985 N.W.2d 919
Mich. Ct. App.2022Background
- Gavrilides Management Company and related entities operate two Michigan restaurants that were closed or limited to carry-out after Michigan Executive Orders (EO 2020-21 and EO 2020-42) responding to COVID-19.
- Plaintiffs held a commercial policy with Business Income (and Extra Expense) coverage that requires a "direct physical loss of or damage to property" caused by a Covered Cause of Loss.
- The policy also included a civil-authority provision and a broad "Exclusion of Loss Due to Virus or Bacteria" endorsement applying to all coverage.
- Plaintiffs submitted a business-interruption claim; the insurer denied it, invoking the virus exclusion and arguing no direct physical loss or damage occurred.
- The trial court granted summary disposition for the insurer; plaintiffs appealed seeking coverage and, alternatively, leave to amend to allege physical presence of the virus in their premises.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs suffered "direct physical loss of or damage to property" | Gavrilides: closures and reduced operations satisfy "direct physical loss" (including air contamination) | Mich Ins: policy requires tangible, material physical change to premises; closures by EO are not physical loss | No — no direct physical loss or damage; EO closures applied generally and did not allege material physical alteration of premises |
| Whether civil-authority provision covers losses from the Executive Orders | Gavrilides: EO actions are civil-authority prohibitions that barred access, triggering coverage | Mich Ins: provision requires damage to other property and prohibition of access to an area around damaged property; EOs did not identify or cordon off damaged property | No — EOs did not prohibit access to an area surrounding discrete damaged property, so provision does not apply |
| Whether the virus-exclusion bars coverage | Gavrilides: exclusion is vague/doesn’t apply to business income form or is ambiguous | Mich Ins: exclusion expressly applies to all coverages and bars loss caused by viruses like SARS‑CoV‑2 | Yes — exclusion applies to losses caused by virus; if physical contamination were alleged, exclusion would preclude coverage |
| Whether plaintiffs should have been allowed to amend the complaint | Gavrilides: should be permitted to allege physical spread of virus on premises | Mich Ins: amendment would be futile because virus exclusion would foreclose coverage; no offer of proof made | No — trial court did not abuse discretion; plaintiffs offered no written offer of proof and amendment would be futile |
Key Cases Cited
- Maiden v. Rozwood, 461 Mich 109 (standard for reviewing summary disposition)
- Cohen v. Auto Club Ins. Ass'n, 463 Mich 525 (de novo review of insurance-policy interpretation)
- Twichel v. MIC Gen. Ins. Corp., 469 Mich 524 (use of commonly understood meanings and dictionaries for policy terms)
- Klapp v. United Ins. Group Agency, Inc., 468 Mich 459 (court may not create ambiguity in unambiguous policy language)
- American Bumper & Mfg. Co. v. Hartford Fire Ins. Co., 452 Mich 440 (exclusionary clauses construed against insurer but courts cannot rewrite clear policy terms)
- In re Certified Questions from U.S. Dist. Ct., 506 Mich 332 (executive orders can have force of law when authorized)
- Sloan v. Phoenix of Hartford Ins. Co., 46 Mich App 46 (civil-authority coverage requires prohibition of access tied to damage)
- People v. Yamat, 475 Mich 49 (definition of "physical" as pertaining to material things)