286 A.3d 1044
Md.2022Background
- Tapestry, Inc. (owner/operator of Coach, kate spade, Stuart Weitzman stores) submitted >$700M claims under two FM Global all‑risk commercial property policies for losses during COVID‑19.
- FM Global’s Policies cover "ALL RISKS OF PHYSICAL LOSS OR DAMAGE" and Time Element losses "directly resulting from physical loss or damage of the type insured." "Physical loss or damage" is not defined; Policies include a Contamination exclusion and separate limited Communicable Disease Response / Interruption by Communicable Disease coverages (aggregate sublimit $1M).
- Tapestry alleged SARS‑CoV‑2 was present in store air and on surfaces (fomites), that remediation and store closures caused large functional losses, and that virus presence thus caused "physical loss or damage."
- FM denied primary coverage (paid only the small communicable‑disease sublimit), asserting "physical loss or damage" requires tangible structural alteration or dispossession; District Court certified a question of Maryland law to the Supreme Court of Maryland.
- The Maryland Supreme Court (then Court of Appeals) answered the certified question: "physical loss or damage" requires tangible, concrete, material harm to property or deprivation of possession; mere presence of a hazardous substance in air or on surfaces or a temporary loss of functional use does not trigger primary coverage, assuming the Complaint’s factual allegations are true.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an all‑risk policy covering "physical loss or damage" is triggered by presence of SARS‑CoV‑2 in indoor air | Presence of virus physically alters air and renders premises unsafe—constitutes "physical loss or damage" | "Physical" limits "loss or damage" to tangible, material harm or loss of possession; mere presence or risk is not enough | No — requires tangible, concrete, material harm or deprivation of possession |
| Whether virus adherence to surfaces (fomites) that can be dislodged constitutes "physical loss or damage" | Virus transforms objects into vectors; settling/adherence alters property and makes it contaminated/unusable | Particles on surfaces do not structurally or materially alter property; contamination without physical alteration is not "physical loss or damage" | No — allegations of mere adherence/contamination do not show structural/material alteration |
| Whether a temporary loss of functional use (closures/restrictions) satisfies "physical loss or damage" | Functional inability to use premises is a "loss" and so triggers property and time‑element coverage | Time‑element coverage is expressly tied to physical repair/replacement; temporary loss of use without physical alteration would create circular coverage | No — temporary loss of use alone does not trigger primary Property/Time‑Element coverage |
| Whether policy context (period of liability; separate communicable disease coverages) supports expansive reading | Policy’s disease‑related endorsements show insurer contemplated disease‑related "losses" and therefore "physical loss" can include functional loss | Separate limited disease coverages and period‑of‑liability language (repair/replace) demonstrate primary coverage anticipates tangible repair/replacement, not mere functional loss | Court relied on policy context: primary coverage requires tangible harm or dispossession; communicable‑disease extensions do not expand that trigger |
Key Cases Cited
- GPL Enter., LLC v. Certain Underwriters at Lloyd's, 254 Md. App. 638 (Md. Ct. Spec. App. 2022) (Maryland intermediate appellate decision holding similar COVID claims do not allege "physical loss or damage")
- Uncork & Create LLC v. Cincinnati Ins. Co., 27 F.4th 926 (4th Cir. 2022) ("physical loss"/"damage" require material destruction or tangible harm to property)
- Cordish Cos., Inc. v. Affiliated FM Ins. Co., 573 F. Supp. 3d 977 (D. Md. 2021) (presence of virus does not show material alteration; "physical" requires material alteration)
- Bel Air Auto Auction, Inc. v. Great N. Ins. Co., 534 F. Supp. 3d 492 (D. Md. 2021) (actual presence of virus insufficient to trigger physical damage coverage)
- Santo's Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398 (6th Cir. 2021) (loss of use is not the same as physical loss; policy requires tangible alteration)
- Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885 (9th Cir. 2021) (dismissing COVID coverage claim absent physical alteration or permanent dispossession)
- Estes v. Cincinnati Ins. Co., 23 F.4th 695 (6th Cir. 2022) ("loss" means destruction or deprivation; covered source must destroy or deprive owner of possession)
- Terry Black's Barbecue v. State Auto Mut. Ins. Co., 22 F.4th 450 (5th Cir. 2022) (interpreting "physical loss" to require tangible alteration or deprivation)