Tapestry, Inc. v. Factory Mut. Insurance ( 2022 )

Tapestry, Inc. v. Factory Mutual Insurance Company, Misc. No. 1, September Term, 2022.
POLICY INTERPRETATION – ALL-RISK PROPERTY INSURANCE – RISKS
OR LOSSES COVERED
The United States District Court for the District of Maryland certified a question to the
Supreme Court of Maryland.* The Court reformulated the question as follows:
When a first-party, all-risk property insurance policy covers “all risks of
physical loss or damage” to insured property from any cause unless excluded,
is coverage triggered when a toxic, noxious, or hazardous substance—such
as Coronavirus or COVID-19—is physically present in the indoor air of that
property; is also present on, adheres to, and can later be dislodged from
physical items on the property; and causes a loss, either in whole or in part,
of the functional use of the property?
The Court answered the certified question: No, provided the substance causes neither
tangible, concrete, and material harm to the property nor deprivation of possession of the
property.
*At the time of the certification, the Supreme Court of Maryland was named the Court of
Appeals of Maryland. At the November 8, 2022 general election, the voters of Maryland
ratified a constitutional amendment changing the name of the Court of Appeals of
Maryland to the Supreme Court of Maryland. The name change took effect on December
14, 2022.
United States District Court
for the District of Maryland
Case No. 1:21-cv-01941-GLR
Argued: September 9, 2022
IN THE SUPREME COURT
OF MARYLAND*
Misc. No. 1
September Term, 2022
______________________________________
TAPESTRY, INC.
v.
FACTORY MUTUAL INSURANCE
COMPANY
______________________________________
Fader, C.J.,
Watts,
Hotten,
Booth,
Biran,
Gould,
Eaves,
Pursuant to the Maryland Uniform Electronic Legal Materials JJ.
Act (§§ 10-1601 et seq. of the State Government Article) this ______________________________________
document is authentic.
2022-12-15 10:43-05:00
Opinion by Fader, C.J.
______________________________________
Gregory Hilton, Clerk Filed: December 15, 2022
* At the November 8, 2022 general election, the voters of Maryland ratified a constitutional
amendment changing the name of the Court of Appeals of Maryland to the Supreme Court
of Maryland. The name change took effect on December 14, 2022.
A question certified to us by the United States District Court for the District of
Maryland (the “United States District Court”) requires that we explore whether an
insurance policy that “covers property . . . against ALL RISKS OF PHYSICAL LOSS OR
DAMAGE, except as hereinafter excluded,” and further covers “TIME ELEMENT” losses
“directly resulting from physical loss or damage of the type insured,” is triggered by (1) the
presence of Coronavirus in the air and on surfaces on the premises of the insured’s retail
stores or (2) the resulting loss of functional use of those stores during portions of the
COVID-19 pandemic.1 Assuming the truth of the facts pled in the operative complaint
about how Coronavirus operates and how it impacted the insured’s properties and
operations, as summarized in the United States District Court’s certification order, and
based on the provisions of the insurance policies at issue, we will conclude that such
allegations do not trigger the primary coverage provided by the policies.
There is nothing this Court can say to describe the gravity of the losses inflicted on
the world by the COVID-19 pandemic that has not previously been said. We will not try.
It is sufficient for these purposes to note that in addition to the countless other consequences
of, and hardships imposed by, the pandemic, many businesses sustained substantial
financial losses when they were compelled to close temporarily or alter their operations
due to the pandemic and associated governmental orders.
1
“Coronaviruses are a type of virus.” See What is Coronavirus?, Johns Hopkins
Med. (July 29, 2022), archived at https://perma.cc/NG7A-GM2L. SARS-CoV-2 is a
coronavirus that causes the respiratory disease known as COVID-19. Id. In this opinion,
for ease of reference, we use “Coronavirus” to refer to SARS-CoV-2 and COVID-19 to
refer to the resulting disease.
One such business is that of Tapestry, Inc., the appellant. Factory Mutual Insurance
Company (“FM”), the appellee, issued two first-person, all-risk commercial property
insurance policies to Tapestry covering policy periods in which Tapestry’s stores were
closed in connection with the COVID-19 pandemic. The primary coverages provided
under those policies are triggered by “physical loss or damage” to covered property.
Tapestry submitted claims to FM under the policies for losses exceeding
$700 million. After FM denied coverage for the bulk of Tapestry’s claim, Tapestry sued.
In the lawsuit, which is now pending in the United States District Court, Tapestry contends
that coverage under the policies is triggered because it suffered “physical loss or damage”
both by the presence of Coronavirus in its stores and when those stores had to close for
business due to the presence of Coronavirus. In response, FM contends that “physical loss
or damage” requires structural alteration or permanent dispossession of property, and that
Tapestry suffered neither. Because resolution of that dispute depends on an interpretation
of Maryland law we have not previously provided, the United States District Court certified
to this Court a question of law, which we have reformulated as follows:2
2
The question as originally drafted by Tapestry and certified to this Court is:
When a first-party, all-risk property insurance policy covers “all risks of
physical loss or damage” to insured property from any cause unless excluded,
is coverage triggered when a toxic, noxious, or hazardous substance—such
as Coronavirus or COVID-19—that is physically present in the indoor air of
that property damages the property or causes loss, either in whole or in part,
of the functional use of the property?
Certification Order Certifying a Question of Law to the Maryland Court of Appeals
(“Certification Order”) at 1. As phrased, the question seems to presuppose that
Coronavirus “damages the property.” However, as reflected in the parties’ briefing and as
confirmed by their counsel at oral argument, the intent of the parties—and, they and we
2
When a first-party, all-risk property insurance policy covers “all risks of
physical loss or damage” to insured property from any cause unless excluded,
is coverage triggered when a toxic, noxious, or hazardous substance—such
as Coronavirus or COVID-19—is physically present in the indoor air of that
property; is also present on, adheres to, and can later be dislodged from
physical items on the property; and causes a loss, either in whole or in part,
of the functional use of the property?
As we will explain, as applied to the policies at issue, our answer to the certified question
is: No, provided the substance causes neither tangible, concrete, and material harm to the
property nor deprivation of possession of the property.
BACKGROUND
Pursuant to § 12-605(a) of the Courts and Judicial Proceedings Article (2020 Repl.),
the United States District Court’s Certification Order contains “[t]he facts relevant to the
question, showing fully the nature of the controversy out of which the question arose.” Id.
§ 12-606(a). In responding to the certified question, “this Court accepts the facts provided
by the certifying court.” United Bank v. Buckingham, 472 Md. 407, 411 (2021). The
following recitation of facts is drawn from the Certification Order and the three documents
attached to and incorporated into it: Tapestry’s operative first amended complaint (the
“Complaint”) and the two insurance policies at issue.
believe, the United States District Court—is not to presuppose that Coronavirus has caused
“physical loss or damage” as that phrase is used in the FM policies. Instead, the intent is
to have this Court address whether, under Maryland law, the allegations in Tapestry’s first
amended complaint concerning the operation and effect of Coronavirus on its stores and
business constitute “physical loss or damage” such as to trigger coverage under FM’s
policies. Our reformulation of the certified question is designed to reflect that.
3
The Parties and the Policies
Tapestry owns “modern luxury accessory and lifestyle brands” including Coach,
kate spade new york, and Stuart Weitzman. Tapestry operates “over 1,400 stores in the
U.S. and internationally, including 15 stores in Maryland.”
FM drafted and issued to Tapestry two “all-risk” commercial property insurance
policies: (1) Policy No. 1050294, covering policy period April 4, 2019 through April 3,
2020; and (2) Policy No. 1065667, covering policy period April 4, 2020 through April 3,
2021 (collectively, the “Policies”).3 The Policies, which FM wrote using its FM Global
Advantage Time Element Select form, “cover[] property, as described in this Policy,
against ALL RISKS OF PHYSICAL LOSS OR DAMAGE, except as hereinafter
excluded.” The critical phrase “physical loss or damage” is not defined in the Policies.
As relevant here, the Policies provide two broad categories of coverage: “Property
Damage” and “Time Element.”4 Each category is set forth in a separate section of each
Policy that contains, among other things, a broad coverage grant, various exclusions, and
various additional coverages. Each Policy provides a maximum overall limit of liability
per occurrence of $1 billion, applicable to all coverages, with lower sublimits applicable to
specified types of coverage.
3
Each policy technically expires at 12:01 a.m. on April 4 of the year of expiration.
4
The Policies also provide a third category of coverage—“Loss Adjustment and
Settlement”—which is not relevant to the present dispute.
