Coverage for COVID Business Loss Rejected by Illinois Federal Courts

By Don R. Sampen, published, Chicago Daily Law Bulletin, March 9, 2021

Cases around the country have overwhelmingly, but not unanimously, rejected coverage for business losses due to the COVID-19 pandemic under standard all-risk property insurance policies. Since Jan. 1, six decisions by federal courts addressing such coverage in Illinois have followed the national trend.

These cases in chronological order are as follows:

• Riverwalk Seafood Grill Inc. v. Travelers Casualty Insurance Co. of America, 2021 U.S. Dist. Lexis 5899 (N.D. Ill., Jan. 7).

The plaintiff restaurant sought coverage for business losses due to COVID-19 under three policy provisions: the business expense provision covering loss of business income caused by direct physical loss or damage; the civil authority provision covering loss of business income caused by action of civil authority prohibiting access to the premises; and the ingress or egress provision covering loss of business income when ingress or egress to the premises is prevented by direct physical loss or damage.

U.S. District Judge Charles P. Kocoras granted the insurer’s motion to dismiss based on the policy’s virus exclusion barring coverage caused directly or indirectly by any virus.

• Sandy Point Dental, P.C., v. Cincinnati Insurance Co., 2021 U.S. Dist. Lexis 4299 (N.D. Ill., Jan. 10).

The plaintiff dental clinic sought reconsideration of an earlier decision (2020 U.S. Dist. Lexis 171979 (Sept. 21)) denying coverage, and also sought leave to file an amended complaint. Coverage was sought under the business income coverage form of the policy, which covered loss of business income caused by direct physical loss to property.

U.S. District Judge Robert W. Gettleman denied reconsideration and also denied the motion to amend. He reaffirmed his earlier decision that coverage for business loss is triggered only by a direct physical loss, and the COVID-19 pandemic and subsequent lockdown orders did not cause such a loss. He further held that no coverage would apply even if the COVID-19 virus was found on the insured’s premises, because the virus did not alter the appearance or structure of the premises.

• Riverside Dental of Rockford, Ltd. v. Cincinnati Insurance Co., 2021 U.S. Dist. Lexis 20826 (N.D. Ill., Jan. 19).

The plaintiff dental clinic sought coverage under the civil authority provisions of the policy for business income loss caused by action of civil authority prohibiting access to the premises due to COVID-19.

Finding that the governor’s orders did not forbid or prevent entry to the plaintiff’s dental office — and only limited the types of services that could be provided — U.S. District Judge Philip G. Reinhard granted the motion to dismiss.

• TJBC, Inc. v. Cincinnati Insurance Co., 2021 U.S. Dist. Lexis 13007 (S.D. Ill., Jan. 25).

The plaintiff owner of food and beverage establishments sought coverage due to COVID-19 under the business income provision of the policy, covering loss of business income due to suspension of operations caused by direct physical loss.

U.S. District Judge David W. Dugan granted the motion to dismiss, finding that “direct physical loss” required tangible loss or damage, and mere loss of use without tangible damage or loss did not trigger coverage. The plaintiff did not allege tangible loss or damage caused by COVID-19 in the complaint.

• Bend Hotel Development Co., LLC v. Cincinnati Insurance Co., 2021 U.S. Dist. Lexis 15303 (N.D. Ill., Jan. 27).

The plaintiff hotel sought business income loss due to COVID-19 under the business income provision covering loss during a suspension of operations caused by “direct loss to property,” and the civil authority provision covering orders prohibiting access to the premises.

U.S. District Judge Elaine E. Bucklo granted the motion to dismiss based on other decisions in the Northern District of Illinois. She further noted that the business income and civil authority provisions required “direct loss” or “damage” to property, yet the plaintiff had not alleged any physical alteration or structural degradation. The fact that the policy could have, but did not, explicitly disclaim losses for viral contamination did not make a difference.

• Crescent Plaza Hotel Owner L.P. v. Zurich American Insurance Co., 2021 U.S. Dist. Lexis 30267 (N.D. Ill., Feb. 18).

The plaintiff sought business income coverage for financial losses as a result of closure orders affecting hotel property in Texas. The plaintiff argued, among other things, that special air filters, plexiglass partitions and other physical changes that were made evidenced that the presence of COVID-19 altered the physical space of the property.

U.S. District Judge Robert W. Gettleman rejected the argument, observing that “direct physical loss or damage” was necessary and that, as found in earlier decisions, the coronavirus did not physically alter the appearance or structure of the property. He therefore granted the motion to dismiss.

Key Point

Business income losses due to COVID-19 restrictions imposed by civil authority or otherwise do not generally arise from direct physical loss or damage and therefore are not covered by typical all-risk property insurance policies.