503 F.Supp.3d 602
N.D. Ill.2020Background
- AFM Mattress Co. operated 52 stores in Illinois and Indiana and closed them in March 2020 in response to COVID-19 and state/local stay-at-home and gathering restrictions.
- AFM submitted a business-interruption/civil-authority claim under its commercial property policy; Motorists denied the claim relying on the policy's virus exclusion.
- The policy provided civil-authority coverage when a "Covered Cause of Loss" caused physical damage to nearby property that led a civil authority to prohibit access; "Covered Cause of Loss" was defined as "direct physical loss unless the loss is excluded or limited."
- The policy contained a broad virus exclusion: "We will not pay for loss or damage caused by or resulting from any virus..." and stated the exclusion applied to all coverage, including action of a civil authority.
- AFM sued for declaratory judgment in federal court (diversity); Motorists moved to dismiss under Rule 12(b)(6) arguing the virus exclusion precluded coverage.
- The district court granted the motion to dismiss (without prejudice), finding the virus exclusion barred coverage and denying AFM's motion to file a sur-response; leave to amend was allowed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the virus exclusion bars coverage for losses caused by government shutdown orders issued in response to COVID-19 | AFM: Losses were caused by governmental orders, not the virus, so civil-authority coverage applies | Motorists: Shutdowns were taken in response to COVID-19, an excluded virus, and the exclusion applies to civil-authority coverage | Held: Exclusion applies; because shutdowns were issued in response to the virus (an excluded cause), civil-authority coverage is precluded |
| Whether the virus exclusion is limited to viruses that existed when the policy was issued | AFM: "Any" should be read to exclude only viruses present at contract formation | Motorists: "Any virus" is unqualified and covers viruses regardless of when they emerged | Held: "Any" covers all viruses that induce illness; no temporal limitation in the policy, so exclusion applies to COVID-19 |
| Whether AFM pleaded a covered "direct physical loss" or other non-excluded trigger for civil-authority coverage | AFM: Alleged losses stem from orders and pandemic conditions; pleads governmental action as cause of loss | Motorists: Underlying cause must be a covered cause of loss; complaint admits losses due to both virus and orders and pleads no other covered trigger | Held: Plaintiff did not plead a separate, covered physical-loss trigger; complaint alleges virus-driven orders, so civil-authority coverage is not triggered |
| Whether AFM could add new allegations (e.g., regulatory misrepresentations) in a sur-response or whether amendment should be allowed | AFM: Seeks to file a sur-response adding allegations about insurer misrepresentations to regulators | Motorists: Such allegations are not in the complaint and cannot be added in a response brief | Held: Sur-response denied; amendment of the complaint must be by proper motion — dismissal without prejudice and leave to amend granted (amendment not obviously futile) |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for plausibility)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Market St. Bancshares, Inc. v. Federal Ins. Co., 962 F.3d 947 (read all contract provisions together; avoid surplusage)
- Scottsdale Ins. Co. v. Columbia Ins. Grp., 972 F.3d 915 (insurance-policy interpretation follows contract law)
- Central Ill. Light Co. v. Home Ins. Co., 213 Ill.2d 141 (ambiguity and contract construction under Illinois law)
- Hobbs v. Hartford Ins. Co. of the Midwest, 214 Ill.2d 11 (ambiguity construed against insurer under Illinois law)
- Dickie Brennan & Co. v. Lexington Ins. Co., 636 F.3d 683 (civil-authority coverage requires governmental action issued as a direct result of physical damage to nearby premises)