4
Property Damage Coverage Provisions
The Policies’ primary Property Damage coverage extends to all of Tapestry’s real
property and certain personal property, subject to exclusions. Two of those exclusions are
relevant to our analysis. First, each Policy excludes coverage, “unless otherwise stated,”
for, among other things, “interruption of business, except to the extent provided by this
Policy” and “loss of market or loss of use.” Second, each Policy excludes, “unless directly
resulting from other physical damage not excluded by this Policy . . . contamination, and
any cost due to contamination including the inability to use or occupy property or any cost
of making property safe or suitable for use or occupancy.”5 As relevant here, the Policies
define “contamination” as “any condition of property due to the actual or suspected
presence of any foreign substance, impurity, . . . toxin, pathogen or pathogenic organism,
bacteria, virus, disease causing or illness causing agent[.]”
One category of “Additional Coverage” provided in each Policy’s Property Damage
section is “Communicable Disease Response” coverage. Under that coverage grant, “[i]f
a location owned, leased or rented by the Insured has the actual not suspected presence of
communicable disease” that results in a restriction on access to the location, the Policies
will “cover[] the reasonable and necessary costs incurred by the Insured at such
location[.]” The Policies define “communicable disease” as “disease which is [ ]
transmissible from human to human by direct or indirect contact with an affected individual
or the individual’s discharges.”
5
Words identified in boldface type in the Policies are defined in each Policy.
5
Time Element Coverage Provisions
In each Policy, the primary coverage grant for Time Element losses6 provides that
the “Policy insures TIME ELEMENT loss, as provided in the TIME ELEMENT
COVERAGES, directly resulting from physical loss or damage of the type insured.”7 The
Policies insure such losses only to the extent they are incurred “during the Periods of
Liability,” which, for purposes of physical loss or damage to “building[s] and equipment,”8
is the period:
a) starting from the time of physical loss or damage of the type insured; and
b) ending when with due diligence and dispatch the building and equipment
could be:
(i) repaired or replaced; and
(ii) made ready for operations,
6
In other policies, time element coverage is sometimes referred to as business
interruption or business income loss coverage. See, e.g., Uncork & Create LLC v.
Cincinnati Ins. Co., 27 F.4th 926, 932 (4th Cir. 2022) (addressing policy providing
“[b]usiness income loss coverage”); Cordish Cos., Inc. v. Affiliated FM Ins. Co., 573 F.
Supp. 3d 977, 987 (D. Md. 2021) (interpreting policy covering “[b]usiness [i]nterruption
loss”), aff’d, No. 21-2055, 2022 WL 1114373 (4th Cir. Apr. 14, 2022).
7
Each Policy’s “TIME ELEMENT COVERAGES” provide coverage for (1) at the
insured’s option, either gross earnings and extended period of liability or gross profit;
(2) extra expense; (3) leasehold interest; and (4) rental insurance.
8
The Policies define the period of liability differently when the physical loss or
damage at issue is to other types of property, including “building and equipment under
construction,” “stock-in-process and mercantile stock,” “raw materials and supplies,”
“water,” “physically damaged exposed films, records, manuscripts and drawings,” and
“physically damaged or destroyed property covered under DATA, PROGRAMS OR
SOFTWARE.” Here, because Tapestry’s claim relates at least primarily to alleged loss
and damage to buildings and equipment—and because the other categories are either
clearly inapplicable or also define their ending point by reference to the repair or
replacement of the property at issue—we focus on that definition.
6
under the same or equivalent physical and operating conditions that
existed prior to the damage.
The Time Element coverage section of the Policies includes several “TIME
ELEMENT COVERAGE EXTENSIONS” and “ADDITIONAL TIME ELEMENT
COVERAGE EXTENSIONS.” One extension in the latter category is the Interruption by
Communicable Disease additional coverage extension, which provides that if “a location
owned, leased or rented by [Tapestry] has the actual not suspected presence of
communicable disease” that results in a restriction on access to the property, the Policies
will cover “Actual Loss Sustained and EXTRA EXPENSE incurred by [Tapestry] during
the PERIOD OF LIABILITY at such location[.]” The Policies exclude from the
Interruption by Communicable Disease coverage extension “loss resulting from”
(1) enforcement of a law or ordinance in place before the spread of the communicable
disease; and (2) “loss or damage caused by or resulting from terrorism, regardless of any
other cause or event[.]” Notably, unlike the primary Time Element coverage, the
Interruption by Communicable Disease additional coverage extension is not predicated on
the insured property sustaining “physical loss or damage.”
Under each Policy, Interruption by Communicable Disease coverage and
Communicable Disease Response coverage are together subject to an aggregate sublimit
of liability of $1 million per occurrence (as opposed to the Policy limit of $1 billion per
occurrence).
7
Coronavirus on Tapestry’s Property
The Certification Order contains the following summary of the allegations
contained in the Complaint concerning how Coronavirus operates and how it affected
Tapestry’s properties and operations:
With the support of dozens of peer-reviewed studies, Tapestry alleges
in its [Complaint] that Coronavirus/COVID-19 are serious threats rendering
objects, surfaces, and areas exposed to them dangerous and fatal. See Ex. A
¶¶ 26, 30, 162. Coronavirus spreads through indoor spaces via respiratory
particles expelled by infected individuals (including those who are
asymptomatic or pre-symptomatic). Id. ¶¶ 26-28, 32-33. The presence of
Coronavirus in the air, through aerosols or droplets, is the virus’ primary
transmission vector. Id. ¶¶ 40-41, 43-44. Coronavirus, just like ammonia,
physically transforms the content of the air and can remain airborne in
respiratory particles for indefinite periods. Id. ¶¶ 33, 35-36, 44. Ventilation
systems are particularly significant transmission vectors as studies have
found Coronavirus in ceiling vent openings, vent exhaust filters, and
ventilation ducts up to 180 feet from an infected individual. Id. ¶¶ 40, 42.
As a result, Tapestry alleges that Coronavirus causes the same physical loss
or damage to property as that of ammonia, smoke, soot, radon gas, asbestos
and other hazardous substances. Id. ¶ 35.
Coronavirus particles can also settle on surfaces that themselves
become carriers for the disease (“fomites”). Id. ¶¶ 32, 49, 51, 53, 56. These
fomites remain infectious for days after exposure and do not readily
dissipate. Id. ¶¶ 31, 51-52, 54-55. Tapestry’s various stores contain
materials—like plastics, glass, metals, and fabrics—that have been
documented as Coronavirus fomites. Id. ¶¶ 52 n.57, 59. Even disturbing a
fomite—like shaking a contaminated textile such as clothing merchandise—
can spread Coronavirus particles and create additional fomites. Id. ¶¶ 52, 59.
Indeed, studies have demonstrated that “it is biologically plausible
that . . . infectious disease [such as COVlD-l9] can be transmitted directly
through contact with [Coronavirus] contaminated textiles.” Id. ¶ 69.
Removing Coronavirus from air is not possible as a practical matter,
and no amount of cleaning will prevent reintroduction of the virus when an
infected person enters the space—only shutting down the property prevents
the repeated and continuous reintroduction of Coronavirus. Id. ¶¶ 63, 76, 78.
Coronavirus cannot be removed from indoor air by surface cleaning, which
actually causes virus particles to become airborne. Id. ¶¶ 70, 74-75.
8
Attempting to remove Coronavirus from surfaces requires unique
protocols such as the use of “harsh chemicals” that are not routinely used and
which themselves are alleged to have caused additional physical loss or
damage to Tapestry’s stores. Id. ¶¶ 65-68, 71. Indeed, “Coronavirus is
‘much more resilient to cleaning than other respiratory viruses so tested.’”
Id. ¶ 64. Moreover, it is “challenging to accurately determine the efficacy of
decontaminating agents and . . . if surface disinfection [is] even effective”
given the toxicity of the agents and the microscopic nature of Coronavirus
particles. Id. ¶ 66.
Nonetheless, Tapestry asserts that it repaired and remediated its
physical space, such as through the removal and disposal of porous materials
like clothing, reconfiguring and altering interior spaces of property, and
installing physical barriers to create physical distancing. Id. ¶¶ 71-72, 150,
155[,] 227. Tapestry suffered massive losses, in the hundreds of millions of
dollars, for extensive and costly health and safety protocols and
modifications to its stores. Id. ¶¶ 152, 155, 227.
...
Tapestry alleges that individuals infected with Coronavirus and
COVID-19 were present on its insured properties where they spread the
virus. Id. ¶¶ 79-80. . . . This supports the allegation that
Coronavirus/COVID-19 was present at Tapestry’s stores. Id. ¶¶ 80, 99.
Furthermore, Tapestry alleges that a detailed biostatistical analysis
demonstrates that it is statistically certain that customers and other
individuals who visited its stores contracted and carried Coronavirus before
the stores were closed, and during the time when various stores’ operations
were severely restricted. Id. ¶¶ 83-91, 94, 96-101.
Due to the presence of Coronavirus/COVID-19 and the effects it had
on Tapestry’s stores (particularly the indoor air), Tapestry closed all of its
North American stores beginning on March 18, 2020—prior to the issuance
of government orders in many counties where Tapestry operates. Id.
¶¶ 56-60, 78, 119, 122, 127-128, 132, 137-38, 142.
