Scores of insureds have sued their insurance carriers seeking coverage for business interruption losses stemming from the COVID-19 pandemic and related governmental closure orders. A vast majority have lost. Time and again, courts presiding over these cases have rejected them on the ground that there was no physical loss or damage to the insured’s property. In one Pennsylvania state court, that trend has changed.

In MacMilles, LLC d/b/a Grant Street Tavern v. Erie Insurance Exchange, Judge Christine Ward of the Court of Common Pleas of Allegheny County, Pennsylvania, recently awarded summary judgment to a tavern that was forced to close “[a]s a result of the spread of COVID-19 and the Governor’s orders.” Unlike other cases of this character, the court determined that MacMilles’ “loss of use of its property was both ‘direct’ and ‘physical’. The spread of COVID-19, and a desired limitation of the same, had a close logical, causal, and/or consequential relationship to the ways in which Plaintiff materially utilized its property and physical space.”

The Income Protection provision in the commercial general liability policy issued by Erie offered coverage for “direct physical ‘loss’ of or damage to Covered Property…caused by or resulting from a peril insured against.” The term “loss” was defined as the “direct and accidental loss of or damage to covered property.” Further, “Income Protection” was denoted as “loss of ‘income’ and/or ‘rental income’ you sustain due to partial or total ‘interruption of business’ resulting from ‘loss’ or damage to property…” “Interruption of business” was the period of time the applicable business was “partially or totally suspended.”

The court determined that the critical inquiry hinged on whether MacMilles had suffered “direct physical loss of or damage to its property.” The insurer, as insurers have done in courts across the country over the last 16 months, argued that “direct physical loss or damage” required a physical alteration or harm to the property itself. Demurring, plaintiff asserted that the operative phrase did not mandate a physical alteration of the property insofar as that loss of use of the property was also covered.

Recognizing that some courts had interpreted “‘direct physical loss of or damage to’ property to require some degree of physical alteration or harm to the property in order for coverage to attach, Judge Ward noted that such an interpretation conflated “direct physical loss of” and “direct physical…damage to”, and ignored the separate nature of these phrases, which were separated by the disjunctive “or.” Moreover, an interpretation not distinguishing these separate phrases would reduce some words in the policy to mere surplusage, and contradict the “vital principle of contract interpretation” that all words be given effect. Consequently, it was clear to Judge Ward that “due to the presence of … ‘or’”, “direct physical ‘loss’ of” meant something different than “direct physical …damage to.”

Turning next to the oft-cited Merriam-Webster Dictionary, the court determined that the ordinary meaning of “loss” included the act of losing possession and/or deprivation of property, rather than damage, destruction, or ruin to property. The distinction lied in the fact that “damage” could encompass all forms of harm to property, while “loss” could involve a deprivation of use of the property without any per se harm. The court also considered the meaning of “direct” which it saw as “‘proceeding from one point to another in time or space without deviation [and/or ] characterized by close logical, causal or consequential relationship’”; and, “physical”, which it defined as “of or relating to natural science…having a material existence…[and/or] perceptible…through the senses and subject to the laws of nature…’”

In granting summary judgment against the insurer, the court held that the tavern had indeed suffered a direct physical loss of use of the property absent any harm to the property itself. The spread of COVID-19 and the desire to stunt its proliferation had a causal/consequential relationship to plaintiff’s ability to utilize its physical space. Moreover, it was COVID-19’s spread and related social distancing measures (with or without the Governor’s orders) that, according to the court, caused the tavern to “physically limit the use of property and the number of people who could inhabit physical buildings at any given time, if at all.”

This holding does not appear to be a mere parsing of words by some renegade court. Its reasoning, while in the clear minority of cases dealing with COVID-19 related business interruption insurance disputes, indicates that courts will continue to make coverage determinations based on  the express terms of the specific contract of insurance at issue and applicable state law.

Back to Commercial Litigation Update Blog

Search This Blog

Blog Editors


Related Services



Jump to Page


Sign up to receive an email notification when new Commercial Litigation Update posts are published:

Privacy Preference Center

When you visit any website, it may store or retrieve information on your browser, mostly in the form of cookies. This information might be about you, your preferences or your device and is mostly used to make the site work as you expect it to. The information does not usually directly identify you, but it can give you a more personalized web experience. Because we respect your right to privacy, you can choose not to allow some types of cookies. Click on the different category headings to find out more and change our default settings. However, blocking some types of cookies may impact your experience of the site and the services we are able to offer.

Strictly Necessary Cookies

These cookies are necessary for the website to function and cannot be switched off in our systems. They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms. You can set your browser to block or alert you about these cookies, but some parts of the site will not then work. These cookies do not store any personally identifiable information.

Performance Cookies

These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors move around the site. All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies we will not know when you have visited our site, and will not be able to monitor its performance.