons or conditions, by something pertaining to matter – in other words, a direct physical intrusion on to the insured property. The mayor's orders were not such a direct physical intrusion. 

    The court noted cases cited by plaintiffs in which "direct physical loss" was found even though there was no physical damage to a structure. Interestingly, the court found that Murray v. State Farm Fire & Cas. Co., 509 S.E. 2d 1, 16-17 (W.Va. 1998), where the future risk of a landslide was a "direct physical loss" because it rendered the homes uninhabitable, was not applicable here. 

    Consequently, Erie's motion for summary was granted while plaintiffs' motion was denied. 

    Thanks to the Hunton Insurance Recovery Blog [here] for covering this recent case.