This Litigation
In responses to notices of claims Tapestry provided under both Policies, FM denied
coverage under all coverages except the Communicable Disease Response and Interruption
by Communicable Disease coverages, neither of which is predicated on “physical loss or
9
damage” to property. In its denial letters, FM contended that Tapestry could not meet the
requirement of other coverages because “the presence of COVID-19 does not cause
physical loss or damage.” FM also asserted that coverage was barred by the Contamination
Exclusion in the Policies.
Tapestry then initiated this lawsuit in the Circuit Court for Baltimore County. FM
removed it to the United States District Court. Tapestry’s Complaint contains two counts.
In Count I, Tapestry seeks a declaratory judgment concerning the respective rights and
obligations of the parties under the Policies. Specifically, Tapestry seeks declarations “that
the Policies cover the losses it had suffered” and “that FM is responsible for fully and
timely paying the Tapestry Claim.” In Count II, Tapestry seeks an award of damages and
other relief for FM’s alleged breaches of contract in denying coverage under the Policies
under all coverages other than the Communicable Disease Response and Interruption by
Communicable Disease coverages, which are subject to much lower sublimits of liability
than the primary coverages.
FM moved to dismiss the Complaint. With its opposition to that motion, Tapestry
filed a motion to certify a question of law to this Court. The United States District Court
granted the motion and issued the Certification Order.
DISCUSSION
Under the Maryland Uniform Certification of Laws Act, Courts and Judicial
Proceedings §§ 12-601 – 12-612, this Court “may answer a question of law certified to it
by a court of the United States . . . if the answer may be determinative of an issue in pending
litigation in the certifying court and there is no controlling appellate decision, constitutional
10
provision, or statute of this State.” Md. Code Ann., Cts. & Jud. Proc. § 12-603; see also
Md. Rule 8-305. “In responding to a certification from another court, this Court resolves
only issues of Maryland law, not questions of fact.” Murphy v. Liberty Mut. Ins. Co., 478
Md. 333, 367 (2022) . This Court “may go no further than the question certified.” Price
v. Murdy, 462 Md. 145, 147 (2018) (quoting AGV Sports Grp., Inc. v. Protus IP Sols., Inc.,
417 Md. 386, 389 n.1 (2010)).
The question certified by the United States District Court, as we have reformulated
it pursuant to § 12-604, see discussion above at footnote 2, is:
When a first-party, all-risk property insurance policy covers “all risks of
physical loss or damage” to insured property from any cause unless excluded,
is coverage triggered when a toxic, noxious, or hazardous substance—such
as Coronavirus or COVID-19—is physically present in the indoor air of that
property; is also present on, adheres to, and can later be dislodged from
physical items on the property; and causes a loss, either in whole or in part,
of the functional use of the property?
Notably, the certified question does not concern either (1) the possibility of coverage under
the Communicable Disease Response or Interruption by Communicable Disease coverages
of the Policies, or (2) the possible application of the Policies’ Contamination Exclusion.
As a result, we will not decide those issues. We will, however, discuss those provisions of
the Policies to the extent they aid in our interpretation of the key policy term “physical loss
or damage.”
THE PHRASE “PHYSICAL LOSS OR DAMAGE” IN THE POLICIES REQUIRES
EITHER TANGIBLE, CONCRETE, AND MATERIAL HARM TO THE INSURED
PROPERTY OR DEPRIVATION OF POSSESSION OF THE INSURED PROPERTY.
Answering the certified question requires us to construe the language of insurance
policies, which we do “according to contract principles,” Md. Cas. Co. v. Blackstone Int’l
11
Ltd., 442 Md. 685, 694 (2015), “under the objective theory of contract interpretation,”
Plank v. Cherneski, 469 Md. 548, 617 (2020). Under that approach, unless the language
of the contract is ambiguous, we interpret it “based on what a reasonable person in the
position of the parties would have understood the language to mean and not ‘the subjective
intent of the parties at the time of formation.’” Credible Behav. Health, Inc. v. Johnson,
466 Md. 380, 393 (2019) (quoting Ocean Petroleum, Co. v. Yanek, 416 Md. 74, 86 (2010));
see also JMP Assocs., Inc. v. St. Paul Fire & Marine Ins. Co., 345 Md. 630, 635 (1997)
(“The test is what meaning a reasonably prudent layperson would attach to the term.”
(quoting Bailer v. Erie Ins. Exch., 344 Md. 515, 521-22 (1997))). “Thus, ‘the written
language embodying the terms of an agreement will govern the rights and liabilities of the
parties, irrespective of the intent of the parties at the time they entered into the contract.’”
Md. Cas. Co., 442 Md. at 695 (quoting Long v. State, 371 Md. 72, 84 (2002)).
“[A] court interpreting an insurance policy is to examine the instrument as a whole,
focusing on the character, purpose, and circumstances surrounding the execution of the
contract.” Bailer, 344 Md. at 521; see also Plank, 469 Md. at 617 (“In interpreting a
contract provision, we look to the entire language of the agreement, not merely a portion
thereof.” (quoting Nova Rsch., Inc. v. Penske Truck Leasing Co., 405 Md. 435, 448
(2008))). If language in an insurance policy is ambiguous when interpreted according to
the principles of contract interpretation set forth above, “we construe that language
‘liberally in favor of the insured and against the insurer as drafter of the instrument.’”
Connors v. Gov’t Emps. Ins. Co., 442 Md. 466, 483 (2015) (quoting Megonnell v. United
Servs. Auto. Ass’n, 368 Md. 633, 655 (2002)). A contract “is ambiguous if, ‘when viewed
12
from [a] reasonable person perspective, that language is susceptible to more than one
meaning.’” Plank, 469 Md. at 617 (quoting Ocean Petroleum, 416 Md. at 87). However,
merely because “a term cannot be precisely defined so as to make clear its application in
all varying factual situations does not mean that it is ambiguous.” Allstate Ins. Co. v.
Humphrey, 246 Md. 492, 496 (1967).
We begin our analysis by focusing on the ordinary meaning of the terms contained
in the key phrase on which the answer to the certified question hinges: “physical loss or
damage.” We will then expand our focus to the interpretation of that phrase in the broader
context of the Policies as a whole. From those sources, we will derive and apply an
interpretation of “physical loss or damage” to the allegations of the Complaint. Finally,
we will turn to a review of caselaw from courts interpreting Maryland law and around the
country, which we will conclude is overwhelmingly consistent with our own interpretation
of “physical loss or damage” and our answer to the certified question.
A. Ordinary Meaning
“Traditionally, to supply contractual language with its ‘ordinary and accepted
meanings[,]’ this Court consults the dictionary definition of such terms.” Credible Behav.
Health, 466 Md. at 394-95 (quoting Pac. Indem. Co. v. Interstate Fire & Cas. Co., 302
Md. 383, 388 (1985)). The Court looks to dictionary definitions “to identify the common
and popular understanding of the words used in the contract as evidence of what a
reasonable person in the position of the parties would have understood those terms to
mean.” W.F. Gebhardt & Co. v. Am. Eur. Ins. Co., 250 Md. App. 652, 668 (2021). While
dictionaries are useful tools, “simply because [a party] can point to several slightly different
13
dictionary definitions of [a word] does not render that term ambiguous.” Rigby v. Allstate
Indem., 225 Md. App. 98, 110 (2015).
We begin with the modifier “physical,” which the New Oxford American Dictionary
defines, as relevant here, as “of or relating to things perceived through the senses as
opposed to the mind; tangible or concrete.” Physical, New Oxford American Dictionary
1321 (3d ed. 2010); see also 11 Oxford English Dictionary 744 (2d ed. 1989) (“[o]f or
pertaining to material nature”; and “pertaining to or connected with matter; material;
opposed to psychical, mental, spiritual”). Merriam-Webster defines physical as “having
material existence,” “perceptible esp[ecially] through the senses and subject to the laws of
nature,” and “of or relating to material things.” Physical, Merriam-Webster’s Collegiate
Dictionary 935 (11th ed. 2014). And Black’s Law Dictionary similarly defines physical,
as relevant here, as “[o]f, relating to, or involving material things; pertaining to real,
tangible objects.” Physical, Black’s Law Dictionary 1386 (11th ed. 2019). Physical thus
refers generally to tangible, concrete things that have a material existence and can be
perceived by the senses.9
Loss, as relevant here, is defined by the New Oxford American Dictionary as “the
fact or process of losing something or someone,” Loss, New Oxford American Dictionary
1033 (3d ed. 2010), and by the Oxford English Dictionary as “[t]he being deprived of, or
9
Accord, e.g., Uncork & Create LLC v. Cincinnati Ins. Co., 27 F.4th 926, 932 (4th
Cir. 2022) (“[T]he word ‘physical’ means ‘relating to natural or material things[.]’”); Terry
Black’s Barbecue, L.L.C. v. State Auto. Mut. Ins. Co., 22 F.4th 450, 455-56 (5th Cir. 2022)
(“‘[P]hysical’ means ‘of, relating to, or involving material things; pertaining to real,
tangible objects.’” (quoting U.S. Metals, Inc. v. Liberty Mut. Grp., Inc., 490 S.W.3d 20, 24
(Tex. 2015) (in turn quoting Black’s Law Dictionary 1331 (10th ed. 2014)))).
