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Insurers on Thursday scored their third straight victory in cases involving COVID-19 business interruption claims when a District of Columbia judge ruled that the forced closure of a dozen restaurants in Washington did not constitute a direct physical loss.
The restaurants in the case Rose’s 1 LLC et al v. Erie Insurance Exchange, which was filed in state court in the district in May, include several Michelin-starred establishments, such as Pineapple and Pearls, and Gravitas.
The restaurants argued they were owed lost income and related expenses from the Erie, Pennsylvania-based insurer because March lockdown orders by Washington’s mayor meant they lost the ability to operate their establishments as dine-in restaurants, which constituted a “direct physical loss” and triggered business interruption coverage under their policies.
Superior Court Judge Kelly A. Higashi disagreed and issued a summary judgment in favor of Erie Insurance.
In the ruling, the judge parsed the phrase “direct physical loss.”
According to the ruling, the mayor’s orders “did not effect any direct changes to the properties;” the orders “did not have any effect on the material or tangible structure of the insured properties;” and as “direct” and “physical” modify the word loss, therefore, loss of use must be caused by “a direct physical intrusion,” which the orders did not constitute.
Judge Higashi said also that none of the cases cited as precedents by the plaintiffs support the proposition that a government order constitutes a direct physical loss. Several of the cases in the suit have been cited in some of the scores of other suits filed in state and federal courts across the country by commercial policyholders seeking business interruption coverage for COVID-19 losses.
A lawyer for the restaurants did not immediately respond to a request for comment.
Last month, a Michigan state court judge also ruled for an insurer in a COVID-19 case filed by a restaurant owner, and in May a New York judge ruled in favor of an insurer in a suit filed by a magazine publisher. The publisher filed an appeal, which was later withdrawn.
More insurance and risk management news on the coronavirus crisis here.
Chez Panisse has filed suit against a Nationwide Mutual Insurance Co. unit for its refusal to pay business interruption expenses in connection with the pandemic.