Kollross Wins 7th Circuit COVID Business Interruption Coverage Case for Zurich  

Melinda Kollross, Clausen Miller Shareholder and Chair of the firm’s Appellate & Trial Monitoring Practice Group,  successfully defended a Seventh Circuit appeal seeking business interruption coverage for COVID-19 related losses sustained by Q Excelsior Italia SRL, owner of the Westin Excelsior Rome.

The Seventh Circuit affirmed dismissal of the hotel’s coverage action, finding that the hotel’s own complaint contradicted its claim that it suffered a covered physical loss.  The Court rejected Q Excelsior’s argument that it sustained a “complete physical dispossession” of its hotel property so as to constitute a direct physical loss covered under a policy issued by Zurich American Insurance Company.  Q Excelsior’s complaint alleged that the hotel remained open for business during the COVID-19 pandemic, defeating its theory of complete physical dispossession.  The complaint allegations instead urged the same theory of diminished use that the Seventh Circuit rejected in Sandy Point Dental Dental PC v. Cincinnati Insurance Company, 20 F.4th 327 (7^th Cir. 2021).  

The Seventh Circuit also affirmed the district court’s holding that the policy’s microorganism exclusion applied to defeat Q Excelsior’s coverage claim. The exclusion bars coverage for losses directly or indirectly arising out of, among other things, a “microorganism of any type, nature or description, including but not limited to any substance whose presence poses an actual or potential threat to human health.” The panel noted that the Seventh Circuit already held that this identical microorganism applied to viruses such as COVID-19 in Crescent Plaza Hotel Owner LLC v.  Zurich American Insurance Company, 20 F.4th 303 (7^th Cir. 2021).  The panel rejected Q Excelsior’s request that it overrule Crescent Plaza or certify questions to the Illinois Supreme Court.

The Seventh Circuit’s decision continues an unbroken streak of federal reviewing court victories for insurers in COVID-19 business interruption coverage litigation.