By Mike Curley

Law360 (January 4, 2021, 2:33 PM EST) -- A group of Chicagoland delis is suing Erie Indemnity Co. over the insurer's denial of coverage for COVID-19-related losses, saying the insurance company denied coverage without even investigating the claim.

In a complaint filed last week in the Northern District of Illinois, Halsted Street Deli Holdings LLC, which operates 23 locations in the Chicago area, said its businesses has sustained substantial losses as a result of government orders closing down nonessential businesses, but Erie won't pay out coverage.

According to the complaint, Halsted holds "all risk" policies at the locations, with no exclusions for virus or pandemic-related losses, which entitle it to coverage, as Illinois courts have held that the presence of a "dangerous substance" like COVID-19 constitutes a physical loss.

"Halsted Street reasonably expected that the policy included coverage for physical loss and business interruption losses caused by COVID-19 and civil authority shutdowns as a result of COVID-19," the company told the court. "If Erie had wanted to exclude pandemic-related losses under the policy, it easily could have done so with an express exclusion. It did not."

The complaint cites a string of orders from Illinois Gov. J.B. Pritzker that prohibited on-site seating and serving at restaurants and bars, which forced Halsted to close its doors to dine-in customers, causing substantial losses of income, the company said.

In April, a month after the first orders came through, Halsted gave Erie notice of a claim, and received a blanket denial a week later, with Erie basing its denial on language and provisions that are not in the policy, according to the complaint.

Though this denial letter was rescinded, the company followed up a month later with another blanket denial, saying there was no partial or total interruption of business from a physical loss involving a covered peril, according to the complaint.

In addition, Erie denied civil authority coverage for similar reasons, Halsted said, telling the court these determinations were again reached without a proper investigation, and run counter to Illinois courts' holding that dangerous substances can cause physical loss.

The suit seeks a declaratory judgment that Halsted is owed coverage, and also includes counts of breach of contract and bad faith denial of insurance, for which the eateries are asking for additional unspecified penalties.

David G. Wix of Tarpey Wix LLC told Law360 on Tuesday that Halsted Street's locations took "devastating" losses because of the governor's mandatory restrictions, and the Erie policy provides coverage for those losses.

"Erie is a large, sophisticated insurer that easily could have included an express exclusion for pandemic-related losses under the policy and failed to do so," Wix said. "Under the terms of the policy and prevailing Illinois law, we believe Erie is obligated to provide coverage for the losses incurred by plaintiff. This lawsuit was necessary because Erie has wrongfully refused to comply with its obligations under the policy."

A spokesperson for Erie declined to comment Monday.

Halsted Street is represented by Daniel W. Tarpey, David G. Wix and Matthew M. Showel of Tarpey Wix LLC.

Counsel information for Erie was not available Monday.

The case is Halsted Street Deli Holdings LLC v. Erie Indemnity Co. et al., case number 1:20-cv-07763, in the U.S. District Court for the Northern District of Illinois.

--Editing by Marygrace Murphy.

Update: This story has been updated to reflect that Erie Indemnity declined to comment, and to include comment from an attorney for Halsted Street.

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