Maryland Court of Special Appeals Sets Precedent on Business Interruption Losses Due to COVID-19

On May 24, 2022, the Maryland Court of Special Appeals affirmed a trial court’s ruling out of Frederick County regarding a restaurant operator’s claims of business interruption due to the COVID-19 pandemic. In the case, GPL Enterprise, LLC v. Certain Underwriters at Lloyd’s, 2022 WL 1638787, the court affirmed that the insurance policy did not provide coverage for business interruption losses due to the pandemic. The business interruption losses that were not covered by the policy included losses caused by the state of Maryland’s emergency order that indefinitely suspended indoor dining at restaurants and bars during the pandemic.

The insurance policy covered “direct physical loss of or damage to” the restaurant’s property. The policy provided business interruption coverage, “which insures against the loss of business income and the incurrence of expenses due to the suspension of business operations, provided that the suspension is ‘caused by direct physical loss of or damage to property at’ the restaurant.” The policy also covered loss of business income and incurred expenses if a civil authority prohibited access to the restaurant because of damage to the property other than the restaurant itself.  Certain Underwriters denied the restaurant’s claim for loss of business income due to the COVID-19 pandemic. In response, the restaurant filed suit for breach of the insurance contract and declaratory relief.

The plaintiff, who operated the restaurant, argued that due to COVID-19 and the state’s emergency order, the restaurant “had suffered direct physical harm, loss or damage to its premises.” Plaintiff also argued that the policy language was ambiguous and that the policy otherwise did not contain a virus or bacteria exclusion. The trial court granted Certain Underwriters of Lloyd’s motion to dismiss the plaintiff’s initial complaint because plaintiff did not claim that the covered property suffered physical damage from the COVID-19 pandemic or the resulting state emergency order. Plaintiff also did not claim to have lost the covered property as a result of COVID-19 or the emergency order prohibiting indoor dining.

Ultimately, the Court of Special Appeals affirmed the trial court’s dismissal of plaintiff’s complaint by concluding that “the policy at issue affords no coverage for the purely economic losses that [the restaurant] suffered in this case.” The Court noted that the state’s indoor dining prohibition “no doubt caused an economic loss” and that the suspension of indoor dining prevented the restaurant from operating at full capacity. However, this economic loss “did not cause a direct, physical loss of property, which is a precondition for the business suspension coverage in the policy and in fact for most coverage in the policy.” The Court further emphasized that the plaintiff could not invoke the state’s emergency order as a basis to trigger coverage under the commercial property insurance policy because a “mere loss of use of property is not ‘physical damage’ within the meaning of Maryland law.” See also Bel Air Auto Auction, Inc. v. Great Northern Ins. Co., 534 F.Supp.3d 492, 509 (D. Md. 2021). The Court cited  a 2021 Sixth Circuit Court of Appeals opinion that found the effect of the Governor of Ohio’s COVID-19 emergency order that suspended indoor dining was to “temporarily rezone[ ] all restaurants in the State solely for takeout dining … [which] would not create a direct physical loss of property.” Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398, 402 (6th Cir. 2021). The GPL v. Lloyd’s opinion serves as a significant Maryland precedent from Maryland’s intermediate appellate court on the issue of whether business interruption losses due to the pandemic are covered under a commercial general liability policy.