Maryland Businesses Shouldn’t Look To Insurance To Recover COVID-19 Losses
The Court of Special Appeals has recently held that economic losses suffered by a business related to the COVID-19 pandemic are not covered under a commercial property insurance policy. GPL Enterprise, LLC v. Certain Underwriters at Lloyd’s, et al., 254 Md.App. 638 (2022).
GPL had a commercial property insurance policy from Lloyd’s that provided coverage for its restaurant in the event of “direct physical loss or damage to Covered Property.” The policy also contained business-interruption coverage, which insures against the loss of business income and incurrence of expenses due to a suspension of business operations “caused by direct physical loss of or damage to property” at the restaurant. The policy also included coverage for the loss of business income and expenses if a civil authority prohibits access to a restaurant because of damage to property other than the restaurant, such as an adjacent property.
On March 16, 2020, Governor Hogan issued an emergency order closing all Maryland restaurants and bars except for carry-out and delivery orders in response to the COVID-19 pandemic. GPL was prohibited from operating its restaurant at full capacity and suffered significant losses causing it to make a written demand to Lloyd’s for coverage under its commercial property insurance policy.
GPL claimed that it had suffered direct physical harm, loss, or damage to its restaurant because of the COVID-19 virus and the Governor’s order. GPL also sought damages under its business interruption coverage due to having to suspend operations pursuant to the Governor’s order. Finally, GPL asserted a claim for coverage because an act of civil authority had prohibited access to its restaurant. Following Lloyd’s denial of its demand for coverage, GPL filed suit in the Circuit Court for Frederick County, alleging breach of contract and requesting the court to determine the parties’ rights under the policy. The court granted Lloyd’s motion to dismiss the case finding that GPL did not claim to have suffered physical damage or loss to its property as required by the policy.
On appeal, the Court of Special Appeals affirmed this decision holding that the Governor’s order modifying the permissible business operations in response to the COVID-19 pandemic did not constitute direct physical loss or damage to GPL’s business. Additionally, the COVID-19 virus itself did not cause a direct physical loss of, or damage to, the restaurant. Because GPL did not sustain any physical damage to its restaurant that required any type of repair or remediation preventing GPL from conducting business, there was no coverage under the policy. The policy also did not provide coverage for damages cause by a virus, so the requirements for business-interruption coverage were not satisfied.
Although the Court of Special Appeals rejected GPL’s insurance coverage claims, Maryland businesses that have suffered losses as a result of the COVID-19 pandemic may have contractual avenues to recover losses through force majeure clauses or lease agreements.