14
the failure to keep (a possession, appurtenance, right, quality, faculty, or the like),” Loss, 9
Oxford English Dictionary 37 (2d ed. 1989). Merriam-Webster defines loss in relevant
part as “destruction, ruin,” “the act of losing possession,” and “a person or thing or an
amount that is lost.” Loss, Merriam-Webster’s Collegiate Dictionary 736 (11th ed. 2014).
And Black’s Law Dictionary defines the term, again as relevant here, as “[t]he failure to
maintain possession of a thing.”10 Loss, Black’s Law Dictionary 1132 (11th ed. 2019).
The New Oxford American Dictionary defines damage, as relevant here, as “physical harm
caused to something in such a way as to impair its value, usefulness, or normal function.”
Damage, New Oxford American Dictionary 436 (3d ed. 2010); see also 4 Oxford English
Dictionary 224 (2d ed. 1989) (“Injury, harm; esp[ecially] physical injury to a thing, such
as impairs its value or usefulness.”). Similarly, Merriam-Webster defines damage as “loss
or harm resulting from injury to person, property, or reputation.” Damage, Merriam-
Webster’s Collegiate Dictionary 314 (11th ed. 2014).11 In this context, loss thus refers
generally to being deprived of possession of something, whether by its disappearance or
destruction; whereas damage refers to harm suffered.12
10
Black’s Law Dictionary and Merriam-Webster’s each also contain definitions
specific to insurance that, in this context, would be circular. See Loss, Merriam-Webster’s
Collegiate Dictionary 736 (11th ed. 2014) (“the amount of an insured’s financial detriment
by death or damage that the insurer is liable for”); Loss, Black’s Law Dictionary 1132 (11th
ed. 2019) (“[t]he amount of financial detriment caused by an insured person’s death or an
insured property’s damage, for which the insurer becomes liable”).
11
Black’s Law Dictionary defines “damage” related to the concept of monetary
compensation for loss or injury, which is not applicable here. Damage, Black’s Law
Dictionary 488 (11th ed. 2019).
12
Accord, e.g., Uncork & Create, 27 F.4th at 932 (“[T]he word ‘damage’ in this
context means an ‘injury or harm . . . to property.’” (quoting Webster’s Third New Int’l
15
From their dictionary definitions, we thus glean that “physical loss or damage” to
covered property must involve tangible, concrete, and material harm to the property or a
deprivation of possession of the property.13 That conclusion supports FM’s position that
“physical loss or damage” requires “tangible, physical changes to insured property.”
Tapestry argues that the plain meaning of “physical loss or damage” also embraces,
in addition to a loss of possession of property, “a functional loss of use of property due to
the presence of an external force[.]”14 In doing so, however, Tapestry fails to engage with
the common meanings of the relevant terms. Instead, Tapestry merely states its preferred
interpretation, claims that “[d]ictionary definitions of the relevant terms . . . demonstrate
Dictionary 571 (2002))); Estes v. Cincinnati Ins. Co., 23 F.4th 695, 700 (6th Cir. 2022)
(“[T]he word ‘loss’ means ‘destruction’ or ‘deprivation’ (that is, ‘the act of losing
possession’).” (quoting Merriam-Webster’s Collegiate Dictionary 736 (11th ed. 2014)));
Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398, 402 (6th Cir. 2021) (defining
“loss” as “[p]erdition, ruin, destruction; the condition or fact of being ‘lost,’ destroyed, or
ruined, or ‘being deprived of’” (quoting Oxford English Dictionary Online (3d ed. 2021)));
Indiana Repertory Theatre v. Cincinnati Cas. Co., 180 N.E.3d 403, 408 (Ind. Ct. App.
2022) (‘“Damage’ is ‘loss due to injury: injury or harm to person, property, or reputation:
hurt, harm.’” (quoting Webster's Third Int’l Dictionary 571 (Unabridged ed. 1966))).
13
Accord, e.g., Uncork & Create, 27 F.4th at 932 (“Thus, with reference to a defined
premises, the plain understanding of the terms ‘physical loss’ or ‘physical damage’ is
material destruction or material harm.”); Estes, 23 F.4th at 700 (“Putting these definitions
together, a covered source itself must destroy covered property or deprive the property’s
owner of possession.”).
14
Tapestry emphasizes that the Policies’ use of both “loss” and “damage”
necessarily implies that they must have different meanings and, therefore, cannot both
require physical damage to property. As discussed, we agree that loss and damage, as used
in the phrase “physical loss or damage,” embrace different, although partially overlapping,
concepts. For example, a loss may be occasioned by the “destruction” or “ruin” of
property, which also constitutes damage, but may also be occasioned by theft, removal,
disappearance, or other acts that would not necessarily involve physical damage. But we
do not see how that advances Tapestry’s claim that a “physical loss” extends to a temporary
loss of functional use of property.
16
this,” and then drops a footnote providing a single definition for each of the three terms.
The definitions, all from the Oxford English Dictionary and none offering apparent support
for Tapestry’s proposed expansion to “functional loss of use,” are unaccompanied by any
analysis or further exposition.
Looking only to the ordinary meaning of the terms in isolation, we would be
skeptical of Tapestry’s unexplained contention that “physical loss” can embrace a
“functional loss of use” for the simple reason that losing a thing is conceptually different
than losing the functional use of that thing for a period of time. Accord Santo’s Italian
Café, 15 F.4th at 402 (“A loss of use simply is not the same as a physical loss.”). Although
the complete destruction or ruin of property can, indeed, constitute a loss of that property,
by permanently depriving the owner of any value in it, the temporary loss of functional use
of the same thing is different. See, e.g., Terry Black’s Barbecue, 22 F.4th at 456 (rejecting
the contention that a loss of use of property could constitute “direct physical loss” because
the relevant policy provision “unambiguously requires a loss of property, not the loss of
use of property”). In other words, Tapestry’s proposed addition of the words “functional”
and “of use” to arrive at its preferred interpretation of “loss” transforms the concept and
gives it a different meaning than that contained in the language of the Policies.
B. Context
Expanding our analysis to the context provided by other provisions of the Policies
demonstrates the validity of our initial skepticism of Tapestry’s proposed, expansive
definition of “physical loss or damage.” Several aspects of the Policies confirm our
interpretation of that phrase as not encompassing a functional loss of use of the property.
17
First, the declarations pages of the Policies state that they cover “property . . . against
ALL RISKS OF PHYSICAL LOSS OR DAMAGE” not excluded. In the context of
property damage coverage, “physical loss or damage” thus “characterizes what effects the
covered causes must have on the property to trigger coverage, not the causes themselves.”
Verveine Corp. v. Strathmore Ins. Co., 184 N.E.3d 1266, 1273 (Mass. 2022) (addressing
coverage triggered by “direct physical loss of or damage to Covered Property”). The Time
Element coverage section then provides coverage for losses incurred by an insured business
“directly resulting from physical loss or damage of the type insured.” To be covered,
therefore, Time Element loss must be the result of “physical loss or damage” that, in turn,
results from a covered (i.e., in an “all risks” policy, not excluded) cause. If “functional loss
of use” could itself constitute “physical loss or damage,” as Tapestry contends, then the
Time Element coverage would, in circular effect, provide coverage for losses suffered due
to the inability to use property (losses suffered during the period of liability) resulting from
the inability to use that property (the functional loss of use of the property). Tapestry’s
interpretation is at odds with the very structure of the Policies.15 See GPL Enter. LLC v.
Certain Underwriters at Lloyd’s, 254 Md. App. 638, 659 (2022) (explaining that an insured
failed to explain how a Governor’s order prohibiting certain types of operations could
15
As the Massachusetts Supreme Judicial Court explained in Verveine Corp., the
fact that policy language like “physical loss or damage” describes both the effect required
to trigger property damage coverage and the cause of loss for purposes of time element
coverage does not undermine the requirement that the insured’s property first suffer the
effect of “physical loss or damage” to trigger coverage under the policy in the first place.
184 N.E.3d at 1274; see also Santo’s Italian Café, 15 F.4th at 402 (identifying “[t]he
imperative of a ‘direct physical loss’ or ‘direct physical damage’” as “the North Star of this
property insurance policy from start to finish”).
18
constitute both a “direct physical loss” under an all-risk property insurance policy and the
interruption of business resulting from such a loss).
