The court’s analysis was appropriately driven by the language of the insurance policy at issue and the plain meaning of the core terms therein. The court’s decision hinged in large part on the phrase “direct physical loss of or damage to covered property” and whether that encompasses the affected restaurants’ losses attributable to their capacity restrictions and forced closures throughout the pandemic. Analyzing this phrase, the court observed that the disjunctive “or” means that “‘physical loss’ must cover something different from ‘physical damage,’” thereby dismissing Society’s argument that the virus could not constitute “direct physical loss of or damage to” because “the virus ‘does not cause a tangible change to the physical characteristics of property.’” Rather, the court noted, “coverage extends to direct physical ‘loss of’ property as well. So the Plaintiffs need not plead or show a change to the property’s physical characteristics.”
The court went on to consider whether or not the plaintiffs’ operating restrictions constitute, at a minimum, “a direct ‘physical’ loss of property on their premises.” Ultimately siding with plaintiffs, the court explained:
[T]he pandemic-caused shutdown orders do impose a physical limit: the restaurants are limited from using much of their physical space. It is not as if the shutdown orders imposed a financial limit on the restaurants by, for example, capping the dollar-amount of daily sales that each restaurant could make. No, instead the Plaintiffs cannot use (or cannot fully use) the physical space….
Another way to understand the physical nature of the loss inflicted by the shutdown orders is to consider how a restaurant might mitigate against the suspension of operations caused by, say, a 25%-capacity limitation on the number of guests inside the restaurant. If the restaurant could expand its physical space, then the restaurant could serve more guests and the loss would be mitigated (at least in part). The loss is physical – or at the very least, a reasonable jury can make that finding.