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Trio of COVID-19 Business Interruption Decisions

Insurance Coverage / March 3, 2022

In Gavrilides Mgt Co v Michigan Ins Co, ___ Mich App ___; ___ NW2d ___ (2022) (Docket No. 354418), the Michigan Court of Appeals recently held – deciding a question of first impression in this State – 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.

Three weeks later, in Brown Jug Inc, et al v Cincinnati Ins, ___ F4th ___ (CA 6, 2022) (Docket Nos. 21-2644/2715/2718), the Sixth Circuit echoed Gavrilides and held that several restaurants, which had their business curtailed by various pandemic-related Executive Orders, did not experience a direct physical loss under their policies.

The Brown Jug panel cited Gavrilides in making its “Erie prediction” that Michigan’s Supreme Court would agree that “direct physical loss” to property “covers only tangible harm or damage to property, rather than mere loss of use.” Brown Jug, ___ F4th at ___; slip op at 2.

Although Brown Jug is not binding on the Michigan Supreme Court, the Sixth Circuit’s opinion would lend strong persuasive support to the insurers’ position, if a leave application is filed in Gavrilides.

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