Second, under the Time Element coverage, the Period of Liability for damage to
building and equipment extends from “the time of physical loss or damage of the type
insured” to the time when “the building and equipment could be [] repaired or replaced;
and [] made ready for operations.” Those concepts make sense under our interpretation of
“physical loss”—subject to remedy by replacement—and “physical . . . damage”—subject
to remedy by repair or replacement.16 They do not make sense under Tapestry’s definition
in that a temporary, functional loss of use of property, without more, is remedied by
regaining functional use of the property, not by repair or replacement.17 Accord Terry
Black’s Barbecue, 22 F.4th at 456 (“This period [of liability] necessarily contemplates a
tangible alteration to the property that requires repair, rebuilding, or replacement.”);
Cordish Cos., 573 F. Supp. 3d at 998-99 (“The idea that the property may be ‘repaired or
16
As stated in the Certification Order, “Tapestry asserts that it repaired and
remediated its physical space, such as through the removal and disposal of porous materials
like clothing, reconfiguring and altering interior spaces of property, and installing physical
barriers to create physical distancing.” However, the measures Tapestry describes are the
disposal of merchandise and functional changes to the layout of its stores to increase social
distancing, not the repair or remediation of damaged or lost property.
17
The inconsistency of Tapestry’s interpretation with the Period of Liability
provision of the Policies is especially stark in connection with a communicable disease,
such as COVID-19, in which a functional loss of use of property could potentially be
wholly restored by the development of an effective vaccine or advent of so-called “herd
immunity,” see Leon Gordis, Epidemiology 26 (5th ed. 2014) (defining “herd immunity”
as “the resistance of a group of people to an attack by a disease to which a large proportion
of the members of the group are immune”), with no change of any kind to the property
itself.
19
replaced’ is consistent with the view that the damage contemplated by the Policy must be
physical in nature.”).
Third, the Policy contains an additional Time Element coverage extension for
Interruption by Communicable Disease, which applies when the presence of a
communicable disease results in a government-ordered or insured-directed restriction on
access to an insured location. Notably, the Interruption by Communicable Disease
coverage extension, unlike the primary Time Element coverage, does not require “physical
loss or damage” to covered property and, therefore, is triggered by the restriction on access
itself. The juxtaposition of that coverage extension, which specifically contemplates the
operation and effects of a communicable disease like COVID-19 on business operations
without requiring a trigger of “physical loss or damage,” against the different requirements
of the primary Time Element coverage grant, undermines Tapestry’s claim to coverage
under the latter.18
18
Tapestry argues that the Interruption by Communicable Disease additional
coverage extension supports its position, pointing to an exclusion contained within that
extension stating that “This Policy does not insure loss resulting from . . . loss or damage
caused by or resulting from terrorism[.]” Tapestry argues that that exclusion constitutes
an acknowledgment that communicable diseases can cause loss or damage to property.
That provision cannot bear the weight Tapestry gives it because, among other reasons:
(1) the reference to “loss or damage” does not contain the modifier “physical”; (2) the
exclusion may be a shorthand restatement of the broadly worded exclusion appearing
earlier in the Policies of “loss or damage directly or indirectly caused by or resulting from
. . . terrorism,” not a separate exclusion tailored to that coverage extension; and (3) nothing
about our analysis precludes the possibility that a communicable disease could cause
“physical loss or damage” to property, depending on how the particular disease actually
operates (or, for purposes of a motion to dismiss, is alleged to operate).
Tapestry makes one other argument tied to the existence of the related
Communicable Disease Response and Interruption by Communicable Disease coverage
extensions. Observing that the general Time Element coverage grant applies to “TIME
20
By contrast, we find no other provisions of the Policies that support Tapestry’s
interpretation of “physical loss or damage” as extending to a temporary, functional loss of
use of the property.19 Considering that phrase in the context of the Policies as a whole thus
confirms our conclusion that that policy language is unambiguous and that a “reasonable
person in the position of the parties,” Credible Behav. Health, 466 Md. at 393, would
understand “physical loss or damage” to property, as used in the Policies, to require
tangible, concrete, and material harm to the property or a deprivation of possession of the
property.
Tapestry further contends that we should take into consideration that at the time FM
wrote the Policies, more than 80% of property insurance policies included a broad,
ISO-drafted20 virus exclusion that FM did not incorporate into its policies. FM responds
that the Contamination Exclusion in the Policies performs the same work and that the
ELEMENT loss . . . directly resulting from the physical loss or damage of the type insured”
(emphasis added), Tapestry argues that because the Policies cover some losses caused by
communicable diseases, those diseases constitute a risk “of the type insured” that then must
come within the scope of that general coverage grant. That argument, however, ignores:
(1) the link to “physical loss or damage” that precedes “of the type insured”; and (2) the
absence of a requirement of “physical loss or damage” as a prerequisite to the coverages
relating to communicable disease.
19
Even with respect to electronic data, the Policies require “physical loss or
damage” in the form of “destruction, distortion or corruption of electronic data, programs
or software” to trigger coverage, not mere loss of use.
20
The Insurance Services Office (“ISO”) is “the primary drafting organization for
property insurers.” Charles M. Miller, et al., COVID-19 and Business-Income Insurance:
The History of “Physical Loss” and What Insurers Intended It to Mean, 57 Tort, Trial, &
Ins. Prac. L.J. __ (forthcoming 2022), archived at https://perma.cc/PV4Q-KGVF.
21
absence of an exclusion does not create coverage.21 Ultimately, we are interpreting the
Policies FM issued. We do not think the availability on the insurance market of a broader
virus exclusion undermines the unambiguous language employed in the Policies. 22 See,
e.g., Verveine Corp., 184 N.E.3d at 1277-78 (rejecting insured’s proposed “negative
implication” from the absence of an express virus exclusion in certain policies while it is
included in others).
C. Application
We understand Tapestry to make three different arguments for why the allegations
in the Complaint concerning its losses resulting from the presence of Coronavirus on its
property constitute “physical loss or damage” so as to trigger coverage under the primary
Property Damage and Time Element coverage grants in the Policies. First, Tapestry
contends that the temporary, functional loss of use of covered property itself constitutes
21
The Contamination Exclusion excludes coverage for “contamination,” which is
defined to include, among other things, “any . . . pathogen or pathogenic organism, bacteria,
virus, disease causing or illness causing agent[.]” As noted above, we do not offer any
conclusions concerning the potential applicability of the Contamination Exclusion to
Tapestry’s claim because that is not encompassed within the certified question. See Price
v. Murdy, 462 Md. 145, 147 (2018) (stating that this Court “may go no further than the
question certified”) (quotation omitted). It is worth noting, however, that, as set forth in
the Communicable Disease Response coverage extension and the Interruption by
Communicable Disease additional coverage extension, the Policies do not exclude
coverage for all losses resulting from viruses. They do, however, limit those coverages by
imposing a sublimit of liability of $1 million per occurrence as compared to the overall
limit of liability of $1 billion per occurrence in each Policy.
22
Tapestry also argues that FM should be held to a position it articulated in a filing
in litigation in federal district court in New Mexico in 2019 that is inconsistent with FM’s
position here. However, FM’s litigation position in that case does not influence our
interpretation of Maryland law here.
22
“physical loss or damage.” For the reasons set forth above, we have reached a different
conclusion.
Second, Tapestry argues that Coronavirus damaged the air in its covered properties,
which constitutes “physical loss or damage.” Specifically, Tapestry contends that
respiratory particles expelled by individuals infected with Coronavirus physically alter the
composition of the air and can remain airborne for indefinite periods unless removed by a
ventilation system, which may itself become a transmission vector by spreading the
infected particles through vents. Even if cleaned, removed, or dissipated, such particles
are then reintroduced into the air every time a new infected person enters the store.
As an initial matter, Tapestry has not pointed us to any reported decision that
supports its contention that damage to the air at a property is covered by a first-party
property damage policy. In the Complaint and in its briefing, Tapestry contends that
Coronavirus damages the air in the same way that ammonia does, linking its desired
outcome in this case to the outcome in Gregory Packaging, Inc. v. Travelers Property
Casualty Company, Civ. No. 2:12-cv-04418, 2014 WL 6675934 (D.N.J. Nov. 25, 2014).
However, although that unreported decision interpreting New Jersey and Georgia law did
conclude that “the ammonia release physically transformed the air” on the property at issue,
the court appears to have based its decision that the insured sustained “direct physical loss
or damage” on the insured’s functional loss of use of the facility as a result of the
contamination, not on damage to the air itself. Id. at *3-6. We are not aware of any reported
23
decisions that have treated damage to air itself, as opposed to loss or damage to property
resulting from air contamination, as property damage.23
But even assuming damage to air could otherwise trigger coverage under the
Policies, the allegations of the Complaint do not support a claim that the air in Tapestry’s
stores was “damaged” in a way that triggers coverage under the Policies. Attaching
numerous scientific articles and bulletins, the Complaint sets forth persuasive evidence
explaining how Coronavirus particles: are expelled when an infected individual breathes,
coughs, or sneezes; enter the air surrounding that individual in droplet or aerosol form; and
are then dispersed more widely into the surrounding air for, at least theoretically based on
one study, as many as 27 feet. But Tapestry has not explained—or set forth factual
allegations that would, if proven, support—how the entry of Coronavirus particles into the
air, which particles then travel among and mix with the many other kinds of particles
already traveling in the same air until they are further dispersed or ultimately deposited
onto a surface, physically damages air over which Tapestry has possessory rights.24
23
In an unreported decision that was subsequently vacated by a settlement, the
United States District Court for the District of Oregon determined that wildfire smoke
physically altered the air of an outdoor theater and, therefore, caused “direct physical loss
of or damage to covered property” under the policy at issue. Oregon Shakespeare Festival
Ass’n v. Great Am. Ins. Co., No. 1:15-CV-01932-CL, 2016 WL 3267247, at *5, *9 (D. Or.
