Bradley Hotel Corp. v. Aspen Speciality Insurance Com, 19f4th1002

Background

Bradley Hotel Corporation operates a Quality Inn with a restaurant, bar, and event space and suspended in-person dining and events after Illinois COVID-19 closure orders in March 2020.
Bradley held a commercial property insurance policy (effective May 1, 2019) that insures losses only from “direct physical loss of or damage to” covered property.
The policy contains a loss-of-use exclusion (bars "delay, loss of use or loss of market") and an ordinance-or-law exclusion (bars loss caused by enforcement of any ordinance or law regulating the use or requiring tearing down of property).
Aspen denied Bradley’s claim for business-income losses; Bradley sued for breach of contract and declaratory relief; the district court dismissed under Rule 12(b)(6) for failure to plead covered physical loss or damage.
On appeal, the Seventh Circuit affirmed: loss of use without physical alteration is not "direct physical loss or damage," and both the loss-of-use and ordinance-or-law exclusions independently bar coverage.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether “direct physical loss of or damage to” covers loss of use absent physical alteration	Bradley: loss of use from COVID-19 restrictions is a covered "direct physical loss"	Aspen: phrase requires physical alteration or damage; temporary loss of use without physical change is not covered	Held: Not covered; mere loss of use without physical change is not "direct physical loss or damage"
Whether the policy’s loss-of-use exclusion bars Bradley’s claim	Bradley: exclusion should not defeat coverage and would render the coverage clause superfluous	Aspen: exclusion precludes claims where loss of use, not physical damage, is the asserted cause	Held: Exclusion applies because Bradley alleges loss of use as the causal event; exclusion doesn't apply when loss of use results from a covered physical cause (e.g., tornado)
Whether Illinois executive closure orders qualify as an “ordinance or law” triggering the ordinance-or-law exclusion	Bradley: governor’s orders are not an "ordinance or law" within exclusion’s meaning	Aspen: executive orders issued under statutory emergency authority are laws regulating use and thus fall within the exclusion	Held: Executive orders here had binding coercive force under statutory authority and qualify as "law," so the exclusion applies
Whether any purchased-back ordinance-or-law endorsement or other arguments salvage coverage	Bradley: endorsement purchased back coverage; Mattis and multiple-cause doctrines apply	Aspen: the endorsement requires direct physical damage; Mattis doesn’t help because no covered physical cause is alleged	Held: Purchased-back endorsement requires direct physical damage (which was not alleged); Mattis inapplicable because plaintiff cannot show a covered physical cause

Key Cases Cited

Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standards and reasonable inferences)
Windridge of Naperville Condominium Ass’n v. Philadelphia Indem. Ins. Co., 932 F.3d 1035 (7th Cir. 2019) (insurance-policy interpretation follows contract law)
Bilek v. Federal Ins. Co., 8 F.4th 581 (7th Cir. 2021) (pleading and inference principles in insurance cases)
Addison Ins. Co. v. Fay, 905 N.E.2d 747 (Ill. 2009) (insured bears initial burden to show coverage; insurer bears burden to show exclusions)
Mattis v. State Farm Fire & Cas. Co., 454 N.E.2d 1156 (Ill. App. 1983) (multiple contributing causes and insured-risk rule)
Scottsdale Ins. Co. v. Columbia Ins. Group, Inc., 972 F.3d 915 (7th Cir. 2020) (exclusions construed narrowly; apply only if clear)
Great West Cas. Co. v. Robbins, 833 F.3d 711 (7th Cir. 2016) (some redundancy in policy language is common and permissible)
In re Airadigm Commc’ns, Inc., 616 F.3d 642 (7th Cir. 2010) (appellate court may affirm on any basis supported by the record)