U.S. District Judge Stephen P. McGlynn on Monday rejected West Bend's motion to dismiss Treo Salon Inc.'s suit seeking coverage of its losses stemming from COVID-19 and government closure orders under the "communicable disease" provision of its property policy.
"How can West Bend or anyone else be so certain that COVID-19 was not on Treo's premises?" the judge asked in the order. The hair salon has plausibly alleged it is entitled to coverage and the "specific circumstances surrounding COVID-19 and the government's response to it," he added.
Judge McGlynn said although "many" decisions in the Seventh Circuit have found no coverage for business closures resulting from civil authority closure orders, there is no binding precedent. Treo's case "deals with a specific and finite policy endorsement, not a traditional business interruption provision," he said.
The Edwardsville, Illinois-based salon held a business owners policy with West Bend that provides communicable disease and extra expense coverage. Treo filed a proposed class action in Illinois state court against West Bend in October, seeking a declaration that its losses are covered by the policy.
West Bend removed the case to federal court and asked the court to toss the suit, saying the salon failed to allege COVID-19 was present on its premises or that the business was closed due to the outbreak.
The insurer has argued that the global pandemic was not anything particular to Treo's business and that Treo failed to show that the government orders were "due to" any outbreak on its premises. The carrier has said that although Treo was ordered by the government to shut down, Treo cannot prove its closure was caused by the virus's existence on its property.
But there is no question that the salon's shutdown was caused by a government order due to an outbreak of a communicable disease, which is what the policy requires for coverage, Judge McGlynn said on Monday.
The policy language clearly says that it covers losses suffered due to a "communicable disease" on "the insured's premises which prompts a governmental or other board of authority to shut down operations," the judge added.
Treo has argued that the policy's communicable disease section is ambiguous and the court should interpret it in the policyholder's favor. However, Judge McGlynn said it is too early to determine whether the provision is ambiguous and further discovery is needed.
Representatives for the parties could not be immediately reached for comment Tuesday.
Treo is represented by Ted N. Gianaris, Eric S. Johnson, G. Michael Stewart and Jason O. Barnes of Simmons Hanly Conroy.
West Bend is represented by Kayla E. Foley and Scott J. Helfand of Husch Blackwell LLP
The case is Treo Salon Inc. v. West Bend Mutual Insurance Co., case number 3:20-cv-01155, in the U.S. District Court for the Southern District of Illinois.
--Editing by Bruce Goldman.
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