521 F.Supp.3d 729
N.D. Ill.2021Background
- This MDL centralized pandemic-era denials by Society Insurance; three bellwether cases were selected: Big Onion and Valley Lodge (Illinois) and Rising Dough (Wisconsin/Minnesota/Tennessee).
- Plaintiffs are restaurants/ hospitality businesses that lost substantial revenue after COVID-19 and government closure orders; they allege losses from the virus itself and from government-mandated restrictions.
- Policies at issue: Business Income (covers loss caused by “direct physical loss of or damage to covered property”), Civil Authority, Contamination, Extra Expense, and the Sue & Labor condition.
- Society issued blanket memoranda and individual denials saying pandemic-related losses are not covered and moved to dismiss or for summary judgment in the bellwethers.
- The court denied Society’s motions as to business‑interruption coverage (finding proximate‑cause and the meaning of “direct physical loss” are fact questions), granted summary judgment for Society on Civil Authority and Contamination theories, dismissed the Sue & Labor claim with prejudice, and allowed Illinois §155 bad‑faith claims to proceed at the pleading stage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID‑19/pandemic or government closure orders constitute a "direct physical loss" triggering Business Income coverage | Business loss was proximately caused by the virus and/or orders; policy covers "direct physical loss of" property (loss of use), not only tangible alteration | Policy requires tangible physical damage; government orders (or fear) are the superseding cause and are not "direct physical loss" | Denied for summary judgment; proximate‑cause standard applies and whether "direct physical loss" includes loss of use is a factual/interpretive issue for trial or further proceedings |
| Whether Civil Authority coverage applies for government shutdowns | Shutdown orders are actions of civil authority that prohibited access and thus trigger coverage | Policy requires civil authority to prohibit access to the premises and surrounding area; here access (employees/takeout) was not entirely prohibited | Granted for Society; Civil Authority claims dismissed (policy requires prohibited access which is not alleged) |
| Whether Contamination coverage applies | Pandemic constitutes "contamination" and suspensions are due to contamination or related governmental actions | Contamination coverage requires suspension due to contamination of premises/machinery or specified government action prohibiting access/production; plaintiffs did not plead premises contamination or prohibited access | Granted for Society; Contamination claims dismissed |
| Whether the Sue and Labor clause provides independent coverage | (Rising Dough) Clause supports recovery for mitigation expenses | Clause is a policy condition (duty to mitigate and document), not a coverage grant | Granted for Society; Sue and Labor counts dismissed with prejudice |
| Whether Illinois §155 bad‑faith claims survive at the pleading stage | Society’s blanket denials and memoranda were unreasonable and delayed payment; §155 penalties and fees are claimed | A bona‑fide coverage dispute can defeat §155 claims | Denied dismissal at pleading stage; §155 claims survive pending factual development |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard for plausibility)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (limits on conclusory allegations in pleadings)
- Anderson v. Liberty Lobby, 477 U.S. 242 (1986) (summary judgment standard and genuine dispute calculus)
- Heuer v. N.W. Nat’l Ins. Co., 33 N.E. 411 (Ill. 1893) (Illinois decision applying proximate‑cause rule in insurance context)
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204 (Ill. 1992) (insurance policy interpretation and construing ambiguities for insured)
- Berg v. N.Y. Life Ins. Co., 831 F.3d 426 (7th Cir. 2016) (construing ambiguous policy language in insured's favor)
- Zemco Mfg., Inc. v. Navistar Intern. Transp. Corp., 270 F.3d 1117 (7th Cir. 2001) (extrinsic evidence and when contract ambiguities create fact issues)
- Cleveland v. Rotman, 297 F.3d 569 (7th Cir. 2002) (definition of proximate cause)
- Roman Catholic Diocese of Springfield v. Maryland Cas. Co., 139 F.3d 561 (7th Cir. 1998) (policy interpretation is a question of law)
- American Family Mut. Ins. Co. v. American Girl, 673 N.W.2d 65 (Wis. 2004) (coverage/exclusion analysis sequence)
- Travelers Indem. Co. v. Bloomington Steel & Supply Co., 718 N.W.2d 888 (Minn. 2006) (exclusions construed narrowly)