560 F.Supp.3d 956
D. Maryland2021Background
- Hamilton Jewelry (Upper Marlboro, MD) closed after Maryland’s March 23, 2020 executive order responding to COVID-19; it sought business-income coverage under a business-owner policy issued by Twin City (May 2, 2019–May 2, 2020).
- The Policy insures “direct physical loss of or physical damage to Covered Property” and provides business-income and extra-expense coverage only if suspension is caused by such direct physical loss/damage.
- A Policy Endorsement titled “Limited Fungi, Bacteria or Virus Coverage” contains a broad exclusion: Twin City will not pay for loss caused directly or indirectly by virus, regardless of any other concurrent or sequential cause; it grants very narrow virus coverage only if a virus results from a listed “specified cause of loss” (e.g., fire, civil commotion) and then only for direct physical loss/damage.
- Hamilton submitted a claim for lost business income; Twin City denied coverage. Hamilton sued for declaratory relief and bad faith; the parties filed cross-motions for judgment on the pleadings under Rule 12(c) limited to coverage.
- The court held Twin City’s motion granted and Hamilton’s denied, concluding the Endorsement unambiguously excludes Hamilton’s COVID-19–related loss and that no direct physical loss/damage was alleged.
Issues
| Issue | Plaintiff's Argument (Hamilton) | Defendant's Argument (Twin City) | Held |
|---|---|---|---|
| Whether the virus exclusion bars coverage for COVID-19–related business losses | Policy language is ambiguous; reasonable expectations and the title/structure of the endorsement mean coverage should be read in favor of insured | Endorsement plainly and unambiguously excludes loss "caused directly or indirectly" by virus, barring coverage | Exclusion is unambiguous and bars coverage for Hamilton’s COVID-19 losses |
| Whether the doctrine of reasonable expectations creates coverage despite clear language | Insured invokes reasonable-expectations doctrine to avoid the exclusion | Maryland law enforces clear written policy language; reasonable-expectations doctrine does not override unambiguous terms | Doctrine not applied; plain policy language governs |
| Whether the endorsement’s narrow virus coverage applies because the virus was allegedly caused by a "specified cause of loss" (e.g., civil commotion) | Hamilton contends virus arose from civil commotion, bringing claim within the limited coverage grant | No facts plausibly show civil commotion caused the virus; temporal/sequencing and logical problems; even if true, coverage still requires direct physical loss/damage | Argument fails: pleading insufficient and, in any event, coverage would still require direct physical loss/damage |
| Whether "direct physical loss or physical damage" is satisfied by government-ordered closure or loss of use (i.e., economic loss without tangible property alteration) | Loss of use/economic loss qualifies as "physical loss" under some authorities | Policy requires tangible, physical alteration or intrusion on the property; economic loss alone insufficient; anti-concurrent-causation language bars coverage if virus was any part of causal chain | Court holds physical-loss requirement unmet: no tangible physical alteration; economic loss and closure do not trigger coverage |
Key Cases Cited
- Drager v. PLIVA USA, Inc., 741 F.3d 470 (4th Cir. 2014) (standard for Rule 12(c) motions)
- Agency Ins. Co. v. State Farm Mut. Auto. Ins. Co., 998 A.2d 936 (Md. Ct. App. 2010) (contract/insurance interpretation principles)
- Mitchell v. AARP Life Ins. Program, New York Life Ins. Co., 779 A.2d 1061 (Md. Ct. App. 2001) (plain-meaning rule for contracts)
- Connors v. Gov't Emps. Ins. Co., 113 A.3d 595 (Md. 2015) (ambiguity construed for insured but written terms control when clear)
- Megonnell v. United Servs. Auto. Ass'n, 796 A.2d 758 (Md. 2002) (insurer may exclude risks by clear, conspicuous language)
- Promotional Headwear Int'l v. Cincinnati Ins. Co., 504 F. Supp. 3d 1191 (D. Kan. 2020) ("direct physical loss" requires tangible change or intrusion in COVID-19 context)
- Franklin EWC, Inc. v. Hartford Fin. Servs. Grp., Inc., 488 F. Supp. 3d 904 (N.D. Cal. 2020) (virus exclusion applied to bar COVID-19 business-loss claim)
- N&S Rest. LLC v. Cumberland Mut. Fire Ins. Co., 499 F. Supp. 3d 74 (D.N.J. 2020) (survey of cases finding virus exclusions bar coverage)
- Raymond H Nahmad DDS PA v. Hartford Cas. Ins. Co., 499 F. Supp. 3d 1178 (S.D. Fla. 2020) (virus exclusion/inapplicability of government-order causation arguments)
- National Ink & Stitch, LLC v. State Auto Prop. & Cas. Ins. Co., 435 F. Supp. 3d 679 (D. Md. 2020) (distinguished—ransomware/data-loss case where policy covered software/data)