534 F.Supp.3d 492
D. Maryland2021Background
- Bel Air Auto Auction (Maryland) holds a commercial property policy (10/1/2019–10/1/2020) issued by Great Northern and sought business-interruption and extra-expense coverage for losses allegedly caused by SARS-CoV-2/COVID-19 and resulting state and county orders.
- Bel Air alleges in-person "in-lane" auctions ceased and operations were impaired (moved to remote simulcast), with imposed safety measures; it expressly concedes no structural alteration to premises.
- Policy insures for "direct physical loss or damage" and defines "property damage" to include physical injury or loss of use of tangible property; the policy contains an "Acts Or Decisions" exclusion but no virus exclusion.
- Great Northern denied the claim, arguing there was no direct physical loss or damage, Civil Authority coverage does not apply because access was not fully prohibited, and the Acts Or Decisions exclusion bars coverage; insurer removed the case to federal court.
- Procedural posture: Bel Air moved for summary judgment and asked to certify state-law questions; Great Northern moved for judgment on the pleadings. The district court denied Bel Air’s motions, granted Great Northern’s 12(c) motion, and entered judgment for the insurer.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "direct physical loss or damage" includes loss of use or contamination without structural alteration | "Direct physical loss or damage" covers loss of full use/contamination by the virus, so business-income coverage is triggered | The modifiers "direct" and "physical" require tangible, structural or demonstrable physical alteration; mere loss of use or economic loss is not covered | Held: "Direct physical loss or damage" requires tangible/physical alteration (or comparable threshold); loss of use or mere contamination that can be remedied by cleaning does not trigger coverage |
| Whether Civil Authority coverage requires total prohibition of access | Civil Authority should apply because governmental orders and pandemic conditions impaired access and operations | Civil Authority requires a prohibition of access by civil authority caused by physical loss or damage to nearby property; orders here did not ban access entirely and were not due to covered physical damage nearby | Held: Civil Authority not triggered—access was not completely prohibited and there is no allegation of covered physical damage to other property that prompted civil-authority orders |
| Whether contamination by SARS‑CoV‑2 constitutes "direct physical loss or damage" | Presence/contamination of the virus physically damaged the premises and surrounding property, satisfying the policy language | Virus contamination that is removable by routine cleaning does not cause the kind of physical alteration the policy contemplates | Held: Virus contamination does not amount to the required physical loss/damage; routine cleaning defeats a theory of "repair/restore" and no period-of-restoration is implicated |
| Whether federal court should certify controlling state-law questions to Maryland Court of Appeals | Certification warranted because Maryland courts have not directly addressed whether "direct physical loss" includes loss of use/contamination | No certification necessary—the court can reach a reasoned, principled Maryland-law decision based on existing authority and contract principles | Held: Certification denied; court resolved questions under Maryland contract-law principles and granted insurer judgment on pleadings |
Key Cases Cited
- M Consulting & Export, LLC v. Travelers Cas. Ins. Co., 2 F. Supp. 3d 730 (D. Md. 2014) (interpreting "physical" damage to require harm affecting the good itself rather than mere loss of use)
- Berry v. Queen, 233 A.3d 42 (Md. 2020) (uninsured-motorist context: "damage to property" can include loss of use where tied to physical harm)
- Affiliated FM Ins. Co. v. Port Authority of N.Y. & N.J., 311 F.3d 226 (3d Cir. 2002) (asbestos precedent: physical damage means distinct, demonstrable physical alteration; contamination must nearly eliminate function to qualify)
- Trinity Indus. v. Ins. Co. of N. Am., 916 F.2d 267 (5th Cir. 1990) (policy language construed to anticipate actual change in insured property)
- AFLAC, Inc. v. Chubb & Sons, Inc., 581 S.E.2d 317 (Ga. Ct. App. 2003) ("direct physical loss or damage" construed to require actual change to property)
- Dutta v. State Farm Ins. Co., 769 A.2d 948 (Md. 2001) (Maryland principle: unambiguous policy terms must be enforced as written)
- Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co., 736 F.3d 255 (4th Cir. 2013) (Erie principle: apply Maryland law in diversity case)