ABW Development, LLC v. Continental Casualty Co.
2022 IL App (1st) 210930
| Ill. App. Ct. | 2022Background:
- ABW Development (PAW Management) operates medical imaging clinics and purchased a businessowners policy effective Jan 3, 2020–Jan 3, 2021 covering business personal property and business income/extra expense.
- Policy insures for “direct physical loss of or damage to” covered property; business income coverage applies only when a suspension of operations is "caused by direct physical loss of or damage to property at the described premises," and the period of restoration contemplates repair/rebuild/replace or relocating.
- Policy contains a Civil Authority endorsement (coverage for loss caused by a civil-authority order that prohibits access and is due to direct physical loss/damage to other properties) and an exclusion for “Fungi, Wet Rot, Dry Rot and Microbes.”
- Plaintiff alleged COVID-19 particles likely were present at its premises, rendering property unsafe and suspending operations; it sought declaratory relief and §155 bad-faith damages after Continental denied coverage.
- Defendant moved to dismiss under section 2-615, arguing plaintiff failed to allege the required "direct physical loss or damage" (no physical alteration), civil-authority coverage was inapplicable, and losses were excluded as microbial contamination; the trial court dismissed with prejudice.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID-19 presence or pandemic closure orders constitute "direct physical loss of or damage to" property for business income/extra expense coverage | Presence of virus made premises unsafe/unusable for intended purpose, so qualifies as physical loss | Policy requires tangible physical alteration; virus presence and closure orders cause only economic loss or transient contamination | Held: No. "Physical" requires alteration in appearance, shape, color, or other material dimension; complaint failed to allege such alteration, so coverage not triggered |
| Whether Civil Authority endorsement is triggered by executive orders tied to COVID-19 | Orders prohibiting certain uses of premises and referencing virus presence suffice to trigger endorsement | Endorsement requires direct physical loss/damage to other property and an order that prohibits access, not merely limits use | Held: Not triggered. Plaintiff did not allege physical loss to other property and access to clinics was not prohibited (clinics remained essential), so endorsement fails |
| Whether the policy’s "Microbes" exclusion bars coverage for virus-related losses | Exclusion should not apply (plaintiff alleged misrepresentations to regulators) | Exclusion covers nonfungal microorganisms including viruses, so losses would be excluded | Held: Court did not reach exclusion because no coverage was pleaded; exclusion argued as alternative defense |
| Whether plaintiff’s §155 bad-faith claim survives denial of coverage | Insurer’s denial was vexatious and unreasonable | §155 relief requires that coverage exist; if none is owed, §155 fails | Held: Fails. Because no coverage was established, §155 claim cannot succeed |
Key Cases Cited
- Traveler’s Insurance Co. v. Eljer Mfg., Inc., 197 Ill. 2d 278 (Ill. 2001) (defines "physical injury" as an alteration in appearance, shape, color, or other material dimension)
- 10012 Holdings, Inc. v. Sentinel Ins. Co., 21 F.4th 216 (2d Cir. 2021) ("direct physical loss" requires actual physical damage, not mere loss of use)
- Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885 (9th Cir. 2021) (phrase "physical loss of or damage to" requires physical alteration of property)
- Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327 (7th Cir. 2021) (presence of coronavirus on premises insufficient to allege direct physical loss)
- Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141 (8th Cir. 2021) (some physicality—alteration, contamination, or destruction—is required)
- Goodwill Indus. of Central Okla., Inc. v. Phila. Indem. Ins. Co., 21 F.4th 704 (10th Cir. 2021) (temporary inability to use property for intended purpose is not a direct physical loss)
- Terry Black’s Barbecue, L.L.C. v. State Auto. Mut. Ins. Co., 22 F.4th 450 (5th Cir. 2022) (alleged economic losses from closures do not allege tangible alteration or deprivation of property)