June 7, 2016), vacated by settlement, No. 1:15-CV-01932-CL, 2017 WL 1034203 (D. Or.
Mar. 6, 2017). The court reasoned that the insurer had not provided “a sufficient
explanation for why air is not physical.” Id. at *5. For the reasons already discussed and
those discussed below, we are not persuaded.
24
Tapestry does not allege that the Coronavirus particles transformed other particles
in the air by, for example, altering their physical structure. Instead, Tapestry alleges that
the Coronavirus particles transformed the air itself by mixing in and traveling with those
other particles.
24
Third, Tapestry contends that Coronavirus rested on and adhered to surfaces of
property at its stores, which “alter[ed] these objects to become vectors of disease.”
Tapestry alleges that when the Coronavirus-infected particles settle on a surface, that
surface becomes a “fomite” and may remain infectious for days; moreover, if the fomite is
disturbed, those particles may reenter the air and then settle on other property, creating
more fomites. Tapestry further contends that removing Coronavirus from surfaces requires
harsh chemical cleaning and the effectiveness of such cleaning is unknown because of the
toxicity and microscopic nature of the particles.
Tapestry’s allegation that Coronavirus particles “altered” objects like doorknobs
and purses into “vectors of disease” by landing on, adhering to, and being subject to
becoming dislodged from them does not satisfy the requirement of “physical loss or
damage.” Tapestry does not allege that any aspect of its property was either lost or
structurally altered by its contact with Coronavirus particles. That particles rested for some
period of time on those surfaces and later may have become dislodged and reentered
circulation in the air, thus posing a health risk to humans, simply does not constitute
damage to property in the absence of a physical or structural alteration of the property.
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.
As to each of the last two points, Tapestry suggests that there are factual disputes
raised by the Complaint that should be left for a jury to decide. Tapestry and its amicus
United Policyholders contend that in light of the uncertainty surrounding what is still a
25
relatively new virus as to which the scientific evidence continues to evolve, it is improper
for courts to make rulings that essentially amount to factual findings that Coronavirus is
not capable of causing “physical loss or damage.” But we decide today neither that
Coronavirus does not, nor that it cannot, cause “physical loss or damage” as that phrase is
used in the Policies. Instead, our decision is that, assuming the truth of all the non-
conclusory factual allegations in the Complaint about how Coronavirus operates and how
it impacted Tapestry’s properties and operations, the presence of Coronavirus in the air and
on surfaces at Tapestry’s properties did not cause “physical loss or damage” as that phrase
is used in the Policies.
D. Caselaw
Our interpretation of the policy language and application of that interpretation to
Tapestry’s claim is in accord with the overwhelming majority of reported decisions
addressing Coronavirus-related insurance claims under first-party commercial property
insurance policies. We will begin by discussing reported decisions that have addressed the
issue under Maryland law and then discuss caselaw from other jurisdictions.
Applying Maryland law, the Appellate Court of Maryland (at the time named the
Court of Special Appeals of Maryland)25 and three different judges of the United States
District Court have uniformly rejected Coronavirus-related insurance claims under first-
party commercial property insurance policies on grounds consistent with our interpretation.
25
At the November 8, 2022 general election, the voters of Maryland ratified a
constitutional amendment changing the name of the Court of Special Appeals of Maryland
to the Appellate Court of Maryland. The name change took effect on December 14, 2022.
26
The most recent of those decisions was our intermediate appellate court’s well-reasoned
decision in GPL Enterprise LLC v. Certain Underwriters at Lloyd’s, which addressed
many of the same arguments that Tapestry makes here. 254 Md. App. 638 (2022). In GPL
Enterprise, the insured sought coverage for an interruption of its restaurant operations
during the COVID-19 pandemic under an all-risk, first-party property insurance policy. Id.
at 645-46. Unlike here, the insured premised its insurance claim primarily on the effect of
government shutdown orders that precluded it from operating normally during the
pandemic, limiting it to carry-out services. Id. at 646. Nonetheless, the decision contains
an in-depth exploration of the meaning of the policy language “direct physical loss of or
damage to Covered Property” and the interpretations courts have given similar language.
See id. at 650-62.
The intermediate appellate court concluded in GPL Enterprise that other courts have
held “almost unanimously” “that the phrase ‘physical loss of or damage to’ property is
unambiguous and that the policies afford no coverage in circumstances such as those of
this case.” Id. at 652. The court discussed with approval the United States District Court’s
determination in Cordish Cos., 573 F. Supp. 3d at 997-98, that the modifier “physical”
unambiguously required a “material alteration to the property” and “damage [that] must
affect the good itself[.]” GPL Enter., 254 Md. App. at 652-53. Rejecting the insured’s
contention that a loss of use satisfied the requirements of the coverage grant, the court
concluded that “[a] loss of use simply is not the same as a physical loss.” Id. at 654 (quoting
Santo’s Italian Café, 15 F.4th at 402). As a result, the government shutdown order did not
trigger coverage under the policy. GPL Enter., 254 Md. App. at 654.
27
The court then concluded that, beyond the shutdown order, GPL also failed to
“allege[] facts sufficient to establish that the COVID-19 virus somehow physically altered
the structure of the restaurant so as to trigger coverage under the policy.” Id. at 654-55.
The court joined in the conclusions of other courts, based on the allegations that were
before them, that although Coronavirus causes harm to humans, “it does not physically
alter structures and therefore does not result in coverable property loss or damage.” Id. at
655 (quoting Cordish Cos., 573 F. Supp. 3d at 1000). After rejecting several other
arguments made by the insured there—and also made by Tapestry here—the court affirmed
the substance of the circuit court’s ruling in favor of the insurer. Id. at 664.
In three published decisions by different judges applying Maryland law, the United
States District Court has reached the same conclusion as our intermediate appellate court
concerning the meaning of the key policy language. In each of those decisions, the court
interpreted “physical loss or damage” or equivalent language to unambiguously require a
structural alteration of property or permanent dispossession. See Cordish Cos., 573 F.
Supp. 3d at 997 (“The inclusion of the modifier ‘physical’ in the phrase ‘physical loss or
damage’ unambiguously requires some form of material alteration to the property that has
experienced ‘loss or damage.’”); Hamilton Jewelry, LLC v. Twin City Fire Ins. Co., Inc.,
560 F. Supp. 3d 956, 967 (D. Md. 2021) (“The presence of the words ‘direct’ and ‘physical’
limit the words ‘loss’ and ‘damage’ and unambiguously require that the loss be directly
tied to a material alteration to the property itself, or an intrusion onto the insured property.”
(quoting Promotional Headwear Int’l v. Cincinnati Ins. Co., 504 F. Supp. 3d 1191,
1201-02 (D. Kan. 2020))); Bel Air Auto Auction, Inc. v. Great N. Ins. Co., 534 F. Supp. 3d
28492, 504 (D. Md. 2021) (observing with approval that the “[n]umerous courts [to] have had
the opportunity to directly address the meaning of identical ‘direct physical loss or damage’
language . . . have overwhelming[ly] held that the phrase requires tangible, physical losses
to property, or, at the very least, permanent dispossession of the property rendered unfit or
uninhabitable by physical forces”).
In two of those cases, the courts expressly concluded that contamination by, or the
presence of Coronavirus on, an insured’s covered property does not constitute “physical
loss or damage.”26 See Cordish Cos., 573 F. Supp. 3d at 999 (“Cordish does not allege that
the properties were physically or structurally altered or rendered unusable. Contamination
qualifies as physical loss or damage only if it renders the subject property unusable or
uninhabitable.”); Bel Air Auto, 534 F. Supp. 3d at 509 (“[E]ven actual presence of the virus
would not be sufficient to trigger coverage for physical damage or physical loss to the
property[.]” (quoting Uncork & Create LLC v. Cincinnati Ins. Co., 498 F. Supp. 3d 878,
883 (S.D.W. Va. 2020))).
Other appellate courts have addressed Coronavirus-related insurance claims under
the same or similar coverage grants. The vast majority of those have come to the same
result based on largely similar reasoning. For example, in Uncork & Create LLC v.
