By Jose Espejo, Esq.


The Court of Special Appeals held that a restaurant’s commercial property insurance policy that provided coverage for direct physical loss of or damage to the restaurant, including business interruption coverage, did not cover the restaurant’s losses due to the COVID-19 Pandemic and the Governor of Maryland emergency order that prohibited in-person dining. The Court of Special Appeals remanded the case to the circuit court as it failed to issue a declaratory judgment concerning the parties’ rights.

Opinion By: J. Arthur


GPL Enterprise, LLC operates a restaurant known as The Anchor Bar.  On March 16, 2020, the Governor of Maryland issued an emergency order that shutdown in-person dining and consumption at all Maryland restaurants and bars indefinitely in response to the COVID-19 pandemic. GPL was allowed to conduct carryout business and deliver orders, however, GPL incurred significant losses as a result of the emergency order. On March 30, 2020, GPL made a written demand for insurance coverage to the underwriters at Lloyd’s, claiming that as a result of the COVID-19 pandemic and emergency order, it suffered direct physical harm, loss, or damage to the premises. In its written demand, GPL noted that that policy did not contain an exclusion for losses due to a virus or bacteria and asserted an additional claim for business interruption as a result of an act of a civil authority in the emergency order that prohibited access to the restaurant. The underwriters denied the claim without clearly articulating the rationale, but appeared to conclude that neither the virus nor the emergency order caused direct physical loss of or damage to the restaurant and that business operation had not been suspended as a result of the direct physical loss. GPL filed a complaint in the Circuit Court for Frederick County alleging breach of contract and a declaratory judgment. The circuit court granted the underwriters’ motion to dismiss as GPL had not suffered physical damage to the property or a loss of property as result of the COVID-19 pandemic or emergency order, however the circuit court did not declare the parties’ rights. On appeal, the Court of Special Appeals affirmed the circuit courts dismissal of GPL’s complaint and remanded to the circuit court for the purpose of entering a declaratory judgment.


The Court of Special Appeals interpreted the insurance policy in light of numerous other cases involving policies substantially identical to GPL’s policy, and held that the phrase “physical loss of or damage to” property is unambiguous and requires some form of material alteration to the property to experience a loss or damage. The emergency order did not create a direct physical loss of the property or direct physical damage to it. The emergency order had no tangible or physical impact on GPL’s restaurant or on the property inside the restaurant such as the impact that a fire or earthquake would have. The Court of Special Appeals reviewed the business interruption coverage and concluded that the policy language assumes that a covered loss can be remedied by repairing, rebuilding, or replacing the lost or damaged property or by relocating the insured’s business to a new location. GPL could not alleviate the effects of the COVID-19 virus or the emergency order by repairing, rebuilding, or replacing its restaurant or by relocating its operations. Therefore, GPL suffered no direct physical loss of or damage to its restaurant to obtain business interruption coverage.

GPL argued that the Governor’s emergency order was the act of a civil authority which obligated the underwriters to cover the loss. The Court of Special Appeals noted that civil authority coverage applies when authorities have prohibited access to the insured’s premises due to damage of nearby property, such as when firefighters are fighting a fire. GPL did not allege damage to nearby property or dangerous conditions and therefore had no right to coverage under the policy. GPL attempted to distinguish between direct physical loss and direct physical damage, however, the distinction was unwarranted as GPL. The Court held that GPL had the opportunity to operate the restaurant as a carry-out and delivery operation but decided against it on the premise that such operation would be unprofitable, not because the property was uninhabitable.

GPL also argued that the loss of use of the restaurant was a direct physical loss. Although the Court of Special Appeals conceded that the emergency order did cause an economic loss to GPL, it did not cause a direct, physical loss of property, the latter being a precondition for policy coverage.

GPL further argued that the absence of an exclusion for a virus in the policy implied the existence of coverage.  The Court of Special Appeals disagreed as the determination whether a policy provides coverage is by looking at what the carrier agreed to insure rather than what the insurer failed to exclude, therefore, the underwriters did not provide coverage even without a virus exclusion. As a declaratory judgment should only be dismissed when a party has no right to a declaration such as the issue is not justiciable or the party lacks standing, the Court of Special Appeals remanded to the circuit court to enter a declaratory judgment as to coverage under the policy.

Full opinion available HERE | MSBA Business Law Section Blog HERE

Jose EspejoJose Espejo: “My experience at McMillan Metro focuses on the Corporate and Business, Litigation, and Family Law practice areas. Prior to becoming an Associate Attorney, I was proud to be a full-time Law Clerk at the firm. That background has given me wide-ranging knowledge about legal process, has fostered excellent working relationships with other attorneys who are my colleagues, and has formed the foundation for long-standing relationships with the firm’s clients.  My experience, which also includes patent prosecution, positions me well to leverage the firm’s resources on behalf of my clients.”