Insurer Says Policy Isn't Triggered In COVID-19 Coverage Suit

By Lauraann Wood
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Law360 (July 14, 2020, 3:56 PM EDT) -- Society Insurance Inc. on Monday told an Illinois federal judge that a group of theaters and restaurants can't get coverage for their COVID-19-related business interruption claims because the policy provisions they cited haven't been triggered.

The Chicago-area establishments aren't entitled to coverage under any of the four provisions they have asserted for additional coverage in their business interruption insurance policies, Society argued. The insurer urged U.S. District Judge Edmond Chang to either permanently dismiss the insureds' lawsuit or grant it summary judgment over the claims, claiming the policy provisions at issue "have specific terms and conditions that must be met before coverage is triggered."

The businesses, including Big Onion Tavern Group LLC and Harper Theater LLC, had to close their doors to customers in March when Illinois Gov. J.B. Pritzker began entering executive orders to halt nonessential operations and slow the spread of the novel coronavirus. They sued Society later that month, alleging the insurer wrongfully issued blanket rejections of their claims for coverage without conducting a meaningful investigation into whether coverage applied at all.

But the actual or suspected presence of the coronavirus doesn't automatically trigger coverage under Society's business income and extra expense policy provisions, the insurer argued Monday. Those provisions cover insureds' loss of business income and extra expenses only if "direct physical loss of or damage to" their property caused suspended business, Society told Judge Chang.

Even if the virus had been present on the covered businesses' properties, it wouldn't constitute direct physical loss or damage because it doesn't cause "a tangible change to the physical characteristics of property," Society argued. COVID-19 isn't incorporated into their properties' physical structure, doesn't require a building's physical alteration for removal "and does not render the building unfit for use," it said.

"Rather, the coronavirus can be removed from surfaces with soap and water and rendered inert with various common household disinfectants, including bleach," Society argued. "[The insureds'] alleged losses are at most economic losses, not a direct physical loss or damage."

The businesses also aren't entitled to coverage under the civil authority provision for additional coverage under their policies, which "has a very specific set of terms and conditions that must be met," Society told Judge Chang.

Coverage is triggered under that provision when insureds show they have suffered damage to property away from the insureds' premises that was caused by a covered cause of loss, the insurer said. The insureds also have to show that a civil authority's action prohibited access to their premises and surrounding area and that the civil authority took its action in response to dangerous physical conditions resulting from either property damage or a continuous covered cause of loss that caused the damage, Society said.

The Chicago-area businesses suing Society for coronavirus-related coverage "have not and cannot establish a single one of these elements," the insurer argued.

Additional coverage for contamination is also not triggered by the businesses' policy claims, Society argued. That coverage would only apply if contamination in the insureds' products, merchandise or premises caused Pritzker to issue his access-denying executive orders; if their losses were caused by a "contamination threat" from a third party; or if their losses were caused by publicity resulting from the discovery or suspicion of contamination, Society argued.

Representatives for both sides did not immediately respond to requests for comment Tuesday.

The insured restaurants and theaters are represented by Christopher O'Malley, Joseph Englert, Patrick Collins, Andrew Chinsky, Livia Kiser and Shelby Guilbert Jr. of King & Spalding LLP.

Society is represented by Thomas Underwood, Michael Sanders, Michelle Miner and Amy Frantz of Purcell & Wardrope Chtd.

The case is Big Onion Tavern Group LLC et al. v. Society Insurance Inc., case number 1:20-cv-02005, in the U.S. District Court for the Northern District of Illinois.

--Editing by Daniel King.

For a reprint of this article, please contact reprints@law360.com.

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Case Information

Case Title

Big Onion Tavern Group, LLC et al v. Society Insurance, Inc.


Case Number

1:20-cv-02005

Court

Illinois Northern

Nature of Suit

110(Contract: Insurance)

Judge

Honorable Edmond E. Chang

Date Filed

March 27, 2020

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