290 A.3d 52
D.C.2023Background:
- In March 2020 Mayor Bowser ordered phased restrictions in D.C., culminating in closure of nonessential businesses and stay-at-home orders that prevented in-person dining.
- Multiple DC restaurants insured under Erie’s Ultrapack Plus Policy (which included Income Protection and Extra Expense coverage) sought coverage for lost income and extra expenses from pandemic-related closures.
- Erie denied coverage, asserting there was no "direct physical loss of or damage to" covered property as required by the Policy.
- The Superior Court granted Erie summary judgment; plaintiffs appealed, arguing the forced loss of use (and absence of a virus exclusion) triggered coverage.
- The D.C. Court of Appeals affirmed: under the Policy "direct physical loss" requires a tangible, material alteration or contamination of the property; government-ordered loss of use alone is not enough.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID-19 and mayoral shutdown orders caused a "direct physical loss" to insured property | Loss of use from the shutdown is a direct physical loss triggering Income Protection | "Direct physical loss" requires a tangible/material change to the property; orders alone cause economic, not physical, harm | No — shutdown orders alone do not constitute direct physical loss under the Policy |
| Whether the Policy's use of "loss" (vs. "damage") covers "loss of use" absent physical alteration | "Loss" can mean loss of use and is distinct from "damage" so coverage applies | "Direct" and "physical" modify "loss," so loss must be physical; definition and repair/rebuild language confirms this | No — "loss" is limited by modifiers to physical, tangible loss; loss of use without physical change is excluded |
| Whether the Policy’s characterization as "all-risk" requires coverage absent a specific virus/pandemic exclusion | All-risk coverage means losses are covered unless clearly excluded, so pandemic-related loss of use should be covered | "All-risk" is not limitless; absent physical loss the Policy’s coverage clause is not triggered even without a virus exclusion | No — lack of a virus exclusion does not create coverage when Policy requires direct physical loss |
| Whether contamination/virus presence could qualify as "direct physical loss" on these facts | (Contamination theory) Presence of virus could make property unusable and thus cause physical loss | No evidence alleged that COVID-19 was present on the insured premises here; contamination claims require express allegation | Contamination can qualify if alleged; but plaintiffs did not plead or prove presence here, so theory fails |
Key Cases Cited
- Bros., Inc. v. Liberty Mut. Fire Ins. Co., 268 A.2d 611 (D.C. 1970) ("direct loss" interpreted as loss proximately resulting from physical damage)
- Port Auth. of N.Y. & N.J. v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2002) (contamination such as asbestos can constitute physical loss if it renders structure unusable)
- W. Fire Ins. Co. v. First Presbyterian Church, 437 P.2d 52 (Colo. 1968) (infiltration of gasoline made premises uninhabitable and constituted physical loss)
- Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327 (7th Cir. 2021) ("direct physical" modifies both "loss" and "damage"; loss must be physical)
- Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885 (9th Cir. 2021) (coverage requires a distinct, demonstrable physical alteration)
- SA Palm Beach, LLC v. Certain Underwriters at Lloyd’s London, 32 F.4th 1347 (11th Cir. 2022) (majority view: tangible alteration of property is required)
- Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141 (8th Cir. 2021) (physicality requirement: loss must involve physical alteration, contamination, or destruction)