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“Locked-Down” Restaurants Locked Out of Business Interruption Coverage

Insurance Coverage / February 4, 2022

Deciding a question of first impression in Michigan, the Court of Appeals held that government shut-down orders and/or capacity restrictions, intended to slow the spread of COVID-19, do not trigger business interruption coverage, because such claims do not arise out of any direct physical loss. Gavrilides Mgt Co v Michigan Ins Co, ___ Mich App ___; ___ NW2d ___ (2022) (Docket No. 354418).

The panel also found that “Civil Authority” coverage did not apply because this coverage requires that access to the insured’s premises be denied due to direct physical loss to nearby property.

The panel further held that, if the insured were to amend its Complaint to allege that the virus inflicted a direct physical loss to property, an unambiguous virus exclusion would apply. The Gavrilides panel’s finding of no direct physical loss is consistent with recent U.S. Court of Appeals’ rulings from the 2nd, 5th, 6th, 7th, 8th, 9th, 10th, and 11th Circuits.

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