eNotes: Liability – January 2023 – Maryland

SIGNIFICANT CASE SUMMARIES

Maryland Case Summary

Tapestry, Inc. v. Factory Mut. Ins. Co.
Maryland Supreme Court
Misc. No. 1, September Term, 2022

Decided: December 15, 2022

The Supreme Court of Maryland holds that a first party, all-risk insurance policy, which covers “all risks of physical loss or damage,” does not cover functional loss of insured retail property resulting from the presence of COVID-19 in the air and on surfaces of insured retail stores.

Background

Tapestry, Inc. (“Tapestry”) is a business which owns many luxury brands and operates numerous stores within the State of Maryland. Tapestry held all-risk commercial property insurance policies with Factory Mutual Insurance Company (“FM”) during periods in which Tapestry’s stores were closed in connection with the COVID-19 pandemic. These policies provide coverage for losses caused by “physical loss or damage” to covered property. As a result of the COVID-19 pandemic, Tapestry filed claims with FM for business losses of over $700 million. FM denied coverage. Tapestry brought a lawsuit in the Circuit Court for Baltimore County, contending that it was entitled to coverage because it suffered “physical loss or damage” when COVID-19 was present within its stores and when those stores had to close for business due to the presence of COVID-19. Tapestry sought a declaratory judgment and an award of damages for FM’s alleged breaches of the insurance contracts.

Following the filing of suit in state court in Baltimore County, FM removed the case to the United States District Court for the District of Maryland. FM also moved to dismiss Tapestry’s Complaint. Tapestry filed an opposition and a Motion to certify a question of law to the Supreme Court of Maryland. The United States District Court granted the Motion and issued a Certification Order. The question certified by the United States District Court was whether the policies issued by FM, which cover “all risks of physical loss or damage,” cover losses to the functional use of Tapestry’s property caused by the presence of COVID-19 in the indoor air of Tapestry’s property and on physical items on Tapestry’s property. It should be noted that “physical loss or damage” is not defined under the policies.

Holding

The Supreme Court determined that Tapestry’s claims did not trigger the primary coverage provided by the policies. The Court found that the phrase “physical loss or damage” in the policies requires tangible, concrete and material harm to the insured property, or deprivation of possession of the insured property. The Court, assuming the truth of the facts pled in Tapestry’s operative Complaint, found that COVID-19 caused neither tangible, concrete and material harm to Tapestry’s property, nor deprivation of possession of Tapestry’s property.

Questions about this case can be directed to Andrew White at (443) 641-0572 or awhite@tthlaw.com.