COVID-19 Losses Excluded Even Under ‘Contamination’ Definition

June 21, 2022 / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin, June 21, 2022

The 1st District Appellate Court recently held that a contamination exclusion in an all-risk commercial property insurance policy excluded coverage for business loss caused by the Covid-19 pandemic, despite the existence of a policy endorsement that, at least for one state, removed the term “virus” from the definition of “contamination.”

The case is Firebirds International, LLC v. Zurich American Insurance Co., 2022 IL App (1st) 210558 (May 20). The insured, Firebirds, was represented by, among others, DiCello Levitt Gutzler LLC of Chicago. Clyde & Co. LLP and Mayer Brown LLP, both of Chicago, represented the insurer, Zurich.

Firebirds owns more than 50 wood-fired grill restaurants in 19 states. In 2020, to curb the spread of COVID-19, the state government in each state issued orders prohibiting restaurants from offering dine-in service and imposing other restrictions. Firebirds alleged that the actual presence of the virus in its restaurants caused property loss or damage, and destroyed its revenues.

At the time, Firebirds possessed two all-risk commercial property insurance issued by Zurich. The policies generally insured against direct physical loss or damage.

Firebirds thus submitted claims to Zurich based on its losses. After Zurich denied coverage, Firebirds brought this declaratory action under various policy provisions, claiming among other things that the actual presence of the virus caused its loss or damage.

Zurich moved to dismiss based primarily on a contamination exclusion in each of the policies. That exclusion barred coverage for contamination — unless resulting from direct physical loss or damage — including the inability to use the property and the costs of making the property safe for occupancy.

The policy defined “contamination” as the presence of any pollutant or hazardous material, and also including “bacteria, virus” and any other “disease causing … agent.” Based on the exclusion, the trial court granted the motion to dismiss, dismissed with prejudice, and also denied Firebirds’ motion to amend its complaint a second time. Firebirds brought this appeal.


In an opinion by Justice Sheldon A. Harris, the 1st District affirmed. He initially addressed Firebirds’ argument that one of 31 separate amendatory endorsements to the policies, each with a different state named in its title, had the effect of modifying the contamination exclusion.

The endorsement in question, for Louisiana, changed the definition of “contamination” by, among things, removing the term “virus.”

Firebirds argued that such an amendment applied to the definition of “contamination” for all of its restaurants at any location.

Harris disagreed. He observed that the only reasonable interpretation of the endorsements was that each applied to risks insured in the named state. He noted further that Firebirds had no restaurants in Louisiana at the time of the losses.

And the reason that an endorsement for that state, and some other states, was included, was that the policies extended coverage to property acquired after inception of the policies.

Hence, the Louisiana endorsement’s modification of the definition of “contamination” had no effect here.

Firebirds further argued that the contamination exclusion did not expressly reference business losses, and so could have no application. Harris pointed out, however, that the exclusion did refer to not only contamination, but also “any cost due to contamination,” which would include the business losses about which Firebirds complained.

As another argument, and relying on out-of-state case law, Firebirds contended that the term “virus” was “out of place” with some of the other hazards mentioned in the definition of “contamination” that referenced environmental hazards. Those included foreign substances, impurities, pollutants, poisons, fungus and mildew.

Harris pointed out, however, that the definition also included pathogen, pathogenic organism, bacteria and illness causing agents. In his view, “virus” therefore was not an outlier and could not be considered as being ambiguous for that reason.

As an alternative position, Firebirds argued that it was the governmental closure orders, and the threat of the virus, not the actual virus, that caused its losses.

Harris countered that losses of this nature are simply not covered by the policies here, which require direct physical loss or damage. For that reason, the 1st District had recently found no coverage for COVID-19-related business losses even in the absence of a contamination exclusion.

Finally, Firebirds argued that the trial court erred in dismissing its complaint with prejudice without giving it the opportunity to amend a second time.

Harris disagreed, finding that the trial court did not abuse its discretion where, as here, Firebirds’ failed to tender a proposed further amended complaint in the trial court. Such failure diminished the appellate court’s ability to determine whether the proposed amendment would have stated a viable cause of action.

The 1st District therefore affirmed the dismissal in favor of Zurich.

Key points

  • Amendatory endorsements identifying different states in their title apply only to the particular state set forth in the title of the endorsement.
  • Property insurance policies tied to actual physical damage to property do not provide coverage for intangible causes such as governmental closure orders.
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