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D.C. Court of Appeals Set to Decide Whether Losses Caused by COVID 19 Lock-downs are Covered Losses Under Commercial Insurance Policies

February 16, 2021

In a case that is set to have far-reaching implications for businesses and insurers in the District of Columbia, the District of Columbia Court of Appeals is set to decide whether business losses caused by COVID-19 lock-downs are covered losses under business interruption insurance policies.  The case comes to the Court of Appeals on appeal from the Superior Court’s decision in Rose’s 1, LLC, et. al. v. Erie Insurance Exchange, No. 2020 CA 002424 B, (Aug. 6, 2020). 

In Rose’s 1, LLC, the owners of several prominent restaurants in the District of Columbia filed a declaratory judgment action against Erie.  The restaurants were closed as a result of Mayor Muriel Bowser’s emergency COVID-19 orders, and sustained lost income as a result.  The restaurants claimed that the lost income was a covered loss under their commercial property insurance policies.  The insurance policies provided coverage for loss of income “due to partial or total ‘interruption of business’ resulting directly from ‘loss’ or damage” to the insured property.  The policy further provided that it insured “against direct physical ‘loss.’”  At issue was whether the closure of the restaurants due to the Mayor’s orders constituted a direct physical loss under the policy.

The Honorable Kelly A. Higashi found that lost income caused by emergency COVID-19 orders was not a direct physical loss that is covered by the insurance policy.  The Court explained that “direct physical loss” required physical change to the insured property.  Therefore, a government edict, standing alone, does not constitute a direct physical loss under an insurance policy.  None of the restaurant owners offered evidence that COVID-19 was physically present on their properties or caused a physical change to the insured property.  Thus, the restaurants’ losses resulting from the Mayor’s COVID-19 orders were not direct physical losses covered by the insurance policy. 

The restaurant owners filed a Notice of Appeal, which is currently pending in the District of Columbia Court of Appeals.  As a result of the extensive precedential impact the court’s decision could have on businesses and insurers in the District, numerous amicus curiae briefs have been filed, including briefs submitted by the National Association of Mutual Insurance Companies and the Restaurant Association of Metropolitan Washington and Restaurant Law Center.  DeCaro Doran will continue to monitor this case, as well as other similar claims across the country, to ensure that we can continue to provide effective and efficient representation and advice to clients who may be faced with similar issues.