Tapestry, Inc. v. Factory Mut. Ins. Co.

Decision Date15 December 2022
Docket NumberMisc. No. 1, Sept. Term, 2022
Citation482 Md. 223,286 A.3d 1044
CourtMaryland Court of Appeals

Argued by Joseph D. Jean (Janine M. Stanisz, Scott D. Greenspan, and Maria T. Galeno, Pillsbury Winthrop Shaw Pittman LLP, New York, NY; Deborah B. Baum and Laura Freid-Studlo, Pillsbury Winthrop Shaw Pittman LLP, Washington, DC), on brief, for Appellant.

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

Amicus Curiae Bel Air Auto Auction, Inc.: Lawrence J. Gebhardt, Esquire, Gregory L. Arbogast, Esquire, Jennifer K. Malow, Esquire, Gebhardt & Smith LLP, One South Street, Suite 2200, Baltimore, MD 21202.

Amicus Curiae Medchi, the Maryland State Medical Society: J. Wylie Donald, Esquire, McCarter & English LLP 1301 K Street, NW, Suite 1000W, Washington, DC 20005, Gene M. Ransom III, Esquire, MedChi, The Maryland State, Medical Society, 1211 Cathedral Street Baltimore, MD 2120.

Amicus Curiae Cinemark Holdings, Inc.: Perie Reiko Koyama, Esquire, Michael S. Levine, Esquire, Hunton Andrews Kurth LLP, 2200 Pennsylvania Avenue, NW, Washington, DC 20037, Nicholas D. Stellakis, Esquire, Hunton Andrews Kurth LLP, 60 State Street, Suite 2400, Boston, MA 02109.

Amici Curiae United Policyholders: Suzan F. Charlton, Esquire, Rukesh Korde, Noah S. Goldberg, Covington & Burling LLP, One CityCenter, 850 Tenth Street, NW, Washington, DC 20001.

Amicus Curie the Cordish Companies: Daniel J. Healy, Esquire, Anderson Kill LLP, 1717 Pennsylvania Avenue, NW, Suite 200, Washington, DC 20006

Amicus Curiae Amphenol Corporation and Amphenol (Maryland) Inc: James Christian Word, Esquire, David A. Barrett, Esquire, Latham & Watkins LLP, 555 Eleventh Street, NW, Suite 1000, Washington, DC 20004, Robert J. Gilbert, Esquire, Latham & Watkins LLP, 200 Clarendon Street, Boston, MA 02116

Amici Curiae American Property Casualty Insurance Association and National Association of Mutual Insurance Companies: George E. Reede, Jr., Esquire, Jessica E. Pak, Esquire, Bryant S. Green, Esquire, Zelle LLP, 1775 Pennsylvania Avenue NW, Suite 375, Washington, DC 20006, Adam J. Singer, Esquire, Crowell & Moring LLP, 1001 Pennsylvania Avenue NW, Washington, DC 2000.

Argued before Fader, C.J., Watts, Hotten, Booth, Biran, Gould, Eaves, JJ.

Fader, C.J.

A question certified to us by the United States District Court for the District of Maryland (the "United States District Court") requires that we explore whether an insurance policy that "covers property ... against ALL RISKS OF PHYSICAL LOSS OR DAMAGE, except as hereinafter excluded," and further covers "TIME ELEMENT" losses "directly resulting from physical loss or damage of the type insured," is triggered by (1) the presence of Coronavirus in the air and on surfaces on the premises of the insured's retail stores or (2) the resulting loss of functional use of those stores during portions of the COVID-19 pandemic.1 Assuming the truth of the facts pled in the operative complaint about how Coronavirus operates and how it impacted the insured's properties and operations, as summarized in the United States District Court's certification order, and based on the provisions of the insurance policies at issue, we will conclude that such allegations do not trigger the primary coverage provided by the policies.

There is nothing this Court can say to describe the gravity of the losses inflicted on the world by the COVID-19 pandemic that has not previously been said. We will not try. It is sufficient for these purposes to note that in addition to the countless other consequences of, and hardships imposed by, the pandemic, many businesses sustained substantial financial losses when they were compelled to close temporarily or alter their operations due to the pandemic and associated governmental orders.

One such business is that of Tapestry, Inc., the appellant. Factory Mutual Insurance Company ("FM"), the appellee, issued two first-person, all-risk commercial property insurance policies to Tapestry covering policy periods in which Tapestry's stores were closed in connection with the COVID-19 pandemic. The primary coverages provided under those policies are triggered by "physical loss or damage" to covered property.

