First Impression Rules Case No Coverage for COVID Business Interruption Claim as No Direct Physical Loss | White and Williams LLP
Michigan Circuit Court Judge Joyce Draganchuk (Ingham County) granted the insurer’s motion for summary judgment in Gavrilides Management Company v. Michigan Insurance Company. The issue was coverage of restaurants that were closed by government orders related to COVID-19. The court concluded that no coverage was due.
In a first impression case decided from the bench on July 1, the court explained that coverage is provided for the actual loss of business income incurred during a suspension of operations. Suspension must be caused by direct physical loss or property damage. With this as a framework, the judge concluded that the direct physical loss or damage to property “must be something that has material existence.” Something tangible. Something . . . that alters the physical integrity of a property”.
The judge pointed out that the complaint did not allege any physical loss or damage to the restaurants. Instead, he simply alleged loss of business due to executive orders shutting down dining in the restaurant due to the COVID-19 threat. The judge noted that the complaint states that at no time did COVID-19 enter the restaurants through an employee or customer.
The court further rejected the insured’s argument that the virus exclusion is “vague”. The court held that the virus exclusion would apply even in the event of direct physical loss or damage.
The court also observed that, although government acts are covered, they must result in direct physical loss or damage. But there was no alleged direct physical loss or damage.
Finally, the court concluded that the insured could not amend his complaint, because no factual development could change the fact that the complaint alleges the loss of access to the premises, and not direct physical damage to the property, as required. the police.