District of Columbia Court of Appeals Joins Other Courts in Finding No Coverage for COVID-19 Business Interruption Claim
Client Alert | 3 min read | 03.03.23
On March 2, 2023, the District of Columbia Court of Appeals affirmed the grant of summary judgment to Erie Insurance Exchange in Rose’s 1, LLC, et al. v. Erie Ins. Exch., a COVID-19 business interruption claim filed by several restaurants and food service businesses in the District of Columbia. In doing so, the court “join[ed] the majority of other courts in determining that ‘direct physical loss of or damage to property’ requires some sort of tangible, material alteration, which does not include ‘loss of use.’” Opinion at 26.
The restaurants and other businesses argued that the loss of use of their businesses due to the pandemic and governmental shutdown orders entitled them to coverage under their policy’s “direct physical loss of or damage” provision, but the court rejected each of their arguments. The court first noted that “most courts have concluded that there is ‘no coverage for loss of use based on intangible and incorporeal harm to the property due to COVID-19 and the closure orders that were issued by state and local authorities even though the property was rendered temporarily unsuitable for its intended use.’” Id. at 13 (citing SA Palm Beach, LLC v. Certain Underwriters at Lloyd’s London, 32 F.4th 1347, 1358 (11th Cir. 2022)). It then joined this clear majority based on a plain reading of the policy language. Specifically, the court found that the phrase “direct physical loss of or damage” “requires a tangible, material alteration or change to covered property.” Id. at 16. It reached this conclusion following a simple examination of the dictionary definitions of the words “direct” and “physical.” Those definitions led the court to conclude that “loss of covered property must be tangible and material” when “[t]aking the Policy at face value.” Id. at 19. It further found that other provisions in the policy supported its interpretation, given that “[t]hroughout the Policy, the interaction between ‘loss’ and ‘interruption of business’ supports the conclusion that in order to have a qualifying ‘loss,’ the property must be ‘repaired, rebuilt, or replaced.’” Id. at 20.
In addition, the court concluded that “‘[d]irect physical loss of or damage’ does not include a loss of use, and coverage of ‘all risks’ does not mean that coverage can be extended beyond the Policy’s terms.” Id. at 16. It rejected the businesses’ contention that the disjunctive “or” in the phrase “direct physical loss of or damage” means that “loss” must be differentiated from “damage” and encompass loss of use, because “a loss of use, without more, would fail to meet the requirement that the loss be ‘physical’ in nature.” Id. at 21. It further rejected the contention that coverage was available because the policy was an “all risk” policy and did not specifically exclude viruses or pandemics. To the contrary, the court determined that “‘all risks’ does not mean ‘every risk’” and a loss cannot be regarded as covered merely because it is not within any specific exception when it does not properly fall within a coverage clause. Id. at 25.
Accordingly, the court found that the restaurants and businesses failed to show any “physical loss of or damage to Covered Property” as required by the policy due to their failure to allege any “tangible change or alteration to their properties” and affirmed the lower court’s grant of summary judgment. Id. at 28.
Crowell & Moring LLP represented amici curiae American Property Casualty Insurance Association and National Association of Mutual Insurance Companies in this case.
Contacts
Insights
Client Alert | 4 min read | 08.07.25
On July 25, 2025, the Eleventh Circuit Court of Appeals issued its decision in United States ex. rel. Sedona Partners LLC v. Able Moving & Storage Inc. et al., holding that a district court cannot ignore new factual allegations included in an amended complaint filed by a False Claims Act qui tam relator based on the fact that those additional facts were learned in discovery, even while a motion to dismiss for failure to comply with the heightened pleading standard under Federal Rule of Civil Procedure 9(b) is pending. Under Rule 9(b), allegations of fraud typically must include factual support showing the who, what, where, why, and how of the fraud to survive a defendant’s motion to dismiss. And while that standard has not changed, Sedona gives room for a relator to file first and seek out discovery in order to amend an otherwise deficient complaint and survive a motion to dismiss, at least in the Eleventh Circuit. Importantly, however, the Eleventh Circuit clarified that a district court retains the discretion to dismiss a relator’s complaint before or after discovery has begun, meaning that district courts are not required to permit discovery at the pleading stage. Nevertheless, the Sedona decision is an about-face from precedent in the Eleventh Circuit, and many other circuits, where, historically, facts learned during discovery could not be used to circumvent Rule 9(b) by bolstering a relator’s factual allegations while a motion to dismiss was pending. While the long-term effects of the decision remain to be seen, in the short term the decision may encourage relators to engage in early discovery in hopes of learning facts that they can use to survive otherwise meritorious motions to dismiss.
Client Alert | 4 min read | 08.06.25
FinCEN Delays Implementation Date and Reopens AML/CFT Rule for Investment Advisers
Client Alert | 4 min read | 08.06.25
Series of Major Data Breaches Targeting the Insurance Industry
Client Alert | 11 min read | 08.06.25