Case Information
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
CRESCENT PLAZA HOTEL OWNER L.P., )
individually and on behalf of all others similarly )
situated, )
) Plaintiff, ) Case No. 20 C 3463 )
v. )
) Judge Robert W. Gettleman ZURICH AMERICAN INSURANCE COMPANY, )
)
Defendant. )
MEMORANDUM OPINION AND ORDER
Plaintiff Crescent Plaza Hotel Owner L.P., individually and on behalf of all others similarly situated, has brought a sixteen count first amended putative class action comрlaint against its insurer, defendant Zurich American Insurance Company, seeking a declaration that defendant must provide coverage to plaintiff under the policies in question for losses plaintiff sustained due to COVID-19 and civil authority closure orders intended to slow the spread of the Coronavirus and COVID-19, as well claims for breach of contract fоr failing to provide such coverage. Defendant has moved to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. For the reasons set forth below, the court grants defendant’s motiоn.
BACKGROUND Plaintiff owns the Ritz-Carlton Hotel in Dallas, Texas, which is operated by Marriott International, Inc. pursuant to an operating agreement with plaintiff. Marriott purchased proрerty insurance policies for 2019-2020 and 2020-2021 from defendant.to cover physical loss or damage to property and associated business losses at certain Marriott-brаnded hotels. Plaintiff claims to be an additional insured on those policies.
On March 12, 2020, Judge Clay Jenkins declared a public health emergency in Dallas County, Texas due to the spread of the coronavirus. In the following weeks Judge Jenkins issued multiple orders limiting restaurant service to take-out or delivery and closing bars, lounges, taverns, arcades, private clubs, and gyms, to help slow the spread of the virus and to safeguard public health and safety. Hotels were allowed to operate so long as fifty or more people were not in a single enclosed area at one time. On March 24, 2020, Judge Jenkins ordered non-essential businesses in Dallas County to cease operations excеpt for work at home. Hotels were designated essential businesses for lodging and delivery or carry-out food services, but were required to comply with social distancing rules tо the greatest extent possible, including maintaining six feet social distancing. These rules remained in place until May,15, 2020, when a more limited order was issued, focusing on individuals with COVID-19 symptoms and lifting аll restrictions on hotels. Texas Governor Greg Abbott also issued multiple executive orders during this period in an attempt to stop the spread of the virus, but none directly required hоtels to cease operating or to limit the number of guests served.
DISCUSSION
Defendant has moved to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). The purpose of
such a motion is to test the sufficiency of thе complaint, not to judge the merits of the case.
Gibson v. City of Chicago,
Plaintiff asserts claims for breach of contract and declaratory judgment under nine separate coverage provisions, seeking payment from defendant for losses allegedly caused by the limitations on its operations resulting frоm COVID-19 and the various government orders issued to restrict its spread. Each of the provisions requires “direct physical loss or damage” to insured property to trigger coverage. Defendant argues that plaintiff has failed to allege any direct physical loss or damage to the hotel property.
In Illinois, the construction of an insurance рolicy is a question of law.
[1]
Country Mut.
Ins. Co. v. Livorsi Marine, Inc
.
,
This is not the first timе this court has addressed whether civil closure orders cause a
“direct physical loss” to property. In Sandy Point Dental, PC v. Cincinnati Insurance Company,
___F.3d ___,
The critical policy language here—“direct physical loss”—unambiguously requires some form оf actual, physical damage to the insured premises to trigger coverage. The words “direct” and “physical,” which modify the word “loss,” ordinarily connote actual, demonstrаble harm of some form to the premises itself, rather than forced closure of the premises for reasons extraneous to the premises themselves, or adverse business consequences that flow from such closure. See Newman Myers Kreines Gross, P.C. v. Great Northern Ins. Co.,17 F.Supp.3d 323 (S.D.N.Y. 2014) (law firm did not suffer “direct physical loss” when electric utility preemptively shut off рower in advance of Hurricane Sandy). Plaintiff simply cannot show any such loss as a result of either inability to access its own office or the presence of the virus on its рhysical surfaces, the latter of which plaintiff fails to allege in its complaint. Plaintiff has not pled any facts showing physical alteration or structural degradation of the property. Nothing about the property has been altered since March 2020. Plaintiff need not make any repairs or change any part of the building to continue its business. Comрare Id. (explaining that “repair” and “replace” in period of restoration clause “contemplate physical damage to the insured premises as opposed to loss of use of it”); with Bd. of Educ. of Twp. High Sch. Dist. No. 211 v. Int’l Ins. Co., 720 N.E.2d 622, 625-26 (Ill. Ct. App. 1999), as modified on denial of rehearing (Dec. 3, 1999) (finding physical damage to the property, and thus coverage, because plaintiff was required to conduct repairs and remove asbestos-causing materials from the premises).
Plaintiff attempts to distinguish Sandy Point by arguing that it has alleged thаt it
performed “repairs” to the property, including installing special air filters, plexiglass partitions
and protection shields at the front and bell desks, as well as installing hand sanitizеrs in certain
areas of the hotel, and that those repairs demonstrate that the presence of CIVID-19 altered the
physical space of the property, сausing “physical loss or damage.” The court rejects this
attempted distinction. As in Sandy Point, plaintiff seeks insurance coverage for financial losses
as a result of the closure orders. As this court has held, “[t]he coronavirus does not physically
alter the appearance, shape, color, structure, or other material dimension of the property.”
Sandy Point,
Plaintiff also argues that the court should follow the decision in Studio 417, Inc. v.
Cincinnati Insurance Co., 478 F. Supp.3d 794 (W.D. Mo. 2020), which found that the
coronavirus caused a physical loss to property warranting coverage. To the extent that the case
can be read to hold that a physical loss occurs whenever a property is uninhabitable or unusable
for its intended purpose, regardless of any actual physical damage, this court respectfully
disagrees. As noted by Judge Kocoras in Bradley Hotel Corp. v. Aspen Specialty Ins. Co., ___
F. Supp.3d ___,
Finally, plaintiff аrgues that the use of the disjunctive in “direct physical loss or damage”
requires that “loss” and “damage” be interpreted differently. According to plaintiff, the term
“loss” provides cоverage when there was no structural alteration to the property, such as when
there is a mere loss of use. Any other interpretation would, plaintiff argues, render “loss” and
“damage” redundant. Once again, the court disagrees. The plain wording of the phrase
requires either a permanent disposition of the property due to a physiсal change (“loss”), or
physical injury to the property requiring repair (“damage”). See Real Hosp., LLC v. Travelers
Cas. Ins. Co. of Am.,
CONCLUSION
For the reasons stated above, defendant’s motion to dismiss [Doc. 35] is granted.
ENTER:
__________________________________________ Robert W. Gettleman United States District Judge DATE: February 18, 2021