Tapestry submitted claims to FM under the policies for losses exceeding $700 million. After FM denied coverage for the bulk of Tapestry's claim, Tapestry sued. In the lawsuit, which is now pending in the United States District Court, Tapestry contends that coverage under the policies is triggered because it suffered "physical loss or damage" both by the presence of Coronavirus in its stores and when those stores had to close for business due to the presence of Coronavirus. In response, FM contends that "physical loss or damage" requires structural alteration or permanent dispossession of property, and that Tapestry suffered neither. Because resolution of that dispute depends on an interpretation of Maryland law we have not previously provided, the United States District Court certified to this Court a question of law, which we have reformulated as follows:2

When a first-party, all-risk property insurance policy covers "all risks of physical loss or damage" to insured property from any cause unless excluded, is coverage triggered when a toxic, noxious, or hazardous substance—such as Coronavirus or COVID-19—is physically present in the indoor air of that property; is also present on, adheres to, and can later be dislodged from physical items on the property; and causes a loss, either in whole or in part, of the functional use of the property?

As we will explain, as applied to the policies at issue, our answer to the certified question is: No, provided the substance causes neither tangible, concrete, and material harm to the property nor deprivation of possession of the property.


Pursuant to § 12-605(a) of the Courts and Judicial Proceedings Article (2020 Repl.), the United States District Court's Certification Order contains "[t]he facts relevant to the question, showing fully the nature of the controversy out of which the question arose." Id. § 12-606(a). In responding to the certified question, "this Court accepts the facts provided by the certifying court." United Bank v. Buckingham , 472 Md. 407, 413, 247 A.3d 336 (2021). The following recitation of facts is drawn from the Certification Order and the three documents attached to and incorporated into it: Tapestry's operative first amended complaint (the "Complaint") and the two insurance policies at issue.

The Parties and the Policies

Tapestry owns "modern luxury accessory and lifestyle brands" including Coach, kate spade new york, and Stuart Weitzman. Tapestry operates "over 1,400 stores in the U.S. and internationally, including 15 stores in Maryland."

FM drafted and issued to Tapestry two "all-risk" commercial property insurance policies: (1) Policy No. 1050294, covering policy period April 4, 2019 through April 3, 2020; and (2) Policy No. 1065667, covering policy period April 4, 2020 through April 3, 2021 (collectively, the "Policies").3 The Policies, which FM wrote using its FM Global Advantage Time Element Select form, "cover[ ] property, as described in this Policy, against ALL RISKS OF PHYSICAL LOSS OR DAMAGE, except as hereinafter excluded." The critical phrase "physical loss or damage" is not defined in the Policies.

As relevant here, the Policies provide two broad categories of coverage: "Property Damage" and "Time Element."4 Each category is set forth in a separate section of each Policy that contains, among other things, a broad coverage grant, various exclusions, and various additional coverages. Each Policy provides a maximum overall limit of liability per occurrence of $1 billion, applicable to all coverages, with lower sublimits applicable to specified types of coverage.

Property Damage Coverage Provisions

The Policies' primary Property Damage coverage extends to all of Tapestry's real property and certain personal property, subject to exclusions. Two of those exclusions are relevant to our analysis. First, each Policy excludes coverage, "unless otherwise stated," for, among other things, "interruption of business, except to the extent provided by this Policy" and "loss of market or loss of use." Second, each Policy excludes, "unless directly resulting from other physical damage not excluded by this Policy ... contamination , and any cost due to contamination including the inability to use or occupy property or any cost of making property safe or suitable for use or occupancy."5 As relevant here, the Policies define "contamination " as "any condition of property due to the actual or suspected presence of any foreign substance, impurity, ... toxin, pathogen or pathogenic organism, bacteria, virus, disease causing or illness causing agent[.]"

One category of "Additional Coverage" provided in each Policy's Property Damage section is "Communicable Disease Response" coverage. Under that coverage grant, "[i]f a location owned, leased or rented by the Insured has the actual not suspected presence of communicable disease " that results in a restriction on access to the location, the Policies will "cover[ ] the reasonable and necessary costs incurred by the Insured at such location [.]" The Policies define "communicable disease " as "disease which is [ ] transmissible from human to human by direct or indirect contact with an affected individual or the individual's discharges."

Time Element Coverage Provisions

In each Policy, the primary coverage grant for Time Element losses6 provides that the "Policy insures TIME ELEMENT loss, as provided in the TIME ELEMENT COVERAGES, directly resulting from physical loss or damage of the type insured."7 The Policies insure such losses only to the extent they are incurred "during the Periods of Liability," which, for purposes of physical loss or damage to "building[s] and equipment,"8 is the period:

a) starting

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