On March 2, 2023, the District of Columbia Court of Appeals affirmed the grant of summary judgment to Erie Insurance Exchange in Rose's 1, LLC, et al. v. Erie Ins. Exch., a COVID-19 business interruption claim filed by several restaurants and food service businesses in the District of Columbia. In doing so, the court "join[ed] the majority of other courts in determining that 'direct physical loss of or damage to property' requires some sort of tangible, material alteration, which does not include 'loss of use.'" Opinion at 26.
The restaurants and other businesses argued that the loss of use of their businesses due to the pandemic and governmental shutdown orders entitled them to coverage under their policy's "direct physical loss of or damage" provision, but the court rejected each of their arguments. The court first noted that "most courts have concluded that there is 'no coverage for loss of use based on intangible and incorporeal harm to the property due to COVID-19 and the closure orders that were issued by state and local authorities even though the property was rendered temporarily unsuitable for its intended use.'" Id. at 13 (citing SA Palm Beach, LLC v. Certain Underwriters at Lloyd's London, 32 F.4th 1347, 1358 (11th Cir. 2022)). It then joined this clear majority based on a plain reading of the policy language. Specifically, the court found that the phrase "direct physical loss of or damage" "requires a tangible, material alteration or change to covered property." Id. at 16. It reached this conclusion following a simple examination of the dictionary definitions of the words "direct" and "physical." Those definitions led the court to conclude that "loss of covered property must be tangible and material" when "[t]aking the Policy at face value." Id. at 19. It further found that other provisions in the policy supported its interpretation, given that "[t]hroughout the Policy, the interaction between 'loss' and 'interruption of business' supports the conclusion that in order to have a qualifying 'loss,' the property must be 'repaired, rebuilt, or replaced.'" Id. at 20.
In addition, the court concluded that "'[d]irect physical loss of or damage' does not include a loss of use, and coverage of 'all risks' does not mean that coverage can be extended beyond the Policy's terms." Id. at 16. It rejected the businesses' contention that the disjunctive "or" in the phrase "direct physical loss of or damage" means that "loss" must be differentiated from "damage" and encompass loss of use, because "a loss of use, without more, would fail to meet the requirement that the loss be 'physical' in nature." Id. at 21. It further rejected the contention that coverage was available because the policy was an "all risk" policy and did not specifically exclude viruses or pandemics. To the contrary, the court determined that "'all risks' does not mean 'every risk'" and a loss cannot be regarded as covered merely because it is not within any specific exception when it does not properly fall within a coverage clause. Id. at 25.
Accordingly, the court found that the restaurants and businesses failed to show any "physical loss of or damage to Covered Property" as required by the policy due to their failure to allege any "tangible change or alteration to their properties" and affirmed the lower court's grant of summary judgment. Id. at 28.
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