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Insurer Can't Ditch McDonald's Bid For Virus Suit Coverage

By Lauraann Wood · February 22, 2021, 6:20 PM EST

McDonald's Corp. and two Illinois franchisees have alleged enough to keep pursuing a ruling their insurer must cover defense costs in underlying litigation over the franchisees' allegedly subpar COVID-19 safety protocols, an Illinois federal judge said Monday.

U.S. District Judge Charles Kocoras said while the suit from McDonald's and its franchisees raises a novel question over costs incurred to comply with a mandatory injunction due to the coronavirus, their allegations raise the plausibility that those costs are covered under their policies with Austin Mutual Insurance Co. and that's enough at this stage of the litigation.

Academically, it would be a close call to determine whether the underlying suit states a claim for damages that occurred because of a bodily injury, he said.

"It is much less close as a purely legal matter because plaintiffs at this stage only need to allege facts 'potentially within the policies' coverage," Judge Kocoras said.

The judge said much of his decision draws from the broad, nontechnical extent to which Illinois interprets contractual terms such as "damages" and "because of."

For example, a different Illinois federal judge overseeing a similar dispute in Ace American Insurance Co.v. RC2 Corp.  found that the term "damages" in Illinois means not just money but can also include the cost to comply with a mandatory injunction, Judge Kocoras held. And that decision "was spot-on" because it's supported by two Illinois Supreme Court decisions that such a cost can be considered "damage" under a policy such as Austin Mutual's, the judge said.

The term "because of" is given similarly broad interpretations in the state, the judge said. And since the policies at issue in the restaurants' declaratory judgment action do not include the phrase "proximately because of," "simple 'but for' causation is enough" to establish coverage, he held.

"As applied here, [McDonald's and its franchisees] have adequately alleged 'but for' causation because 'but for' the [underlying] plaintiffs' actual contraction of COVID-19, [the restaurants] would not have to incur 'damages' to comply with a mandatory injunction," Judge Kocoras said.

Since damages typically have a remedial purpose, the restaurants may have the toughest time answering "the more vexing and intellectually abstract question" of what winning a mandatory injunction would do to help the injuries suffered by three employees in the underlying suit who've caught COVID-19, Judge Kocoras said.

Even despite that, however, McDonald's and its franchisees have "at least alleged that the policies potentially cover exposure to the virus in addition to the contraction of COVID-19," he said.

"The court is also convinced by plaintiffs' argument that Austin Mutual could have explicitly included a virus exclusion had it intended to not provide coverage for 'bodily injury' caused by a virus. After all, other insurance companies have done so," the judge said. "But, absent such an exclusion, Austin Mutual has not established that an otherwise broad [commercial general liability] policy like this one does not foreseeably cover the business liability at issue here."

A group of McDonald's workers and managers and their family members launched the underlying suit in May, citing a lack of protective gear and inadequate safety training in their claim that lax safety standards at several Chicago-area McDonald's restaurants during the novel coronavirus pandemic have created a public health risk.

The nine named plaintiffs — five McDonald's workers and four of their live-in family members — alleged that McDonald's, franchisee Lexi Management LLC and former franchisee DAK4 LLC mismanaged safety protocols in a quintet of Chicago restaurants, causing unsafe conditions and a public nuisance that could endanger public health.

The state court judge overseeing the underlying suit said in June that McDonald's should be doing more to protect its workers and partially granted the workers' bid for a preliminary injunction, requiring the companies to provide workers at three Chicago locations with more adequate social distancing training and stricter mask enforcement practices.

McDonald's and the franchisees filed the current suit in Illinois federal court in August, seeking to force Austin Mutual to cover their defense costs in the underlying case, which, at that time, already totaled more than $1.5 million. In the suit, they specifically asserted that the underlying case is seeking damages because of bodily injury.

Austin Mutual, however, argued in its dismissal bid that characterizing the underlying suit that way is a "legal conclusion couched as a factual allegation and should be ignored."

Representatives for Austin Mutual declined to comment Monday, and representatives for the other parties didn't immediately respond to a request for comment.

McDonald's is represented by Paul Walker-Bright and Angela Elbert of Neil Gerber & Eisenberg LLP.

Lexi Management is represented by Steven Baerson of Williams & Baerson LLC.

DAK4 is represented by Sande Shamash and Anthony Madonia of Anthony J. Madonia & Associates Ltd.

Austin Mutual is represented by Robert Chemers, Jonathan Federman and William Elinski of Pretzel & Stouffer Chtd.

The case is McDonald's Corp. et al. v. Austin Mutual Insurance Co., case number 1:20-cv-05057, in the U.S. District court for the Northern District of Illinois.

--Additional reporting by Jeff Sistrunk and Vin Gurrieri. Editing by Jay Jackson Jr.

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