Posts tagged Roundabout Theatre Co. v. Continental Casualty Co..
Blogs
Clock 5 minute read

On August 6, 2020, in Rose’s 1 LLC, et al. v. Erie Insurance Exchange, a District of Columbia trial court granted an insurer’s cross motion for summary judgment on the issue of whether COVID-19 closure orders constitute a “direct physical loss” under a commercial property policy. Plaintiff insureds (“Insureds”) own several restaurants in Washington D.C. that were forced to close and suffered serious revenue losses stemming from the Mayor’s orders to close non-essential businesses and ordering people to stay home. As a result, the Insureds made claims to Defendant Erie Insurance Exchange (the “Insurer”) under their policies that included coverage for “loss of ‘income’ and/or ‘rental income’” sustained “due to partial or total ‘interruption of business’ resulting directly from ‘loss’ or damage” to the property insured. The policy also stated that it “insures against direct physical ‘loss.’”

Dictionary Definitions Open to Interpretation

As the Court framed the issue, “[a]t the most basic level, the parties dispute whether the closure of the restaurants due to Mayor Bowser’s orders constituted a ‘direct physical loss’ under the policy.” To support their argument, the Insureds relied on dictionary definitions of “direct” as “[w]ithout intervening persons, conditions, or agencies; immediate;” and “physical” as pertaining to things “[o]f or pertaining to matter, or the world as perceived by the senses; material as [opposed] to mental or spiritual.” The policy defined “loss,” as “direct and accidental loss of or damage to covered property.”

The Insureds relied on these definitions to make three arguments. First, they argued that the loss of use of their restaurant properties was “direct” because the closures were the direct result of the Mayor’s orders without intervening action. The Court rejected that argument because those orders commanded individuals and businesses to take certain actions and “[s[tanding alone and absent intervening actions by individuals and businesses, the orders did not affect any direct changes to the properties.”

Second, the Insureds argued that their losses were “physical” because the COVID-19 virus is “material” and “tangible,” and because the harm they experienced was caused by the Mayor’s orders rather than diners being afraid to eat out. The Court also rejected that argument because the Insureds offered no evidence that COVID-19 was actually present on their properties at the time they were forced to close and the mayor’s orders did not impact the tangible structure of the properties.

Third, the Insureds argued that the policy’s definition of “loss” as encompassing either “loss” or “damage,” required the insurer to “treat the term ‘loss’ as distinct from ‘damage,’ which connotes physical damage to the property,” and thus “loss” incorporates “loss of use.” The Court rejected that argument and held that the words “direct” and “physical” modify the word “loss” and therefore any “loss of use” must be “caused, without the intervention of other persons or conditions, by something pertaining to matter—in other words, a direct physical intrusion [onto] the insured property.” The Court held that the Mayor’s orders did not constitute such a direct physical intrusion.

Search This Blog

Blog Editors

Recent Updates

Related Services

Topics

Archives

Jump to Page

Subscribe

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.