548 F.Supp.3d 701
N.D. Ill.2021Background
- CFIT operates fitness facilities in IL and IN and suspended operations after March 2020 COVID-19 closure orders by state and local officials.
- CFIT alleged COVID-19 particles were present at its premises and caused physical harm to property and resulting lost business income.
- CFIT held a Twin City commercial business owners policy and submitted a timely claim for business income and extra expense; Twin City denied coverage and moved for judgment on the pleadings under Rule 12(c).
- Policy provisions at issue: Business Income, Extra Expense, and Civil Authority; all require a “direct physical loss of or physical damage to” property caused by a Covered Cause of Loss.
- The policy contains a Virus Exclusion excluding loss caused directly or indirectly by any virus, and a limited exception for virus only if caused by certain listed ‘‘specified causes of loss.’
- The court applied Illinois law, concluded CFIT’s theories failed (closure-order loss, virus-contamination loss), and granted judgment for Twin City.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether loss from government closure orders is a “direct physical loss” triggering Business Income/Extra Expense coverage | Closure orders deprived CFIT of use of premises and thus caused physical loss | “Direct physical loss” requires tangible change to condition or location of property, not mere loss of use | Court: No — loss of use without physical alteration is not a direct physical loss |
| Whether presence of COVID-19 particles constitutes physical damage under Business Income/Extra Expense | Virus particles are tangible contaminants like asbestos and caused physical damage | Even if particles cause physical damage, virus-caused loss is excluded by the policy’s Virus Exclusion | Court: Assumed arguendo particles caused damage but Virus Exclusion bars coverage |
| Whether the policy’s Limited Virus Coverage exception applies | CFIT suggested pandemic/government orders, but did not invoke the limited exception | Limited coverage applies only if virus is result of listed “specified causes of loss” or equipment breakdown; none alleged | Court: No — CFIT did not allege any listed specified cause or equipment breakdown to trigger the exception |
| Whether Civil Authority coverage applies for closure orders | Civil authority prohibition on access was direct result of COVID-19 contamination in the immediate area | Civil Authority requires a Covered Cause of Loss to nearby property and that the order be the direct result of that loss; virus is excluded as a Covered Cause of Loss | Court: No — virus is excluded and complaint pleads orders were in response to the pandemic generally, not direct result of local contamination |
Key Cases Cited
- Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307 (Ill. 2006) (policy construed as a whole; give effect to every provision)
- Founders Ins. Co. v. Munoz, 930 N.E.2d 999 (Ill. 2010) (court’s function is to give effect to parties’ intent as expressed in policy)
- United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 578 N.E.2d 926 (Ill. 1991) (asbestos fibers may inflict physical injury to tangible property)
- Erie Ins. Grp. v. Sear Corp., 102 F.3d 889 (7th Cir. 1996) (conflicting case law does not by itself create ambiguity)
- TMW Enters. v. Fed. Ins. Co., 619 F.3d 574 (6th Cir. 2010) (disagreement among courts does not establish ambiguity)
- Phila. Parking Auth. v. Fed. Ins. Co., 385 F. Supp. 2d 280 (S.D.N.Y. 2005) (period of restoration language indicates damage contemplated is physical)
- Mark’s Engine Co. No. 28 Rest., LLC v. Travelers Indem. Co. of Conn., 492 F. Supp. 3d 1051 (C.D. Cal. 2020) (loss of use alone does not satisfy direct physical loss requirement)
- Haywood v. Massage Envy Franchising, LLC, 887 F.3d 329 (7th Cir. 2018) (district court not required to allow amendment where plaintiff does not request leave to amend)