Clothing Store Fights Insurer's COVID-19 Coverage Dismissal

By Mike Curley
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Law360 (December 14, 2020, 5:03 PM EST) -- Clothing store chain America's Kids LLC is asking an Illinois federal court to reject a bid by Zurich American Insurance Co. to throw out its suit seeking coverage of business interruption losses stemming from the COVID-19 pandemic, saying its policy considers microorganisms — like the virus — as able to cause "physical loss or damage."

In an opposition brief filed Friday, the children's clothing store told the court that Zurich's argument that they can't allege any physical loss or damage as required by the policy is misplaced, as there are several clauses where the policy language explicitly contemplates and accepts that microorganisms cause physical loss.

While Zurich has argued that the term refers only to visible, structural damage, America's Kids said no such qualifier is in the policy, and that dictionary definitions of "damage" include losses of "value" or "usefulness."

"The presence of the virus in a place like an America's Kids store renders the property unfit for its purpose: while the virus is at large, the premises pose a health risk to occupants, are unusable for selling America's Kids' merchandise, and are generally untenantable for commercial purposes," the store said. "That, Webster's [Unabridged Dictionary] tells us, is damage."

The store similarly pushed back on Zurich's argument that the government shutdown orders did not constitute "damage" to the stores, saying those orders were in response to damage, and it would not make sense to wipe out coverage because a government entity responded to the same damage that is harming the store.

America's Kids filed the proposed class action in June, alleging that, like numerous other businesses this year, it was wrongfully denied coverage for losses it incurred as a result of shutting its doors to stem the spread of COVID-19, which as of Monday has killed more than 300,000 people in the U.S.

In September, Zurich asked the court to throw out the suit, saying the policy only covers "physical loss or damage," and the virus caused neither. America's Kids filed an amended complaint in October, prompting another motion to dismiss from Zurich later that month.

In its motion to dismiss, Zurich also argued the microorganism and virus exclusion in America's Kids' policy bars coverage for any losses resulting from a virus or microorganism, and for that reason alone the policy offers no coverage.

In Friday's brief, America's Kids argued the exclusion should not apply, because it was specifically contracted for coverage of business losses stemming from microorganisms, and an exclusion should not wipe out coverage that it specifically asked and paid for.

In addition, America's Kids said the microorganism exclusion is under the section of the policy for direct coverage of damage, but not for business interruption losses. So while it might apply if the store was seeking coverage to restore the physical loss or damage the virus caused, it does not apply to business interruption losses.

Representatives for America's Kids and Zurich American could not immediately be reached for comment Monday.

America's Kids is represented by Jay Edelson, Benjamin H. Richman and Lily Hough of Edelson PC.

Zurich is represented by Debra Bogo-Ernst, Samantha Booth, Bronwyn F. Pollock, Douglas A. Smith and Archis A. Parasharami of Mayer Brown LLP.

The case is America's Kids LLC v. Zurich American Insurance Co., case number 1:20-cv-03520, in the U.S. District Court for the Northern District of Illinois.

--Editing by Ellen Johnson.

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Case Information

Case Title

America's Kids, LLC v. Zurich American Insurance Company

Case Number



Illinois Northern

Nature of Suit

110(Contract: Insurance)


Honorable Virginia M. Kendall

Date Filed

June 16, 2020

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