On August 6, 2020, in Rose’s 1 LLC, et al. v. Erie Insurance Exchange, Civ. Case No. 2020 CA 002424 B, a District of Columbia trial court found in favor of an insurer on cross motions for summary judgment on the issue of whether COVID-19 closure orders constitute a “direct physical loss” under a commercial property policy.

At its core, the decision ignores key arguments raised in the summary judgment briefing and is narrowly premised on certain dictionary definitions of the terms, “direct,” “physical,” and “loss.” Relying almost entirely on those definitions – each supplied by the insureds in their opening brief – the court set the stage for its ultimate conclusion by finding “direct” to mean “without intervening persons, conditions, or agencies; immediate”; and “physical” to mean “of or pertaining to matter ….” The court then apparently accepted the policy’s circular definition of “loss” as meaning “direct and accidental loss of or damage to covered property.” Importantly, however, despite recognizing the fundamental rule of insurance policy construction that the court “must interpret the contract ‘as a whole, giving reasonable, lawful, and effective meaning to all its terms, and ascertaining the meaning in light of all the circumstances surrounding the parties at the time the contract was made,’” the court apparently ignored the insureds’ argument that the term “property damage” is specifically defined in the policy to include “loss of use” without any specific reference to physical or tangible damage.

Reprinted courtesy of Michael S. Levine, Hunton Andrews Kurth and Michael L. Huggins, Hunton Andrews Kurth
Mr. Levine may be contacted at mlevine@HuntonAK.com
Mr. Huggins may be contacted at mhuggins@HuntonAK.com