Cincinnati Insurance Company, the United States Court of Appeals for the Fourth Circuit,
applying West Virginia law and similar interpretive principles to those we employ,
26
In the third case, Hamilton Jewelry, LLC, the court did not reach that issue because
the insured, whose insurance policy included a broad virus exclusion, argued that its losses
were caused not by the virus but by government closure orders. 560 F. Supp. 3d at 960.
The court rejected that argument. Id. at 968.
29
concluded that “policy language requiring a ‘physical loss’ or ‘physical damage’
unambiguously covers only losses caused by, or relating to, material destruction or material
harm to the covered property.”27 27 F.4th 926, 928 (4th Cir. 2022). The insured contended
that its “inability to operate its [business] as intended” as a result of both a government
“closure order and the C[OVID]-19 virus” constituted “physical loss” under the policy. Id.
at 930. The court disagreed based both on the plain meaning of the terms and the “plain
and unambiguous” language of the policy. Id. at 932. As to the latter, the court found
especially compelling the policy’s definition of the “period of restoration,” which
established the period for which business income losses could be recovered “as the time
needed to ‘repair[ ], rebuil[d] or replace[ ]’ property or to locate a new permanent
property.” Id. The court concluded that any definition of “‘physical loss’ or ‘physical
damage’ that does not require a material alteration to the property would render
meaningless this pre-condition to coverage[.]”28 Id.27
The policy language at issue in Uncork & Create included the additional
modifiers “direct” and “accidental” before both “physical loss” and “physical damage.” 27
F.4th at 929. However, because both parties agreed that the pandemic and government
closure order were “accidental” and that any loss was “direct,” for purposes of the policy,
the court “focus[ed its] inquiry on the disputed policy terms ‘physical loss’ and ‘physical
damage.’” Id. at 931 & n.7.
28
We reach a different conclusion than did the Fourth Circuit on one point. That
court appeared to consider the terms “physical loss” and “physical damage” to be
coextensive, both requiring “material destruction or material harm.” Id. at 932 & nn.8-9.
In reaching that conclusion, the court dismissed as “untenable” the “alternative dictionary
definition of ‘loss’ as the ‘failure to keep possession’ or ‘deprivation,’” which the court
found to be inconsistent with the “need to repair, rebuild, replace, or expend time securing
a new, permanent property” as a pre-condition for coverage in the definition of “period of
restoration.” Id. at 932 & n.9 (quoting Webster’s Third New Int’l Dictionary 1338 (2002)).
As discussed above, we do not see any inconsistency with that alternative definition of
“loss” and the Policies’ definition of “period of liability,” if a “physical loss” is defined to
30
Based on that definition, and because “neither the [governmental] closure order nor
the C[OVID]-19 virus caused present or impending material destruction or material harm
that physically altered the covered property requiring repairs or replacement so that they
could be used as intended[,]” the court held that the policy did not provide business income
loss coverage for the insured’s COVID-19-related losses. Id. at 933. As a result, after
noting that its conclusion was “consistent with the unanimous decisions by our sister
circuits,” the court affirmed the trial court’s dismissal of the insured’s complaint seeking
coverage. Id. at 933-34 (citing federal circuit court cases applying the laws of Texas, New
York, Ohio, Illinois, Iowa, California, Oklahoma, and Georgia).
A sampling of other appellate decisions reaching similar interpretations of similar
policy language includes: Estes v. Cincinnati Ins. Co., 23 F.4th 695, 700 (6th Cir. 2022)
(“[A] covered source itself must destroy covered property or deprive the property’s owner
of possession.”); Terry Black’s Barbecue v. State Auto. Mut. Ins. Co., 22 F.4th 450, 456
(5th Cir. 2022) (interpreting “‘physical loss of property’ to require a tangible alteration or
deprivation of property” and, accordingly, affirming judgment for the insurer on the
pleadings); 10012 Holdings, Inc. v. Sentinel Ins. Co., Ltd., 21 F.4th 216, 220-22 (2d Cir.
include the loss of possession of the property. That is because a deprivation of possession
of property, unlike a temporary deprivation of functional use of the property, would require
“replace[ment]” of that property to resume normal operations. See, e.g., Estes, 23 F.4th at
701 (observing that “the phrase ‘physical loss’ . . . would cover a physical deprivation of
property (such as a theft of furniture) that did not damage the property in the slightest”);
Verveine Corp., 184 N.E.3d at 1276-77 (observing that “there may be a ‘loss of’ property
without damage if it is stolen”). Because it is not presented here, we will leave to a future
case a determination as to whether a temporary loss of possession of property would qualify
as “physical loss or damage,” or whether any such loss of possession must be permanent.
31
2021) (holding that policy provisions requiring “direct physical loss or damage” or
“physical damage” “do not extend to mere loss of use of a premises, where there has been
no physical damage to such premises; those terms instead require actual physical loss of or
damage to the insured’s property”); Goodwill Indus. of Cent. Oklahoma, Inc. v.
Philadelphia Indem. Ins. Co., 21 F.4th 704, 708, 710 (10th Cir. 2021) (concluding that
coverage trigger requiring “direct physical loss of or damage to property” “unambiguously
covered only losses stemming from physical alteration or tangible dispossession of
property”); Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327, 333 (7th Cir.
2021) (“The Policy is replete with textual clues that reinforce the conclusion that ‘direct
physical loss’ requires a physical alteration to property.”); Mudpie, Inc. v. Travelers Cas.
Ins. Co. of Am., 15 F.4th 885, 892 (9th Cir. 2021) (affirming dismissal of coverage
complaint where insured did not identify either a physical alteration of the property or
permanent dispossession of the property); Santo’s Italian Café, 15 F.4th at 400, 401
(affirming ruling upholding denial of coverage because “[t]he restaurant has not been
tangibly destroyed, whether in part or in full. And the owner has not been tangibly or
concretely deprived of any of it.”); Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th
1141, 1144 (8th Cir. 2021) (interpreting similar policy language as requiring that “there
must be some physicality to the loss or damage of property—e.g., a physical alteration,
physical contamination, or physical destruction[,]” and, in the absence of such allegations,
affirming dismissal of coverage complaint); Indiana Repertory Theatre v. Cincinnati Cas.
Co., 180 N.E.3d 403, 410 (Ind. Ct. App. 2022) (finding that the insured “did not suffer
physical loss or physical damage under the language of the Policy because the premises
32
covered . . . was not destroyed or altered in a physical way that would require restoration
or relocation”); and Verveine Corp., 184 N.E.3d at 1275 (concluding, based on both plain
meaning and the policy’s definition of the “period of restoration,” that the policy term
“direct physical loss of or damage to” property requires physical alteration; and that “[t]he
allegations in the [insured’s] complaint do not support recovery under this definition”).
Tapestry argues that many of these cases are distinguishable, most prominently
because many of the insureds did not allege the actual presence of Coronavirus on their
properties or otherwise relied primarily on the effect of governmental shutdown orders,
rather than the presence of Coronavirus itself, to support their claims. As an initial matter,
although that is true of some of those cases, it is by no means true of all of them. See, e.g.,
Verveine Corp., 184 N.E.3d at 1276 (‘“Even accepting the plaintiffs’ premise that the
suspension of their business was caused by the ‘presence’ of the virus on surfaces and in
the air at the restaurants . . ., mere ‘presence’ does not amount to loss or damage to the
property.”). Moreover, even where that distinction applies, it does not undermine the
persuasiveness of the analysis contained in those decisions in interpreting the unambiguous
meaning of the key policy language. Tapestry also points out that some of the policies
construed in those other cases employed somewhat different policy language, including the
use of the modifier “direct” before “physical loss or damage” in some policies. However,
it does not appear to us that many, if any, of the other decisions turned on that distinction.
Tapestry points our attention to three relatively recent appellate decisions that have
reached a contrary conclusion. In Cajun Conti LLC v. Certain Underwriters at Lloyd’s
London, a split intermediate appellate court in Louisiana concluded that “physical loss or
33
damage,” as used in an all-risk, first-party commercial insurance policy, was susceptible to
more than one reasonable meaning and so had to be interpreted in favor of the insured.
