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D.C. decision not to find any "direct physical loss" for COVID-19 closures is not without serious limitations



August 6, 2020 Rose & # 39 ;s 1 LLC, et al. v. Erie Insurance Exchange Civ. Case No. 2020 CA 002424 B, a District of Columbia lawsuit that existed in favor of an insurer for cross-judgment for summary judgment on whether COVID-19 closure order constitutes a "direct physical loss" under a commercial real estate policy. [19659002] At its core, the decision ignores important arguments put forward in the summary judgment summary and is limited to certain dictionary definitions of the terms, "direct," "physical," and "loss." By relying almost entirely on these definitions – each provided by the insured in its opening statement ̵

1; the court set the stage for its final conclusion by finding "direct" to mean "without interfering with persons, conditions or authorities immediately"; and "physical" means "of or relating to matter …." The Court then apparently accepted the policy's circular definition of "loss" which means "direct and unintentional loss of or damage to covered property." However, it is important that although he acknowledges the basic rule in the policy of insurance policy that the court "must interpret the contract" as a whole, which gives a reasonable, legal and effective meaning to all its terms and determines the meaning in the light of all the circumstances surrounding the parties at the time of entering into the contract, "the court assured that the concept of "property damage" is specifically defined in the policy to include "loss of use" out any specific reference to physical or concrete damage.

Based on their supplied definitions and those from the insurance, the insured claimed that the "direct physical loss" suffered was the loss of use of their restaurant properties. Insured claimed that the loss was "immediate" because the closures were the direct result of the mayor's order without intervention. Insureds further claimed that the loss was "physical" because "the COVID-19 virus is" material "and" tangible ", and that the damage they experienced was caused by the mayor's order rather than" some abstract mental phenomenon that irrational fear causes guests to refrain from " to eat out. "" Which would prove to be critical, but the insured did not claim that COVID-19 was actually present on the insured properties at the time the properties were forced to close, nor did the insured claim that the pandemic nature of COVID-19 necessarily means that COVID -19 is available globally. Finally, the insured claimed that the term "loss" includes loss of use, and that the insured were deprived of the use of their properties.

The court rejected each of the insured provided definitions as a basis for triggering coverage under facts alleged. The court concluded that the provisions, single and absent intervention measures by individuals and companies, had no direct change of the properties. The court then concluded that since no evidence was proposed that COVID-19 was actually present on the insured properties or that the order had any effect on the material or concrete structure of the insured properties, the effect of the orders was not “physical. Finally, the Court found that the terms "direct" and "physical" modify the term "loss" in the phrase "direct physical loss" and that the loss of the restaurant would therefore have been caused without the intervention of other persons or conditions, of anything related to matter – "with others words a direct physical encroachment on the insured property. "

In short, Roses 1, LLC decided that the very narrow facts and definitions presented in that case, municipal orders closing restaurants associated with COVID-19, did not constitute more than a "direct physical loss "according to the political issues in that case. But the decision is not without significant and unique limitations.

First, the Court adopted specific word definitions of "direct" and "physical" proposed by the insured but which are not uniformly accepted definitions of these terms. In other cases, for example, "direct" has been defined as the immediate cause.

Second, the Court, as noted, ignored the notion of its own definition of "property damage", and thus ignored the basic rule. that the policy and not just the specific coverage part must be read as a whole.

Thirdly and critically, the insured offered no evidence that COVID-19 was present in their restaurants. Medical science has found that COVID-19 has a direct, physical effect on property and that the infectious disease remains on property that makes that property dangerous and unusable long after it has been deposited by an infected person. Likewise, medical science increasingly believes that COVID-19 directly affects the indoor air and makes rooms uninhabitable for a longer period of time due to the disease in the air. The insured in Rose 1, LLC were clearly unable to assert or present evidence of these significant facts. In fact, direct and / or circumstantial evidence of the presence of COVID-19 may in other cases give a different result if loss of use constitutes "direct physical loss." And while the court distinguished cases where certain physical alterations to property that made the property substantially or completely unsuitable for use, the court's discussion leaves the possibility that the presence of COVID-19 on a property may lead to a covered loss of use. [19659003] Fourth, the court cited, but failed to substantially address, the case where the threat of a landslide posed direct physical damage to homes by making them uninhabitable, Murray v State Farm Fire & Casualty Co. 509 SE2d 1, 16-17 (W. Va. 1998). In fact, no court that has dealt with this issue so far seems to have provided a thorough analysis of the fact that the threat of COVID-19 being present in a premises on its own could constitute direct physical damage, as well as the threat of a landslide, as it does the property unsuitable for use. In other words, with a widespread pandemic such as COVID-19, a property owner cannot open their doors without the significant risk of workers and patrons bringing COVID-19 to the premises, especially at present, when record numbers of COVID-19 cases are reported daily. . The court of Rose & # 39 ;s 1 LLC did not fully deal with such circumstances.

In summary, while the decision in Rose & # 39 ;s 1 LLC seems to face being favored by insurance companies and is sure to be trumpeted as a victory for the insurance industry, the decision treats only a narrow circumstance and fails altogether. addressing the myriad issues raised by the more than a thousand cases seeking business interruption coverage for COVID-19 losses.


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