Sweet Berry Café, Inc. v. Society Insurance, Inc.
2022 IL App (2d) 210088
| Ill. App. Ct. | 2022Background
- Sweet Berry Café sued Society Insurance seeking declaratory relief that its commercial property policy covered business-income and extra-expense losses from COVID-19 and Illinois executive orders that restricted in-person dining.
- The policy’s Additional Coverages for Business Income and Extra Expense require a “direct physical loss of or damage to Covered Property” caused by a Covered Cause of Loss; the policy did not contain a virus exclusion.
- Café alleged (1) physical presence/contamination by SARS-CoV-2 at its premises and (2) loss caused by the Governor’s executive orders restricting on-premises dining (while allowing carryout/delivery).
- Society moved for judgment on the pleadings arguing the alleged losses were economic or loss-of-use, not a “direct physical loss,” and alternatively that the ordinance-or-law exclusion barred coverage.
- The trial court granted judgment on the pleadings for Society; the court found the virus did not cause physical alteration and that compliance with orders implicated the ordinance-or-law exclusion.
- The appellate court affirmed, holding the policy unambiguously required a tangible physical alteration or substantial dispossession and that Café’s pleaded theory (virus presence and ordered loss of use) did not meet that standard; it did not reach the exclusion question.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether virus presence or pandemic caused a “direct physical loss of or damage to” covered property (triggering Business Income/Extra Expense) | Virus is a physical substance that contaminated premises, rendered property unsafe, altered air/surfaces, and thus deprived Café of full use | No tangible physical alteration or substantial dispossession occurred; losses were economic or loss-of-use only and therefore not a “direct physical loss” | Held for Society: “direct physical loss” requires a material/tangible alteration or substantial dispossession; pleaded facts showed only loss of use/economic loss, not physical loss |
| Whether executive orders that barred in-person dining constitute a “direct physical loss” | Orders were caused by virus and physically limited use of restaurant space; loss of use is covered under “direct physical loss” language | Orders merely restricted a use of property (economic impact); they did not physically alter or damage property | Held for Society: government restrictions causing loss of use do not equal the required physical loss; no coverage |
| Whether the ordinance-or-law exclusion precludes coverage | Café argued exclusion shouldn’t apply broadly and that executive orders are not statutes/ordinances | Society argued losses from compliance with governmental orders are excluded | Court did not decide on exclusion — it affirmed on lack-of-coverage grounds and declined to reach exclusion |
Key Cases Cited
- Travelers Ins. Co. v. Eljer Mfg., 197 Ill. 2d 278 (Ill. 2001) (construing “physical injury to tangible property” to require alteration in appearance, shape, color, or other material dimension)
- Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885 (9th Cir. 2021) (pandemic-related government closures did not cause a “direct physical loss” under commercial property policies)
- Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327 (7th Cir. 2021) (under Illinois law plaintiffs failed to allege a physical loss or damage from COVID-19 or closure orders)
- 10012 Holdings, Inc. v. Sentinel Ins. Co., 21 F.4th 216 (2d Cir. 2021) (business closures for COVID-19 did not allege tangible physical damage sufficient to trigger coverage)
- Terry Black’s Barbeque, L.L.C. v. State Auto. Mut. Ins. Co., 22 F.4th 450 (5th Cir. 2022) (dine-in suspension from pandemic orders not a “direct physical loss”)
- Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398 (6th Cir. 2021) (government order limiting restaurant use does not equal physical loss of property)
- Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141 (8th Cir. 2021) (policy language requires physical alteration, contamination, or destruction to trigger coverage)