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Law360 (June 24, 2021, 2:59 PM EDT) -- An Illinois mattress company has asked the Seventh Circuit to revive its COVID-19 business interruption suit seeking coverage for its 52 stores, saying the lower court wrongly concluded that a virus exclusion bars losses caused by government closure orders.
AFM Mattress Co. LLC said in its appellate brief Wednesday that the Illinois federal court improperly dismissed its suit by holding that its insurer Motorists Commercial Mutual Insurance Co. is not barred from using a virus exclusion to deny coverage, because the virus exclusion was misrepresented to Illinois regulators when they approved it in 2006.
"The district court erred because Motorists is barred by regulatory estoppel from contending that the virus endorsement excludes losses involving contamination by disease-causing agents such as COVID-19," AFM said. Under Illinois' regulatory estoppel standard, Motorists cannot rely on the virus exclusion to deny coverage because it obtained regulator approval of the exclusion fraudulently, the company argued.
AFM, which has 52 stores across Illinois and Indiana, sued in June 2020 claiming Motorists had wrongfully cited its virus exclusion to deny coverage for its losses after Illinois Gov. J.B. Pritzker and Indiana Gov. Eric Holcomb entered emergency orders that closed nonessential businesses in light of the coronavirus pandemic.
The company argued Motorists incorrectly pointed to the exclusion because its losses were caused by the governors' shutdown orders, not the virus itself. But that argument failed to persuade the Illinois federal court, which held the orders were issued to curb the spread of the virus.
In April, U.S. District Judge Manish Shah tossed the entire suit, saying the virus exclusion barred all COVID-19 related losses and refused to block Motorists from applying the exclusion to deny coverage as AFM wished.
The judge said he accepted AFM's allegation that Insurance Service Office Inc. misled the regulators during the approval process, but "a misleading statement about past coverage wouldn't trigger the application of regulatory estoppel."
"In granting Motorists' motion to dismiss, the district court incorrectly concluded the theory of regulatory estoppel is not recognized under Illinois state law," the mattress company said on Wednesday.
And it said that even if regulatory estoppel does not bar Motorists from relying on the virus exclusion to deny coverage, the lower court at least erred in dismissing its allegation about its entitlement to civil authority coverage.
Representatives for the parties could not be immediately reached for comment on Thursday.
AFM is represented by Glenn Udell, Michael Pomerantz and Bryan King of Brown Udell Pomerantz & Delrahim Ltd.
Motorists is represented by Timothy Reed of Molzahn Reed & Rouse LLC.
The case is AFM Mattress Company LLC v. Motorists Commercial Mutual Insurance Company, case number 21-1865, in the U.S. Court of Appeals for the Seventh Circuit.
--Editing by Brian Baresch.
For a reprint of this article, please contact reprints@law360.com.
