Restaurants in Michigan, like many others in the United States, were subject to stay-at-home orders that limited their ability to operate their business at the start of the COVID-19 pandemic. Michigan’s executive orders required restaurants to close or close for in-person dining while encouraging them to stay open and provide take-out services. Naturally, these restrictions resulted in a loss of income. Some restaurants have turned to their insurance companies to cover their losses, but two courts applying Michigan law — a state court and a federal court — recently ruled, within weeks of each other, that the losses suffered by restaurants as a result of the COVID-19 pandemic and Governor Gretchen Whitmer’s executive orders were not covered by their commercial insurance policies.

Michigan Court of Appeals

The first opinion came from the Michigan Court of Appeals and was issued on February 1, 2022. This case – Gavrilides Mgmt. Co., LLC v Michigan Ins. Co. – involved the companies that operated two restaurants in Michigan that were subject to the restrictions imposed by the executive orders. But the Court of Appeal ruled that business income losses caused by the pandemic were not covered by commercial policies, and even if they were, two exclusions prohibited coverage.

The court initially ruled that the policy did not cover the restaurant’s loss of revenue because there was no direct physical loss or property damage. As part of the standard form of insurance for a commercial property policy, the policy promised to pay for loss of business income only in the event of suspension of business operations “caused by physical loss direct or property damage. This does not describe the losses of the restaurants according to the court.

The court noted that the plaintiffs did not allege that their restaurants were infected with the virus, so their losses were based solely on the full or partial closures imposed by the executive orders. This did not result in any physical damage or change in restaurants, and therefore did not cause any direct physical loss or damage covered by the policy.

The policy did not insure business losses for another reason: the policy only covered a suspension of business activities “during the ‘recovery period'” and there was no recovery. According to the court, this language “expects that the loss or damage may be rectified by some kind of physical remedy – either by making tangible alterations or repairs to the premises, or by replacing the premises”, which does not was not the case here because “[no] the modification, the replacement of the plaintiffs’ premises would have allowed the restaurants to open.

The policy also did not provide coverage based on what the court described as the civil authority provision. This part of the policy covered losses during damage to a neighboring property, leading a civil authority to deny the insured access to his property. However, this provision did not apply because it required that there be damage to neighboring property, which was not the case here.

Even if there was a direct physical loss or other covered loss, the court ruled that two exclusions prohibited coverage. First, the ordinance or statute exclusion applied, which removed coverage for “[the] enforcement of any ordinance or law… [regulating] the construction, use or repair of any property”. Since the loss of income was caused by the enforcement of executive orders and that those orders regulated the use of the property, the court found that this exclusion eliminated coverage.

Second, the policy included a virus exclusion which excluded coverage “for loss or damage caused by or resulting from any virus, bacteria or other micro-organism which induces or is capable of inducing physical distress, illness or disease. “, which the court found applicable. If the restaurants suffered a covered loss, it could only have been caused by a virus. And because there is “no serious dispute that SARS-CoV-2 is a disease-inducing virus,” the court said the exclusion should apply.

United States Court of Appeals for the Sixth Circuit

In Brown Jug, Inc. vs. Cincinnati Ins. Co., the Sixth Circuit issued its decision on February 23, 2022 and, similar to the Michigan Court of Appeals decision, held that “direct physical loss” to property only covers property damage or damage materials, rather than just loss of use. The plaintiffs, which included six Michigan-based businesses, operated restaurants that were covered by similar commercial property insurance policies at the start of the COVID-19 pandemic. Michigan’s stay-at-home orders have limited in-person activities at their facilities, which has hurt these businesses economically. To make up for their losses, they submitted claims to their insurance companies.

To determine whether the plaintiffs’ losses were covered by their respective policies, the court analyzed three separate policy provisions, all of which included a “direct loss” or “physical loss” requirement. The plaintiffs’ insurance would only intervene in the event of a “loss”. The issue was whether the plaintiffs’ economic losses constituted physical loss or damage to their property.

The Sixth Circuit looked at the Michigan law, but there was no ruling from the state’s highest court on the matter, so it made an “Erie guess” and ruled. the case because he believed the Michigan Supreme Court would rule if it were to settle the matter. In doing so, the court determined that the COVID-19 related closure orders did not cause “direct physical loss or direct physical damage” to the property because “a loss of use is simply not the same as a physical loss”. Although the plaintiffs alleged that the pandemic caused economic harm to their businesses, they did not allege that the covered property was harmed by the virus. The plaintiffs’ losses were therefore simply not tangible, according to the court.

The plaintiffs further argued that the COVID-19 shutdowns created recoverable losses, citing government shutdown orders issued during the uprisings in Detroit in the summers of 1967 and 1968. In these cases, the plaintiffs’ businesses did not were not physically damaged, but Michigan courts still found they suffered compensable losses under their business interruption insurance policies.

The Sixth Circuit, however, found that the 1960s shutdowns were different because those orders set curfews, closed all entertainment venues, and barred access to businesses. Michigan’s shutdown orders issued in 2020, on the other hand, have allowed and encouraged businesses to remain operational. In other words, although access was restricted, it was not prohibited.


In short, within just a few weeks, state and federal appeals courts issued similar rulings and concluded that business losses caused by pandemic-related orders were not considered losses. recoverable under the commercial policies issued for the companies concerned and under the law of Michigan. . That seems to fix that under Michigan law, at least for now.