No. 2021-CA-0343, ___ So. 3d ___, 2022 WL 2154863, at *5-6 (La. App. Ct. June 15,
2022). Two dissenting judges on the five-judge panel concluded that the policy language
unambiguously required a physical alteration to the property.29 Id., ___ So. 3d at ___
(Belsome, J., dissenting). In Marina Pacific Hotel and Suites, LLC v. Fireman’s Fund
Insurance Company, a California intermediate appellate court concluded that an insured
had sufficiently alleged physical damage to property to survive a motion to dismiss when
it alleged that Coronavirus particles “not only live[] on surfaces but also bond[] to surfaces
through physicochemical reactions involving cells and surface proteins, which transform
the physical condition of the property.” 81 Cal. App. 5th 96, 108-09 (2022). And in
Huntington Ingalls Industries, Inc. v. ACE American Insurance Company, a split Supreme
Court of Vermont held that although “direct physical damage” “requires a distinct,
demonstrable, physical change to property,” the insured’s allegations that Coronavirus
“can ‘adhere’ to surfaces, transforming the surface into a fomite,” were sufficient to “allege
29
Other courts applying Louisiana law, including at least one of that state’s other
intermediate appellate courts, have reached a different conclusion than the Cajun Conti
majority. See Q Clothier New Orleans, L.L.C. v. Twin City Fire Ins. Co., 29 F.4th 252,
257-58 (5th Cir. 2022) (Although the “Louisiana Supreme Court has not opined on this
language,” the court concluded that “[it] would interpret ‘direct physical loss of or damage
to property’ to cover only tangible alterations of, injuries to, and deprivations of
property.”); Port Cargo Servs., LLC v. Westchester Surplus Lines Ins. Co., No. CV
22-1018, 2022 WL 3576759, at *6 (E.D. La. Aug. 19, 2022), appeal filed, Port Cargo
Servs. v. Westchester Surplus Lines Ins., No. 22-30594, 5th Cir., 2022 WL 3576759(“Cajun Conti does not change our view of how the Louisiana Supreme Court would rule
on the issue”).
34
that the virus physically altered property” under Vermont’s “‘extremely liberal’ notice-
pleading standards.” No. 2021-173, ___ A.3d ___, 2022 WL 4396475, at *11-12 (Vt. Sept.
23, 2022). Two dissenting justices, based on a review of the policy’s provisions and the
insured’s allegations, concluded, “[a]s a matter of law, [that] human-generated droplets
containing [Coronavirus] cannot cause ‘direct physical loss or damage to property’ under
this insurance policy.” Id. at *14 (Carroll, J., dissenting).
Setting aside differences in the underlying policies and allegations at issue in those
three cases,30 we are 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.
Tapestry also relies on a number of decisions, many unreported, from other
jurisdictions involving other hazardous substances, such as ammonia, asbestos, gaseous
fumes, smoke, and cat urine. Some of those cases are distinguishable on one or more
30
Two differences between the case before us and Marina Pacific Hotel & Suites
appear to have played a significant role in the California court’s decision. First, the
allegations of the insured appeared to go beyond those made by Tapestry in alleging a
physical alteration of the property through “physicochemical reactions involving cells and
surface proteins.” 81 Cal. App. 5th at 108. It is unclear to us whether those alleged
reactions went beyond simply adhering to a surface, but the court seemed to treat them that
way. See id. at 110. Second, the interruption by communicable disease coverage in the
policy at issue provided coverage if a suspension of business was “due to direct physical
loss or damage to property . . . caused by or resulting from a covered communicable
disease event,” which the court interpreted as establishing that the policy itself
contemplated that communicable diseases could cause direct “physical loss or damage.”
Id. at 100. As discussed above, the Interruption by Communicable Disease coverage
extension in the Policies does not require “physical loss or damage” and we do not rule out
that a communicable disease could cause “physical loss or damage” to property. We reach
no conclusion concerning how those factors might have affected our analysis if they were
involved here.
35
grounds, including that: (1) some involved the physical alteration of property;31 (2) others
involved hazards that rendered the property “practically useless for anything,” Santo’s
Italian Café, 15 F.4th at 405, as opposed to just for the insured’s intended purpose;32 or
(3) contained different policy language, see TRAVCO Ins. Co. v. Ward, 715 F. Supp. 2d
699, 709 (E.D. Va. 2010) (noting that the “Policy . . . define[d] ‘Property Damage’ to
include ‘loss of use of tangible property’”), aff’d, 504 F. App’x 251 (4th Cir. 2013). Those
features do not distinguish all the cases.33 However, to the extent they are not materially
31
See Nat’l Ink & Stitch, LLC v. State Auto Prop. & Cas. Co., 435 F. Supp. 3d 679,
680-81 (D. Md. 2020) (finding “direct physical loss” where a computer needed to be
replaced because of damage sustained in a ransomware attack); Mellin v. N. Sec. Ins. Co.,
115 A.3d 799, 805 (N.H. 2015) (in connection with a claim arising from saturation of
property with cat urine, interpreting “physical loss” to require “a distinct and demonstrable
alteration of the insured property,” but concluding that alteration of a property’s smell by
the pervasive odor of cat urine qualified); Farmers Ins. Co. v. Trutanich, 858 P.2d 1332,
1334-35 (Or. Ct. App. 1993) (concluding that the pervasive odor of methamphetamine in
a house caused “physical damage” to the house).
32
See Gregory Packaging, Inc. v. Travelers Prop. Cas. Co., Civ. No. 2:12-cv-
04418, 2014 WL 6675934, *3-4 (D.N.J. Nov. 25, 2014) (concluding that ammonia
discharge in facility resulted in “direct physical loss” under insurance policy because it
“rendered [the insured’s] facility physically unfit for normal human occupancy and
continued use until the ammonia was sufficiently dissipated”); TRAVCO Ins. Co. v. Ward,
715 F. Supp. 2d 699, 709 (E.D. Va. 2010) (concluding that emission of sulfuric gas into a
residence from defective drywall constituted “direct physical loss” because it rendered the
property entirely unusable), aff’d, 504 F. App’x 251 (4th Cir. 2013); In re Chinese
Manufactured Drywall Prods. Liab. Litig., 759 F. Supp. 2d 822 (E.D. La. 2010) (same);
W. Fire Ins. Co. v. First Presbyterian Church, 437 P.2d 52, 54-55 (Colo. 1968) (concluding
that an insured suffered “direct physical loss” when gasoline infiltrated “the soil under and
around the building,” and then “gasoline and vapors thereof infiltrated and contaminated
the foundation and halls and rooms of the . . . building, making the same uninhabitable and
making the use of the building dangerous”); Bd. of Educ. v. Int’l Ins. Co., 720 N.E.2d 622,
624 (Ill. App. Ct. 1999) (determining that the release of asbestos fibers on property
constituted “physical loss or damage” to property).
See, e.g., Oregon Shakespeare Festival Ass’n v. Great Am. Ins., No. 1:15-CV-
33
01932-CL, 2016 WL 3267247, at *9 (D. Or. June 7, 2016) (concluding that smoke, soot,
36
distinguishable, we find the analyses in those cases unpersuasive, at least as applied to the
Policies and the allegations of the Complaint, for the reasons already discussed.
Finally, Tapestry also claims support from this Court’s recent decision in Berry v.
Queen, 469 Md. 674 (2020). In Berry, the Court confronted “whether the phrase ‘damage
to property’ . . . in the uninsured motorist statute[] requires an insurer to reimburse loss of
use damages, such as rental car costs, to an insured.” Id. at 679. We held that it did. Id.
at 685. Notably, however, the question was raised in the context of unquestioned physical
damage to an automobile that required repair. Id. at 683. As the United States District
Court correctly observed, Berry does not stand for the proposition “that a policyholder
could make an uninsured motorist claim for rental car coverage every time it suffered a
‘loss of use’ of a vehicle untethered to physical damage to that vehicle.” Bel Air Auto, 534
F. Supp. 3d at 504.
CONCLUSION34
The certified question posed to this Court, as we have reformulated it, is:
and ash in the air of a partially outdoor theater from a nearby wildfire constituted “direct
physical loss of or damage to covered property” when theater had to postpone
performances), vacated by settlement, No. 1:15-CV-01932-CL, 2017 WL 1034203 (D. Or.
Mar. 6, 2017); Matzner v. Seaco Ins. Co., No. CIV. A. 96-0498-B, 1998 WL 566658, at *3
(Mass. Super. Ct. Aug. 12, 1998) (in addressing a claim arising from carbon-monoxide
contamination in an apartment building, concluding that the phrase “direct physical loss or
damage” is ambiguous and could include “a wider array of losses” beyond “tangible
damage to the structure of insured property”).
34
The Court wishes to acknowledge the very helpful amicus submissions provided
in this case by the American Property Casualty Insurance Association and National
Association of Mutual Insurance; Amphenol Corporation and Amphenol (Maryland), Inc.;
Bel Air Auto Auction, Inc.; Cinemark Holdings, Inc.; The Cordish Companies, Inc.;
MedChi, The Maryland State Medical Society; and United Policyholders.
37
When a first-party, all-risk property insurance policy covers “all risks of
physical loss or damage” to insured property from any cause unless excluded,
is coverage triggered when a toxic, noxious, or hazardous substance—such
as Coronavirus or COVID-19—is physically present in the indoor air of that
property; is also present on, adheres to, and can later be dislodged from
physical items on the property; and causes a loss, either in whole or in part,
of the functional use of the property?
For the reasons set forth in this opinion, our answer is: No, provided the substance causes
neither tangible, concrete, and material harm to the property nor deprivation of possession
of the property.
CERTIFIED QUESTION OF LAW
ANSWERED AS SET FORTH
ABOVE. COSTS TO BE DIVIDED
EQUALLY BETWEEN THE
PARTIES.
38