GPL Enter., LLC v. Certain Underwriters at Lloyd's

• Decision Date: 24 May 2022
• Docket Number: 302, Sept. Term, 2021
• Citation: 254 Md.App. 638,276 A.3d 75
• Parties: GPL ENTERPRISE, LLC v. CERTAIN UNDERWRITERS AT LLOYD'S, et al.
• Court: Court of Special Appeals of Maryland

254 Md.App. 638

276 A.3d 75

GPL ENTERPRISE, LLC

v.CERTAIN UNDERWRITERS AT LLOYD'S, et al.

No. 302, Sept. Term, 2021

Court of Special Appeals of Maryland.

May 24, 2022

Argued by: Brian M. Maul (Law Office of Brian M. Maul, LLC, Frederick, MD), on the brief, for Appellant.

Argued by: Michele F. Hayes (Craig D. Roswell, Niles Barton & Wilmer, LLP, Baltimore, MD), on the brief, for Appellee.

Panel: Graeff, Arthur, James R. Eyler (Senior Judge, Specially Assigned), JJ.

Arthur, J.

A restaurant was ordered to close its business for in-person dining during the early days of the COVID-19 pandemic. The restaurant made a claim against its property insurer, claiming to have suffered business-interruption losses as a result of the shutdown order and the virus. The insurer denied the claim, the restaurant filed suit for damages and declaratory relief, and the Circuit Court for Frederick County concluded that the policy did not cover the restaurant's losses.

We affirm the conclusion that the policy does not cover the restaurant's losses, but we remand the case to the circuit court because it failed to issue a declaratory judgment concerning the parties’ rights.

BACKGROUND

In early 2020, the novel coronavirus, COVID-19, began spreading throughout the United States. On March 11, 2020, the World Health Organization declared that COVID-19 was a pandemic. On March 16, 2020, the Governor of Maryland issued an emergency order that closed all Maryland restaurants and bars indefinitely in response to the pandemic.

Appellant GPL Enterprise, LLC, operates a restaurant known as The Anchor Bar. The Governor's order prohibited GPL from operating its restaurant at full capacity. Although the order permitted GPL to conduct a carry-out business and to deliver orders to customers, GPL found that that option was unviable. GPL incurred significant losses as a result as the Governor's order.

GPL had procured a commercial property insurance policy from a syndicate of underwriters at Lloyd's, the insurance market in London. The policy, which is identical in form to policies issued by many other insurers,¹ provides coverage for "direct physical loss of or damage to Covered Property," which includes GPL's restaurant. The policy includes business-interruption coverage, which insures against the loss of business income and the incurrence of expenses due to the suspension of business operations, provided that the suspension is "caused by direct physical loss of or damage to property at" the restaurant. The policy also includes coverage against the loss of business income and the incurrence of expenses if a civil authority prohibits access to the restaurant as a result of damage to property other than the restaurant, such as an adjacent property.

On March 30, 2020, GPL made a written demand for coverage under its policy. In its demand, GPL asserted that, as a result of the COVID-19 virus and the Governor's order, it had suffered direct physical harm, loss, or damage to its premises. It also asserted a claim for business interruption coverage because of the necessary suspension of operations in response to the Governor's order. It noted that the policy did not contain an exclusion for losses due to a virus or bacteria. Finally, it asserted an additional claim for business interruption coverage on the premise that the Governor's order (an act of a civil authority) had prohibited access to the restaurant.

The underwriters denied the claim. Although the underwriters did not clearly articulate their rationale, they appear to have reasoned that neither the virus nor the Governor's order had caused "direct physical loss of or damage to" GPL's restaurant, a necessary precondition for coverage under the policy. In addition, the underwriters asserted the policy did not cover the loss because "there [was] no evidence that ... business operations [had] been suspended because of a direct physical loss" and "no evidence that there [had] been physical damage to [GPL's] property or to an adjacent property[.]" The underwriters did not address the absence of an exclusion for losses due to a virus or bacteria.

