By Jon Noyes, Wilson Kehoe Winingham
On February 21, 2021, the Northern District of Illinois entered dispositive orders on three bellwether cases involving COVID-19 business interruption coverage: Big Onion Tavern Group, LLC, et al. v. Society Insurance, No. 1:20-cv-02005; Valley Lodge Corp. v. Society Insurance, No. 1:20-cv-02813; and Rising Dough, Inc., et al. v. Society Insurance, No. 1:20-cv-05981. In each case, the court denied (1) the insurer’s motions to dismiss and motions for summary judgment for all three cases “to the extent that they target the claims for business-interruption coverage”; (2) denied summary judgment under Illinois’ fee shifting statute; (3) granted summary judgment in two cases “as to the coverage theories under the Civil Authority and the Contamination provisions”; (4) granted summary judgment in one case on “Sue and Labor” clauses. Valley Lodge Corp. v. Soc'y Ins. (In re Soc'y Ins. Co. Covid-19 Bus. Interruption Prot. Ins. Litig), MDL No. 2964 (N.D. Ill. February 22, 2021)(slip op. at 2).
In rendering its opinion, the court held that “a reasonable jury could find … that the novel coronavirus and the resulting pandemic proximately caused the business interruptions.” Valley Lodge (slip op. at 19). The court rejected insurer’s position claim that government orders (as opposed to COVID-19) shut down the insured’s businesses and caused their losses because the policies at issue did not limit coverage to a unitary proximate cause. Moreover, the court reasoned: “Even if the government shutdown orders (and not the pandemic itself) played a causal role in the Plaintiffs’ losses, and even if those orders cannot be construed as a ‘direct physical loss,’ the shutdown orders were proximately caused by the pandemic.” Id.
The court also concluded that the insured’s losses were “‘physical’” in nature. It emphasized the operative text as providing coverage to “direct physical loss of or damage to covered property.” Valley Lodge (slip op. at 19-20)(emphasis added). The policies’ use of the disjunctive “or,” meant that “‘physical loss’ must cover something different from ‘physical damage.’” Id. As a result, the insureds were not required to show a physical change to their property (i.e. damage), only the loss of some part of their property (i.e. their lobbies, dining rooms, etc.). Id. at 21. As a result, the court allowed the insured’s business interruption claims to move forward.
The insured’s civil authority and contamination claims did not fare so well. On the civil authority claims, the policies required that a civil authority “prohibit access” to the insured’s premises or “area immediately surrounding the property.” Valley Lodge (slip op. at 24). The insureds, however, were not outright prohibited from accessing their property – insureds could still provide take-out and limited dining room services. Similarly, the policies’ contamination provisions required that operations be suspended and the insured’s businesses were not fully suspended.
Overall, this Northern District of Illinois’ ruling should provide guidance to lawyers in Indiana litigating COVID-19 coverage cases, as many cases remain pending moving forward.
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