On July 1, 2020, an Ingham Michigan Judge dismissed a claim of first impression, ruling in favor of an insurer’s decision to deny business interruption coverage due to the finding that the insured business owner did not suffer a direct physical loss under the policy.

Similar to many lawsuits on this uniquely 2020 issue, the case (Gavrilides Management Company v. Michigan Insurance Company) focused on whether there was a “direct physical loss of or damage to the insured’s property” which would trigger the coverage for business interruption. This particular claim centered on a business owners’ two restaurants in Lansing Michigan in the amount of $650,000.

The insurer argued that the business interruption coverage kicks in by an occurrence that actually alters or damages the property, which apparently did not occur. The claimant argued that non-destructive losses are also covered by the policy.

As I have discussed in a previous blog post, the claimant argued that Governor Gretchen Whitmer’s stay at home order interfered with his use of his restaurant business. The insurer simply relied on the policy language and that there was no loss or damage to the property, and that loss of use of the property is not covered. The insurer argued that words are not to be added when the contractual language is clear. Judge Draganchuk agreed with the insurer and ruled that:

It is clear from the policy coverage that only direct physical loss is covered….”

The Judge further verbally ruled during the zoom hearing that the direct physical loss of or damage has to be “tangible” — something that “alters the physical integrity of the property,” which the complaint did not allege. Further, it was noted that there was a virus exclusion in the policy. The hearing may be viewed on Youtube.