536 F.Supp.3d 307
N.D. Ill.2021Background
- Plaintiff L&J Mattson’s Co. operates Mattson’s Steak House in Burbank, IL and held an all-risk commercial insurance Policy (10/31/2019–10/31/2020) with coverage including Building & Personal Property and Business Income/Extra Expense.
- COVID-19 pandemic occurred; plaintiff alleges SARS‑CoV‑2 particles were physically present in the restaurant (air and on surfaces) and that the presence rendered the premises unsafe and caused direct physical loss/damage.
- Illinois Governor issued executive orders in March 2020 requiring restaurants to close to the public; plaintiff alleges the orders forced suspension of operations and caused business losses and physical alterations to make the premises "COVID‑friendly."
- Plaintiff submitted a claim; defendant denied coverage. Plaintiff sued in state court for declaratory judgment, breach of contract, and violation of 215 ILCS 5/155; defendant removed and moved to dismiss.
- The Policy defines “loss” as “accidental physical loss or accidental physical damage” and limits Business Income coverage to losses during a defined "period of restoration" (when property must be repaired, rebuilt, or replaced).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether presence of SARS‑CoV‑2 or COVID‑19 closure orders constitute “direct physical loss” or “physical damage” that triggers Business Income coverage | Virus presence on surfaces/air and forced closure caused direct physical loss/damage and loss of use of property | Policy requires tangible, physical alteration or damage; mere presence or loss of use without repair/replaceable harm is not covered | Court: No — allegations of virus presence and governmental closure do not plead “physical loss” or “physical damage”; Business Income claim dismissed without prejudice |
| Whether Civil Authority coverage applies because Governor’s order prohibited access | Executive Order prohibiting public access activates Civil Authority coverage | Civil Authority requires (1) damage to other property and (2) prohibition of access to area because of dangerous physical conditions from that damage; closure orders were to prevent disease spread, not respond to property damage | Court: No — plaintiff did not allege damage to other property or a prohibition of the surrounding area for dangerous physical conditions; Civil Authority coverage not triggered |
| Significance of Policy lacking a virus exclusion | Absence of virus exclusion supports coverage for COVID‑related losses | Lack of virus exclusion is irrelevant if Policy never covered virus-related loss in the first place | Court: Irrelevant — omission of an exclusion does not create coverage where Policy language requires tangible physical loss/damage |
| Bad‑faith/vexatious refusal claim under 215 ILCS 5/155 | Insurer’s denial was wrongful and statutory penalties are warranted | Denial was a lawful defense of a bona fide coverage dispute; litigation of coverage not vexatious | Court: Dismissed — bad‑faith claim depends on coverage; denial was not necessarily vexatious given legitimate dispute |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (conclusory allegations are not entitled to be assumed true for pleading plausibility)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (complaint must state a plausible claim to survive a motion to dismiss)
- Windridge of Naperville Condo. Ass’n v. Philadelphia Indem. Ins. Co., 932 F.3d 1035 (7th Cir. 2019) (policy construed as whole; consider type of insurance and risks)
- Travelers Ins. Co. v. Eljer Mfg., Inc., 757 N.E.2d 481 (Ill. 2001) ("physical" injury connotes tangible damage to property)
- McWane, Inc. v. Crow Chi. Indus., Inc., 224 F.3d 582 (7th Cir. 2000) (court may interpret unambiguous contract as a matter of law)
- PQ Corp. v. Lexington Ins. Co., 860 F.3d 1026 (7th Cir. 2017) (denial defended by a bona fide coverage dispute is not vexatious)