eNotes: Liability – April 2024 – Washington, DC

SIGNIFICANT CASE SUMMARIES

Washington, DC Case Summary

Creative Consolidation, LLC v. Erie Ins. Exch.
District of Columbia Court of Appeals
No. 22-CV-0950

Decided: March 21, 2024

The active presence of the COVID-19 virus in a business does not constitute “direct physical loss or damage” triggering the “all-risk” coverage of a policy.

Background

Ten restaurants and bars from the District of Columbia and Virginia sought coverage for their respective business losses resulting from closures brought on by the 2020 COVID-19 pandemic. The businesses alleged that “direct physical loss or damage” resulted from the mere active presence of the COVID-19 virus within their establishments. The insurer denied the claims. The businesses filed suit in the Superior Court of the District of Columbia. The insurer filed a Motion to dismiss, which the Superior Court granted. The Superior Court reasoned that the businesses had failed to state plausible facts to establish that the COVID-19 virus had caused them physical damage to trigger coverage under their policies. The businesses filed an appeal.

The businesses asked the District of Columbia Court of Appeals to address the question previously left unresolved by the Court’s decision in Rose’s 1, LLC v. Erie Ins. Exch., 290 A.3d 52 (D.C. 2023). In Rose’s 1, the Court left open the question of whether the active presence of the COVID-19 virus was a sufficient “physical alteration” to constitute “direct physical loss or damage,” thus triggering coverage under the policy. Here, the businesses argued that the virus’s droplets physically altered the chemical makeup of the indoor air and the molecular makeup of the surfaces to which the virus bonded.

Holding

The District’s Court of Appeals rejected the businesses’ argument that the active presence of the COVID-19 virus was sufficient to overcome a Motion to dismiss. The Court reasoned that the facts as alleged by the businesses did not satisfy the plausibility requirement applicable to pleadings in this jurisdiction. The Court further reasoned that the argument advanced in the case before it (i.e., that the mere presence of the COVID-19 virus is sufficient to overcome a Motion to dismiss) has been rejected more than accepted across different jurisdictions. The Court ultimately affirmed the dismissal by the Superior Court.

Questions about this case can be directed to Marcelo Perez at (202) 945-9503 or mperez@tthlaw.com.