MI Circuit Court Grants Summary Judgment for Insurer, Denies COVID-19 Business Interruption Claim 

In a hearing that was conducted on Zoom and was posted to YouTube, Michigan’s 30th Judicial Circuit Court granted Michigan Insurance Company’s Motion for Summary Disposition on a claim for business interruption loss arising out of the COVID-19 lockdown orders. In Gavrilides Management Company, et. al. v. Michigan Insurance Co., Judge Joyce Draganchuk granted Michigan Insurance’s Motion for Summary Disposition and dismissed the Plaintiff’s claim for business interruption coverage stemming from COVID-19 related losses and closures. Gavrilides Management Company, et. al. v. Michigan Ins. Co., Hearing for Defendant’s Motion for Summary Disposition, YouTube (July 1, 2020), https://www.youtube.com/watch?v=Dsy4pA5NoPw; Order reported at Gavrilides Mgmt. Co. LLC v. Mich. Ins. Co., 2020 Mich. Cir. LEXIS 395 (July 21, 2020).

Plaintiff Gavrilides Management Company, owned by Nick Gavrilides, operates several restaurants in the Lansing, Michigan area. Gavrilides alleged that its restaurants sustained losses as a result of Michigan Governor Gretchen Witmer’s stay-at-home order. Gavrilides argued that “the loss comes from the issue of the executive order restricting the use of property” and that Gavrilides has lost access and use of his properties as a direct result of the executive orders. In support of its claim, Gavrilides compared the COVID-19 losses to claim involving asbestos exposure and computer viruses, where loss of use can be recoverable as a “direct physical loss” under a commercial or business property insurance policy.

The Court rejected that argument, and held that Gavrilides did not allege that their property had been damaged or lost, but instead relied solely upon the argument that the stay-at-home orders interfered with the use of their property.

Michigan Insurance argued that neither the facts nor the law supports the Plaintiffs’ arguments because: (1) there must be a direct physical loss that alters “the structural integrity of the property in order to trigger coverage,” and (2) that “the virus exclusion of the policy . . . will not pay for loss or damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease.”

The Court found that coverage under Gavrilides’ policy applied only to “actual loss of business income sustained during a suspension of operations.” The Court went on to hold that the suspension of business operation must be caused by “direct physical loss of or damage to property.” The Court agreed with both of the arguments proffered by Michigan Insurance, and found that direct physical loss must be “something that is tangible . . . that alters the physical integrity of the property” and that business interruption claims for loss of the use of property are not recoverable under a policy that only covers direct physical loss or damage. Thus, the Court determined that Gavrilides’ claim was barred because no direct physical loss was alleged or sustained, and that the Plaintiff’s claim was barred by the insurance policy’s virus exclusion. As a result, the Court granted Michigan Insurance’s Motion for Summary Disposition and dismissed the Plaintiff’s Complaint, with prejudice.

Gavrilides appears to have been one of the first cases in the United States to reach a decision in the numerous business interruption suits that have been filed in the wake of the various lockdown orders in response to the COVID-19 virus. At least in that case, the arguments advanced by many carriers under typical commercial and business property policies have been affirmed at the trial court level. The hearing is relatively brief and succinct, and as it is available on YouTube, insurance carriers may find it instructive to view the video of the hearing.

For more information about this and other similar cases, please contact Robert Ross, Esq., Diane Montgomery, Esq., or Daniel Laws, Esq. of MMR.