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D.C. Court Rules No Coverage for COVID-19 Losses Because of Lack of Any “Physical Loss”


Key Takeaways

  • The Superior Court of the District of Columbia has rejected policyholders’ claims for business interruption coverage due to pandemic-related government closure orders

  • The restaurants advanced three arguments for the premise that the government orders constituted direct physical loss, but did not allege the actual presence of the virus on their premises

  • This case follows others in demonstrating the uphill climb policyholders face in triggering coverage over a virus


Another court—this time, the Superior Court of the District of Columbia—has ruled that economic losses due to governmental closure orders issued in response to the COVID-19 pandemic do not constitute “direct physical loss,” and thus, are not covered under commercial property policies. The order, issued in Rose’s 1, LLC v. Erie Insurance Exchange, follows on the heels of a ruling issued in Michigan.

Rose’s 1, LLC v. Erie Insurance Exchange involved multiple prominent D.C. restaurant owners who sought coverage for lost revenue they claimed was due to governmental orders issued in response to the COVID-19 pandemic. Specifically, on March 16, 2020, Mayor Bowser issued an order that prohibited indoor seating at restaurants and bars in the District of Columbia. Then on March 20, 2020, the mayor extended the order to prohibit standing customers at restaurants, bars, taverns, and multi-purpose facilities, and on March 24, 2020, the mayor ordered the closure of all non-essential businesses. Finally, on March 30, the mayor ordered all D.C. residents to stay in their homes except for limited essential reasons. Due to the orders, the plaintiffs closed their restaurants and sought recovery for their economic losses pursuant to policies of insurance issued by Erie Insurance Exchange. Erie denied the claims, and the restaurants filed suit.

The restaurants relied on dictionary definitions to set forth three arguments for the premise that the government orders constituted direct physical loss, a requirement necessary to trigger coverage. First, plaintiffs argued that the mayor’s orders satisfy the “direct” element due to a lack of intervening cause of action. Second, plaintiffs argued that their losses were physical because the virus is “material” and “tangible.” Third, plaintiffs argued that because the policies defined “loss” as “loss or damage,” the policy bound Erie to treat “loss” separately from “damage,” which connotes physical damage to the property. Plaintiffs then argued that “loss” entails “loss of use,” which does not require that the restaurants suffer physical damage. Rather, plaintiffs argued they need only be deprived of the restaurants’ use to satisfy a loss.

The court rejected each of plaintiffs’ arguments. Specifically, the court noted that no D.C. court analyzed the exact phrase “direct physical loss,” but it considered the way other jurisdictions construed the term and considered analogous cases from within the D.C. courts. The court held that the policies require the property to suffer some form of “direct physical change” to the properties, which it found the closure orders did not satisfy, particularly because the restaurants did not demonstrate the actual presence of virus at its property.

The court also rejected plaintiffs’ arguments that certain of the policies’ coverage sections excluded coverage for “loss of use,” whereas the “income protection” coverage section under which plaintiffs sought coverage did not. The court rejected plaintiffs’ contention that the silence indicated an intent to cover loss of use under the income protection coverage part, noting that the income protection coverage still required plaintiffs to satisfy the “direct physical loss” requirements, which they could not do.

Given its conclusions regarding plaintiffs’ inability to bring their losses within the scope of coverage, the district court, while noting it was “sympathetic to the plight of plaintiffs,” denied plaintiffs’ motion for summary judgment and granted Erie’s cross-motion as a matter of law.

Though it is perhaps premature to think of the district court’s decision as part of a growing “trend” of decisions on COVID-19 losses in favor of insurers, this case and others demonstrate the uphill climb policyholders face in triggering coverage over a virus. However, the impact of the decision may ultimately be limited, in that the D.C. court, like the court in the Michigan case of Gavrilides Management Company et al. vs. Michigan Insurance Co., placed substantial weight on the lack of any allegation by the plaintiffs that the virus was present in their restaurants.

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