GPIF Crescent Court Hotel, LLC v. Zurich American Insurance Company
2022 IL App (1st) 211335-U
| Ill. App. Ct. | 2022Background
- GPIF (group of hotel operators) alleges COVID-19 pandemic and related government orders forced its hotels to suspend or reduce operations, causing substantial economic loss.
- GPIF’s hotels were insured under an HEI "all-risk" policy issued by Zurich for Aug 2019–Aug 2020; GPIF submitted claims which Zurich denied.
- GPIF’s amended complaint asserted six breach-of-contract claims and six declaratory-judgment claims (several based on Time Element, Civil/Military Authority, and Protection & Preservation coverages).
- Zurich moved to dismiss under 735 ILCS 5/2-615; the trial court dismissed with prejudice, holding the policy required a "direct physical loss of or damage" and GPIF alleged only loss of use/economic loss.
- The court alternatively found a Contamination exclusion could bar coverage for virus-related losses. GPIF appealed; the appellate court reviewed de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID-19-related loss of use (and government orders restricting operations) qualifies as "direct physical loss of or damage." | Loss of use and government-mandated closures are covered as physical loss. | Policy requires tangible physical alteration or dispossession; loss of use is economic, not physical. | No — loss of use is economic, not a "direct physical loss." Dismissal affirmed. |
| Whether the physical presence of SARS‑CoV‑2 on property constitutes physical alteration/damage. | The virus contaminates property and therefore causes physical loss. | The virus does not change appearance, shape, color, or structure and is remediable by routine cleaning. | No — mere presence of virus does not cause the physical alteration contemplated by the policy. |
| Whether specific coverages (Time Element, Civil/Military Authority, Protection & Preservation) were triggered absent physical loss. | These coverages apply because business suspension and protective actions were necessary due to the pandemic and orders. | Those coverages expressly require suspension/acts be due to direct or actual/imminent physical loss or damage. | No — each provision at issue requires a physical loss; GPIF failed to allege one. |
| Whether exclusions (e.g., Contamination) bar coverage for virus-related claims. | GPIF argued coverage; disputed applicability of exclusion. | Contamination exclusion excludes losses caused by presence of a virus. | Trial court found exclusion an alternative basis to deny coverage; appellate decision affirms dismissal primarily on lack of physical loss. |
Key Cases Cited
- Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278 (Ill. 2001) (defines "physical" loss as requiring physical alteration to property)
- Sandy Point Dental, P.C. v. Cincinnati Insurance Co., 20 F.4th 327 (7th Cir. 2021) ("direct physical loss" requires tangible alteration or dispossession)
- Sweet Berry Cafe, Inc. v. Society Insurance, Inc., 2022 IL App (2d) 210088 (Ill. App. Ct. 2022) (COVID‑19 restrictions and loss of use do not constitute a physical loss)
- Lee v. State Farm Fire & Casualty Co., 2022 IL App (1st) 210105 (Ill. App. Ct. 2022) (same; cites Eljer for physical‑alteration requirement)
- ABW Development, LLC v. Continental Casualty Co., 2022 IL App (1st) 210930 (Ill. App. Ct. 2022) (concludes virus presence does not materially alter property)