276 A.3d 75
Md. Ct. Spec. App.2022Background
- GPL Enterprise (The Anchor Bar) operated a restaurant in Maryland and had a commercial property policy insuring against "direct physical loss of or damage to" covered property and providing business-interruption and civil-authority extensions tied to such physical loss or damage.
- In March 2020 the Maryland Governor ordered closure of indoor dining due to COVID-19; GPL lost income and pursued carry-out but remained unprofitable.
- GPL submitted a coverage demand asserting the virus and the shutdown caused direct physical loss or damage; the underwriters denied the claim.
- GPL sued for breach of contract and declaratory relief, arguing (inter alia) the policy covers virus-related losses and that the civil-authority clause applied; the policy contained no virus exclusion.
- The circuit court dismissed GPL’s coverage claim for failure to plead physical loss or damage and denied GPL’s summary-judgment motion; it also dismissed the declaratory-judgment count without entering a declaration.
- The Court of Special Appeals affirmed that the policy does not cover purely economic losses from the virus or the shutdown but remanded because the trial court should have entered a declaratory judgment declaring the parties’ rights.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "direct physical loss of or damage to" property includes COVID-19 contamination or government shutdown | Virus presence or government order caused physical loss or loss of use that qualifies as "direct physical loss" | "Direct physical" requires tangible, material alteration or dispossession; here losses were purely economic or legal restriction | No — physical loss/damage requires tangible alteration or permanent dispossession; economic loss or loss of use from an order is insufficient |
| Whether civil-authority coverage applies because access was prohibited by the Governor | Governor's order prohibited access and thus triggers civil-authority coverage | Civil-authority coverage requires prohibition in response to physical damage or dangerous conditions to nearby property | No — the order was not a response to physical damage to nearby property or dangerous conditions as required by the clause |
| Whether absence of a virus exclusion implies coverage for pandemic losses | Lack of an express virus exclusion means pandemic losses are not excluded and should be covered | Absence of an exclusion does not create coverage when the insuring clause does not include the risk | No — coverage is determined by the insuring agreement; an omitted exclusion does not expand coverage |
| Whether dismissal of the declaratory-judgment count was proper | Requested declaratory relief; court should declare parties' rights | Court dismissed the suit on merits and declined to issue a declaratory judgment | Trial court erred to dismiss without declaring rights; remand for an appropriate declaratory judgment (error nonjurisdictional) |
Key Cases Cited
- Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398 (6th Cir. 2021) (orders closing restaurants do not cause "direct physical loss" absent tangible alteration)
- Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885 (9th Cir. 2021) ("direct physical loss" requires actual, tangible harm to property)
- Uncork & Create LLC v. Cincinnati Ins. Co., 27 F.4th 926 (4th Cir. 2022) (appellate decision aligning with requirement of physical alteration for coverage)
- 10012 Holdings, Inc. v. Sentinel Ins. Co., 21 F.4th 216 (2d Cir. 2021) (business-interruption coverage not triggered by pandemic-related closures absent physical damage)
- Verveine Corp. v. Strathmore Ins. Co., 184 N.E.3d 1266 (Mass. 2022) (state high court: ephemeral viral presence or economic loss does not constitute physical loss or damage)
- Bel Air Auto Auction, Inc. v. Great Northern Ins. Co., 534 F. Supp. 3d 492 (D. Md. 2021) (federal district court holding that "direct physical" modifier applies to both "loss" and "damage")
- Berry v. Queen, 469 Md. 674 (Md. 2020) (distinguished — statute interpreting "damage to property" in uninsured-motorist context did not control interpretation of insurance-policy language)