By Shawn Rice

Law360 (April 21, 2021, 3:19 PM EDT) -- Grange Insurance Co. can't escape coverage for $400,000 in pandemic-related losses under a virus exclusion, an Illinois pancake restaurant has told a federal court, calling for a rejection of the insurer's efforts to toss a business interruption suit.

The Old Fashioned Pancake House Inc. on Tuesday hit back at Grange's bid to kick the suit, arguing the virus exclusion is "the greatest piece of evidence" supporting a broader understanding of "physical" as it pertains to direct physical loss of or damage to property caused by the pandemic and government orders.

"Defendant suggests that the policy, by its simple terms, excludes the damages sought here. This is not the case. On the simplest level, the virus did not cause a shutdown of plaintiff's business. That was the government," the restaurant owner said, arguing the civil authority provision covers its losses.

Old Fashioned hit Grange with a breach of contract and bad faith suit in January, claiming the COVID-19 pandemic and resulting lockdowns forced the closure of its Joliet, Illinois, restaurant. The pancake restaurant said Grange wrongfully denied coverage.

Last month, Grange asked for dismissal, arguing there wasn't any physical loss to the pancake house caused by the presence of the coronavirus or government shutdown orders to trigger coverage. The policy excludes Old Fashioned's losses caused directly or indirectly by viruses or bacteria, Grange also said.

In Tuesday's filing, Old Fashioned noted the history of the virus exclusion, which was introduced in many policies in 2006 as a response to the SARS outbreak. The exclusion wasn't motivated by the potential for government lockdowns and quarantines of healthy people, the pancake restaurant owner said.

"Rather, the insurance industry's concern was that an outbreak could — absent any action from the government — impact a business's bottom line. Here, there has been no suggestions that anybody at plaintiff's restaurant was afflicted with COVID-19," Old Fashioned added.

Finally, the Illinois eatery argued there was physical damage covered under the policy. The restaurant became inoperative under government orders to thwart the increase of vulnerability to COVID-19, which is "a condition affecting the physical property," according to Old Fashioned.

Virus exclusions have been one hot topic in these business interruption suits. This month, a New Jersey wedding venue argued in federal court that the virus exclusion didn't bar coverage as its losses were caused by government orders and not the coronavirus. Meanwhile, eateries in the Garden State said the virus exclusion applied to conditions at their restaurants but did not apply to effects of the pandemic outside their doors.

On the other side of the country, insurers told a California federal court that the virus exclusion clearly barred a Native American tribe's efforts to receive coverage for their pandemic-related losses.

Charles A. Silverman of Charles Aaron Silverman PC, counsel for Old Fashioned, told Law360 in an emailed statement Wednesday that his client believes the damage is covered under the civil authority provision in the policy and that the virus exclusion shouldn't prevent recovery.

"We hope the judge agrees with us," Silverman said.

Representatives of Grange declined to comment on pending litigation.

The pancake house is represented by Charles A. Silverman of Charles Aaron Silverman PC.

Grange is represented by Scott Wing of Leahy Eisenberg & Fraenkel Ltd., James R. Gallagher of Gallagher Gams Tallan Barnes & Littrell LLP and William O. Krekstein of Timoney Knox LLP.

The case is The Old Fashioned Pancake House Inc. v. Grange Insurance Co., case number 1:21-cv-00402, in the U.S. District for the Northern District of Illinois.

--Additional reporting by Bill Wichert and Melissa Angell. Editing by Tim Ruel.

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