By Daphne Zhang

Law360 (April 15, 2021, 5:23 PM EDT) -- A Maryland federal judge freed a Chubb insurance unit from having to cover a car auction company's pandemic-related business interruptions, holding that the company's alleged loss of use of its facilities is not property damage covered by insurance policies under Maryland law.

U.S. District Judge Richard D. Bennett said Wednesday that Bel Air Auto Auction Inc. failed to allege COVID-19 physically damaged its property as required for coverage by its policy with Great Northern Insurance Co. The judge pointed out that the auto business never fully lost the use of and access to its facilities, as government orders allowed car dealerships to remain open as essential businesses during the pandemic.

"Unlike restaurants, bars, and fitness centers shuttered by the Governor's stay at home order, Bel Air was never required to completely cease its operations," the judge said. "Bel Air asserts that its operations were, and continue to be, 'impaired, diminished, and decreased,' but it admits that visitors may still access its facilities, it did not allege its staff or customers ever completely lost use of its facilities."

According to the suit, Bel Air of Harford County, Maryland, has said it typically works on over 100,000 cars a year through assignments with car dealers and offers weekly auto auctions for private and public companies and governmental organizations. But it had to stop in-person car showing and live bidding because of government orders in March 2020 and was forced to close its food services at the auction sites as well.

"A mere loss of use of property is not 'physical damage' within the meaning of Maryland law," Judge Bennett said on Wednesday. "This Court is unpersuaded that the COVID-19 virus in some way physically altered Bel Air's covered properties."

Even if the virus was physically present on its property, it still does not amount to the physical damage and loss required by the policy because routine cleaning can remove the virus, and "there is simply nothing for an insurer to cover," he added.

The judge also refused the auction company's request to certify the insurance question to the state high court, saying that although Maryland courts have not directly ruled on the meaning of "direct physical loss or damage" in commercial property policies, Maryland's contract law suffices to resolve the issue.

Bel Air's losses will not be covered "under the straightforward application of Maryland contract law," Judge Bennett said. Bel Air cannot get business income or civil authority coverage because it had not suffered the type of damage the policy required. The insurance does not pay for a loss of use unrelated to "physical, structural, tangible damage to property," he added.

Bel Air has maintained that Great Northern had "intended" to cover its COVID-19-related losses because the carrier did not include a virus exclusion in the policy. But Judge Bennett disagreed, saying that it is "elementary" that "an exclusion cannot grant coverage."

More than 1,600 lawsuits have been filed by policyholders against insurers seeking COVID-19-related loss coverage in state and federal courts nationwide, according to data compiled by the University of Pennsylvania Carey Law School.

Representatives for the parties could not be immediately reached for comment on Thursday. 

Bel Air is represented by Lawrence J Gebhardt of Gebhardt and Smith LLP.

Great Nation is represented by Gabriela Richeimer, Daren McNally and Matthew Addison Dent Draper of Clyde & Co US LLP.

Bel Air Auto Auction, Inc. v. Great Northern Insurance Company, case number 1:20-cv-02892, in the U.S. District Court for the District of Maryland. 

--Editing by Amy Rowe.

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