Maryland Supreme Court Backs Insurer in Covid-19 Claims Denial

The Maryland Supreme Court has backed an insurer in rejecting a luxury brand company’s claim that its all-risk commercial property insurance policy should cover its Covid-19 business losses.

The court was answering a request from the U.S. District Court for Maryland to clarify Maryland law on Covid-19 coverage in a case brought by Tapestry Inc. against Factory Mutual Insurance Co.

Tapestry, which owns luxury accessory brands including Coach, kate spade new york, and Stuart Weitzman, operates more than 1,400 stores, including 15 stores in Maryland. Tapestry submitted claims to FM under the policies for alleged losses exceeding $700 million.

Citing plain language and definitions of terms as well as other state and federal court rulings, the high court ruled that an all-risk property policy requires “physical loss or damage” to the property and Tapestry did not prove that it suffered physical loss or damage due to the virus.

The court rejected Tapestry’s arguments including that the temporary, functional loss of use of covered property itself constitutes “physical loss or damage;” the coronavirus damaged the air in its covered properties, which constitutes “physical loss or damage;” and the coronavirus adhered to surfaces of property at its stores, which “altered these objects to become vectors of disease.”

The court dismissed the first argument by noting that “losing a thing is conceptually different than losing the functional use of that thing for a period of time.”

The court also dismissed the others. “Like Tapestry’s allegations concerning the air in its properties, the combination of a virus’s proximity to property and resulting risk to human health does not constitute ‘physical loss or damage’ to the property,” the court added.

Factory Mutual acknowledged its policies provided some coverage under communicable disease response and business interruption by communicable disease sections, but neither of these was predicated on “physical loss or damage” to property. Thus it only declined coverage under the primary property and time element coverages that had higher limits and did require proof of physical loss or damage.

The Maryland Supreme Court noted that its interpretation is in accord with the “overwhelming majority” of reported decisions addressing coronavirus-related insurance claims under first-party commercial property insurance policies.

The court acknowledged a few cases where court have reached somewhat contrary conclusions, including a Vermont Supreme Court ruling that said an insured’s similar allegations were sufficient to trigger further proceedings. But it reiterated that it is “ultimately persuaded more by the majority of other appellate decisions, which adhere more closely to our own caselaw in examining and construing the plain language of the relevant policy provisions in the context of the policy as a whole.”


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