2022 IL App (1st) 210558
Ill. App. Ct.2022Background
- Firebirds, owner of 50+ restaurants in 19 states, sued Zurich after COVID-19 caused dine‑in closures and extra cleaning costs, claiming physical loss/damage and business‑income losses under two all‑risk commercial property policies.
- Policies covered "direct physical loss of or damage caused by a Covered Cause of Loss to Covered Property" but contained a contamination exclusion defining "Contamination" to include the "actual presence" of a virus.
- Firebirds alleged COVID‑19's "actual presence" in its restaurants caused damage and interrupted business; Zurich denied coverage, citing no direct physical loss and the contamination exclusion.
- Attached to the policies were 31 state‑specific amendatory endorsements; the Louisiana endorsement replaced the contamination definition and omitted "virus." Firebirds argued that endorsement created ambiguity or eliminated the virus exclusion.
- The trial court granted Zurich’s section 2‑615 motion, holding the contamination exclusion unambiguous (virus‑caused loss excluded), the Louisiana endorsement applied only to Louisiana locations (Firebirds had none), and therefore dismissal with prejudice was proper; Firebirds appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the contamination exclusion apply to losses caused by the COVID‑19 virus? | COVID‑19 presence caused physical loss/damage and is covered; exclusion shouldn’t bar recovery. | Exclusion expressly excludes loss/damage from the actual presence of a virus; COVID‑19 is caused by a virus and is excluded. | Held: Exclusion unambiguous; COVID‑19‑related loss/damage is excluded. |
| Does the Louisiana amendatory endorsement remove "virus" from the exclusion and create ambiguity? | The Louisiana endorsement replaces the contamination definition (omitting "virus"), so policy is ambiguous or permits coverage. | Endorsements are state‑specific; titles control application to locations in the named state (Louisiana endorsement applies only to Louisiana locations). | Held: Endorsements apply only to the named state; no ambiguity; Firebirds has no Louisiana locations, so the original exclusion controls. |
| Are business‑income (time‑element) losses excluded even if not labeled as "costs due to contamination"? | The exclusion references "any cost due to Contamination" — it doesn’t explicitly mention business‑income losses, so those losses remain covered. | The clause excludes "Contamination, and any cost due to Contamination," treating contamination itself as an independent exclusion that also bars related business losses. | Held: The exclusion (including "Contamination, and any cost due to Contamination") bars business‑income claims tied to virus contamination. |
| Did the trial court abuse discretion by dismissing with prejudice and denying leave to amend? | Firebirds sought more discovery and an opportunity to amend; no proposed amended complaint was tendered. | Plaintiff never filed a proposed amended pleading; no set of facts could cure the pleading because of the clear policy language. | Held: No abuse of discretion. Denial affirmed because Firebirds failed to tender a proposed amendment and relief was futile. |
Key Cases Cited
- City of Chicago v. Beretta U.S.A. Corp., 213 Ill. 2d 351 (motion to dismiss standard cited for legal sufficiency)
- Ferguson v. City of Chicago, 213 Ill. 2d 94 (accept well‑pleaded facts and reasonable inferences on review)
- Wakulich v. Mraz, 203 Ill. 2d 223 (de novo review of section 2‑615 dismissal)
- Founders Insurance Co. v. Munoz, 237 Ill. 2d 424 (insurance contract interpretation principles)
- Hobbs v. Hartford Ins. Co. of the Midwest, 214 Ill. 2d 11 (clear policy terms enforced as written)
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90 (construction of policy provisions is a question of law)
- Travelers Ins. Co. v. Eljer Mfg., Inc., 197 Ill. 2d 278 (diminution in value without physical injury falls outside physical‑loss coverage)
- Thor Equities, LLC v. Factory Mut. Ins. Co., 531 F. Supp. 3d 802 (district court interpretation finding potential ambiguity in similar virus exclusion)
- Cinemark Holdings, Inc. v. Factory Mut. Ins. Co., 500 F. Supp. 3d 565 (decision discussed by parties on physical‑damage allegations)