eNotes: Liability – April 2023 – Washington, DC

SIGNIFICANT CASE SUMMARIES

Washington, DC Case Summary

Rose’s 1, LLC v. Erie Ins. Exch.
District of Columbia Court of Appeals
No. 20-CV-0535

Decided: March 2, 2023

Court holds that an “all-risk” insurance contract does not cover business losses due to pandemic lock-downs without explicit language supporting that coverage.

Background

In 2020, a group of restaurants located in the District of Columbia were closed by Order of the Mayor in response to the COVID-19 pandemic. The Mayor phased out the closures, along with other lockdown measures, through April of 2022. During that time, the restaurants experienced varying levels of restriction on the execution of their businesses, ranging from complete closure, to take-out only, to outdoor dining. The restaurants made a claim with their first party property insurer for those losses.

The Trial Court granted summary judgment in favor of the insurer on the grounds that the policy did not provide coverage for the losses that the restaurants suffered by the mandated closure of their businesses due to the pandemic. The insurer had denied the restaurants’ requests for reimbursement of their losses on the basis that the losses that the policy covered required “direct physical loss to [Appellants’] building[s].”

Holding

The D.C. Court of Appeals affirmed the Trial Court’s entry of summary judgment, agreeing with the Trial Court’s conclusion that the plain language of the policy supported the denial of coverage. The Court’s analysis rested most heavily on the plain language of the policy, the interpretation and definition thereof, and the context of the policy’s language. The Court did not find the policy to be ambiguous, due in part to both the fact that the trial court had held the policy to be unambiguous, and in part to the parties’ prior assertion that the policy was not ambiguous. The Court went on to define and interpret various words and phrases in the policy, holding that: (1) loss under the policy was expressly modified by the language “direct” and “physical;” (2) “loss of use” under the policy was still tied to the policy’s “direct” and “physical” requirements, despite the existence of a separate “loss of use” heading under some forms, especially when the loss did not involve the need for any “repairing, rebuilding, or replacement;” and (3) the phrase “all risk” in the policy did not mean the policy would cover “all loss” as not all types of loss are even covered under the language of the policy.

The Court of Appeals held that, in essence, there was no “direct physical loss.” The Court specifically opined that, just because the COVID-19 pandemic featured the physical proliferation of a virus, at the very least an insured entity would need to aver that there was coronavirus physically present on the property. The Court discussed that, for a “contamination” style theory to prevail, it would likely require even more than a mere showing that coronavirus was physically present, but also that the property had in fact become “uninhabitable.” In concluding its Opinion, the Court specifically described the type of direct physical loss lacking in this case as “a tangible change or alteration to the properties.”

Questions about this case can be directed to Joseph Mooradian at (202) 318-1751 or at jmooradian@tthlaw.com.