Tapestry, Inc. v. Factory Mutual Insurance Company (Supreme Court of Maryland)

 Tapestry, Inc. v. Factory Mutual Insurance Company (Supreme Court of Maryland)

Filed: December 15, 2022

Opinion by: Chief Justice M. Fader

Holding: The Supreme Court of Maryland held that a retailer’s all-risk property insurance policy, that provided coverage for all risks of physical loss or damage to the insured premises, did not cover the retailer’s losses due to the COVID-19 Pandemic as insured premises did not suffer any tangible, concrete, and material harm. The Supreme Court of Maryland answered the certified question of law for the United States District Court for the District of Maryland.

Facts: Tapestry, Inc. is a retailer operating stores nationwide, including 15 stores in Maryland.  Tapestry obtained two “all-risk” commercial property insurance policies from Factory Mutual Insurance Company (“FM”) during the COVID-19 Pandemic.  The insurance policies insured the property against all risks of physical loss or damage.  The policies did not define “physical loss or damage.” Tapestry provided a coverage notice to FM citing the COVID-19 Pandemic.  FM denied coverage as Tapestry could not show that the presence of COVID-19 causes physical loss or damage.  Tapestry filed suit in the Circuit Court for Baltimore County.  FM removed the case to the United States District Court for the District of Maryland.  In its complaint, Tapestry sought a declaratory judgment that the two policies issued by FM covered the losses it had suffered, and that FM was responsible for paying Tapestry’s claim. Tapestry also sough an award of damages for FM’s breach of contract in denying coverage under the two policies.  FM moved to dismiss the complaint. Tapestry filed an opposition to the motion to dismiss and a motion to certify a question of law to the Supreme Court of Maryland. The United States District Court for the District of Maryland granted the motion to certify the question of law and issued the Certification Order.

Analysis: The Supreme Court of Maryland interpreted “physical loss or damage” by analyzing the plain meaning of and interpreting the phrase in the context of the two policies.  Tapestry argued that the plain meaning of “physical loss or damage” embraces the functional loss of use of the property. Tapestry argued that the two policies use of “loss” and “damage” implied that they have different meanings and both could not require physical damage to property. The Supreme Court of Maryland disagreed, believing that the term involved tangible, concrete, and material harm to the property.  The Supreme Court of Maryland believed Tapestry’s interpretation of a functional loss renders “physical loss or damage” meaningless in the policies, including the Time Element coverage and the Interruption by Communicable Disease, both of which clearly require tangible, concrete, and material harm to the property. The Time Element coverage must be the result of “physical loss or damage” that results from a covered cause, not a functional loss.  The Interruption by Communicable Disease does not require “physical loss or damage” as it is triggered by the restriction on access to the premises, undermining Tapestry interpretation of a functional loss requirement. Assuming what is known about the Coronavirus, the Supreme Court of Maryland concluded that the presence of Coronavirus in the air and on the surfaces of Tapestry’s properties did not cause “physical loss or damage” as is required under the policies.  The Supreme Court of Maryland further interpreted recent insurance claims as a result of the COVID-19 Pandemic including, GPL Enterprise LLC v. Certain Underwriters at Lloyd’s, 254 Md. App. 638 (2022), addressing similar arguments made by Tapestry, to conclude that physical loss or damage “requires tangible, concrete, and material harm” to the property.  The Supreme Court of Maryland answered the certified question of law that the Coronavirus cannot cause “physical loss or damage” without tangible, concrete, and material harm to the property or deprivation of possession of the property. 

The full opinion is available in PDF.