488 F.Supp.3d 690
N.D. Ill.2020Background
- Sandy Point Dental, PC (a dental practice) sued The Cincinnati Insurance Company seeking coverage for business losses after Illinois COVID‑19 closure orders limited routine dental procedures.
- Policy period: Oct. 14, 2017–Oct. 14, 2020; relevant provisions: Building & Personal Property Coverage Form and Business Income Coverage Form (coverage tied to "direct physical loss").
- Business Income coverage pays for loss of income caused by necessary suspension of operations during the period of restoration, but only if caused by "direct physical loss" from a Covered Cause of Loss (defined as risks of direct physical loss unless excluded).
- Policy also contains Civil Authority coverage, which applies only when a civil authority prohibits access to the premises due to direct physical loss to other property caused by a Covered Cause of Loss.
- Plaintiff did not allege any physical alteration, damage, or contamination of the dental premises; it alleged loss of use and lost revenue from government closure orders.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether governor's COVID‑19 closure orders or presence of virus constitute "direct physical loss" to trigger Business Income coverage | Policy does not require tangible structural damage; loss of use or partial loss to property suffices; absence of a pandemic exclusion supports coverage | "Direct physical loss" unambiguously requires actual, demonstrable physical alteration or damage to the insured premises | No — court held the policy requires tangible physical damage; plaintiff alleged only economic loss and loss of use, not physical alteration, so no coverage |
| Whether Civil Authority coverage is triggered by closure orders | Closure orders that limit operations amount to prohibited access and trigger civil authority coverage | Civil Authority coverage requires a civil authority order prohibiting access due to direct physical loss to other property caused by a Covered Cause of Loss; plaintiff did not (and could not) plead such physical loss or an order that actually prohibited access | No — plaintiff failed to allege direct physical loss to other property or any government order that prohibited access to its premises; civil authority coverage not triggered |
| Whether insurer’s claim denial supports 215 ILCS 5/155 sanctions (bad‑faith claim) | Denials were vexatious and unreasonable; insurer denied without investigation | A bona fide coverage dispute precludes Section 155 sanctions; plaintiff must plead factual basis showing denial was vexatious/unreasonable | No — pleadings were conclusory and the complaint on its face shows a bona fide dispute over coverage; Section 155 claim dismissed |
| Role of policy exclusions (e.g., pandemic exclusion argued absent) | Absence of an express pandemic exclusion suggests coverage | Exclusions apply only after a covered direct physical loss is shown; court need not reach exclusions if no direct physical loss is pleaded | Court did not resolve exclusions; concluded exclusions irrelevant because plaintiff failed to plead the prerequisite direct physical loss |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility standard for complaints)
- Gibson v. City of Chicago, 910 F.2d 1510 (12(b)(6) standard discussion)
- McMillan v. Collection Professionals, Inc., 455 F.3d 754 (pleading/inference principles)
- Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017 (Section 155 requires absence of bona fide coverage dispute)
- Venture Assoc. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429 (court may take judicial notice of policy on a motion to dismiss)
- Country Mut. Ins. Co. v. Livorsi Marine, Inc., 856 N.E.2d 338 (Ill. law: insurance policy construction is question of law)
- Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307 (give effect to all policy provisions)
- Cent. Ill. Light Co. v. Home Ins. Co., 821 N.E.2d 206 (clear policy language given plain meaning)
- Founders Ins. Co. v. Munoz, 930 N.E.2d 999 (policy provision not ambiguous merely because parties disagree)
- Newman Myers Kreines Gross, P.C. v. Great N. Ins. Co., 17 F. Supp. 3d 323 (no direct physical loss where utility shutoff in advance of storm)
- Bd. of Educ. of Twp. High Sch. Dist. No. 211 v. Int’l Ins. Co., 720 N.E.2d 622 (physical damage requiring repairs constituted direct loss)