GPL responded by filing a two-count complaint in the Circuit Court for Frederick County. In brief summary, the complaint described the effect of the virus and the Governor's order; recounted that the underwriters had denied coverage on the ground that GPL had not suffered "direct physical loss of or damage to" its property; alleged that the policy terms are ambiguous; invoked the absence of a virus exclusion as evidence of coverage; and cited two, unreported trial court opinions that had found coverage for COVID-related claims. In Count I, GPL alleged breach of contract. In Count II, GPL requested that the court declare the parties’ rights under the policy.²

The underwriters moved to dismiss the complaint. Among other things, they argued that GPL had suffered economic loss alone, because it had suffered no "direct physical loss of or damage to" its restaurant. They also argued that GPL had no right to business-interruption coverage because the suspension of GPL's operations was not caused by "direct physical loss of or damage to" the restaurant and because the civil authorities had not prohibited access to the restaurant as a result of damage to other nearby property. The underwriters rebuffed GPL's argument that the policy covers damages caused by a virus because it did not contain an exclusion for those damages.

GPL opposed the motion to dismiss. The motion to dismiss included excerpts from the policy (which had already been attached to the complaint) and a three-paragraph affidavit from GPL's managing member. In the affidavit, the managing member authenticated the policy, discussed the effect of the virus and the Governor's order on GPL's income, and described GPL's unsuccessful effort to reopen on a carry-out basis.

A few months later, GPL amended the complaint to allege additional facts in support of its claim for coverage. The amended complaint did not alter the relief requested.

GPL filed what it called a motion for summary judgment at the same time as it filed its amended complaint. The motion incorporated the arguments that GPL had made in response to the underwriters’ motion to dismiss. The motion did not include any evidentiary materials, but it did attach a copy of an unreported trial court opinion from North Carolina.

The underwriters moved for summary judgment on the amended complaint. In support of the motion, the underwriters incorporated their motion to dismiss the initial complaint.

After a hearing on April 27, 2021, the circuit court granted the underwriters’ motion to dismiss and denied GPL's motion for summary judgment. The court reasoned that GPL did not claim to have suffered physical damage to its property or the loss of its property as a result of the virus or the Governor's order.

The court embodied its ruling in a written order, but it did not declare the parties’ rights.

GPL noted a timely appeal. It raises one question: Did the circuit court err by granting the underwriters’ motion to dismiss and denying GPL's motion for summary judgment?

Like the vast majority of courts that have considered the question presented in this case,³ including every appellate court that has considered the question,⁴ we conclude that the policy at issue affords no coverage for the purely economic losses that GPL suffered in this case. Hence, we shall affirm the dismissal of GPL's claim for breach of contract and the entry of summary judgment against GPL.

Nonetheless, because the court disposed of GPL's claim for a declaratory judgment without declaring the parties’ rights as it was required to do, we shall remand the case to the circuit court for the entry of a declaratory judgment consistent with this opinion.

STANDARD OF REVIEW

When deciding a motion to dismiss a complaint, the court assumes the truth of the complaint's factual allegations and of any reasonable inferences that can be drawn therefrom. Margolis v. Sandy Spring Bank , 221 Md. App. 703, 713, 110 A.3d 784 (2015). A court, however, need not accept the truth of pure legal conclusions. Id. A court should dismiss a complaint for failure to state a claim only if the alleged facts and reasonable inferences would fail to afford relief to the plaintiff. Id. We conduct a de novo review of the circuit court's decision to grant a motion to dismiss. Id.

A court cannot dismiss a claim for a declaratory judgment unless the plaintiffs are not entitled to a declaration of their rights ( Broadwater v. State , 303 Md. 461, 467, 494 A.2d 934 (1985) ), as, for example, when the case is not justiciable, when the case is unripe or moot, or when the plaintiff lacks standing. A court may not dismiss a claim for a declaratory judgment simply because the court disagrees with the declaration that the plaintiffs have requested.

Maryland Rule 2-501(f) permits a court to grant a motion for summary judgment "if the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law." The issue of whether a trial court properly granted summary judgment is a question of law. Butler v. S & S P'ship , 435 Md. 635, 665, 80 A.3d 298 (2013) (citing D'Aoust v. Diamond , 424 Md. 549, 574, 36 A.3d 941 (2012) ). This Court conducts a de novo review to determine whether the circuit court's conclusions were legally correct. D'Aoust v. Diamond , 424 Md. at 574, 36 A.3d 941.

DISCUSSION

I. The Interpretation of the Policy

A. The Interpretation of Insurance Policies

In determining the rights of the insured and the obligations of the insurer under an insurance contract, we apply the following well-established principles:

We construe an insurance policy according to contract principles. Maryland follows the objective law of contract interpretation. Thus, the written language embodying the terms of an agreement will govern the rights and

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