522 F.Supp.3d 457
N.D. Ill.2021Background
- Derek Scott Williams PLLC (dental practice) and Derek Scott Williams Real Estate LLC (property owner) purchased a Cincinnati Insurance Co. commercial policy (7/14/2019–7/14/2020) that included Business Income and Civil Authority coverage.
- Texas governor's March 22, 2020 order postponed elective surgeries and non-emergency dental procedures; Williams suspended elective operations until May 4, 2020 and claimed business income losses.
- Williams filed a putative class action seeking a declaratory judgment that losses from the COVID-19 shutdowns are covered under both the Business Income and Civil Authority provisions; Cincinnati moved to dismiss for failure to state a claim.
- Cincinnati argued Business Income coverage requires physical alteration/damage to property (contamination removable by cleaning does not qualify) and Civil Authority coverage requires that access to the area be prohibited, not merely limited.
- The Court applied Texas law, denied dismissal of the Business Income claim (concluding “physical loss” can reasonably include deprivation of use), but dismissed the Civil Authority claim (holding the governor’s order did not “prohibit” access to the premises).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Business Income coverage requires physical alteration/damage to property | "Physical loss" includes loss of use caused by COVID-19 shutdowns; policy defines loss as "physical loss or physical damage" | Coverage requires physical alteration/damage; contamination removable by cleaning isn’t physical loss | Denied dismissal: reasonable to interpret "physical loss" to include deprivation of use; ambiguity construed for insured |
| Whether Civil Authority coverage is triggered by the governor’s order | Governor’s order postponing elective procedures prohibited performance and thus triggered civil authority coverage | Order merely limited operations; access was not "prohibited" as required by policy | Dismissed: partial limitations do not satisfy policy requirement that civil authority "prohibit" access |
Key Cases Cited
- Firestone Fin. Corp. v. Meyer, 796 F.3d 822 (7th Cir. 2015) (motion-to-dismiss standard: accept plaintiff’s factual allegations and draw reasonable inferences in plaintiff’s favor)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading standard for dismissal under Rule 12(b)(6))
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (U.S. 1941) (federal courts apply forum state choice-of-law rules in diversity cases)
- Utica Nat'l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198 (Tex. 2004) (insurance-contract interpretation principles)
- Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738 (Tex. 1998) (ambiguities in insurance policies construed in favor of insured)
- Gates v. Asher, 280 S.W.2d 247 (Tex. 1955) (each word in a contract is given significance to avoid redundancy)