T & E Chicago LLC v. The Cincinnati Insurance Company

Filing 25

MEMORANDUM Opinion and Order: For the reasons stated in the attached order, the Court grants Defendant's Motion to Dismiss Plaintiff's Complaint #11 . Accordingly, the Court dismisses Plaintiff's Complaint and denies its Motion to Certify Class #2 as moot. Civil case terminated. Signed by the Honorable Harry D. Leinenweber on 11/19/2020: Mailed notice(maf)

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 1 of 12 PageID #:896

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

T & E CHICAGO LLC,
individually, and on behalf
of all others similarly
situated,
Plaintiff,
v.

Case No. 20 C 4001
Judge Harry D. Leinenweber

THE CINCINNATI INSURANCE
COMPANY,
Defendant.

MEMORANDUM OPINION AND ORDER
For the reasons stated herein, the Court grants Defendant’s
Motion to Dismiss Plaintiff’s Complaint. (Dkt. No. 11.)
I.

BACKGROUND

Plaintiff T & E Chicago, LLC is the owner-operator of a tavern
located in the Logan Square neighborhood of Chicago, Illinois.
(Compl. ¶ 1, Dkt. No. 1.) On March 15, 2020, due to the COVID-19
global pandemic, Illinois Governor J. B. Pritzker issued an order
closing all “non-essential businesses” to the public. (Id. ¶ 10.)
This order has been extended several times. (Id.) As a result of
these closure orders, Plaintiff, a non-essential business, was
forced to close and lost substantial revenue. (Id. ¶ 11.)
On or about July 20, 2019, Plaintiff obtained “business
interruption

insurance”

from

Defendant

and

paid

the

required

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 2 of 12 PageID #:897

premium. (Id. ¶¶ 13 & 15, see also Policy, Compl., Ex. A, Dkt. No.
1-1.) The coverage extended one year, until July 20, 2020. (Compl.
¶ 13.) Plaintiff alleges the business interruption insurance was
part of an “all risks” policy, providing coverage for any risk
except those that are specifically excluded. (Id. ¶ 15.) As a
result of its business interruption and the resulting loss of
income caused by the COVID-19 closure orders, Plaintiff filed a
claim with Defendant. (See id. ¶ 16.)
After receiving Plaintiff’s claim, Defendant issued a blanket
denial for any losses resulting from the COVID-19 pandemic and the
Governor’s closure orders. (Id.) Its denial letter asserted that
Plaintiff’s losses were not covered because the reason preventing
Plaintiff from operating its business did not result from “direct
physical

damage”

or

“direct

physical

loss”

to

Plaintiff’s

property. (Id. ¶ 17; see also 4/15/20 Letter, Compl., Ex. B, Dkt.
No. 1-2.)
“All risks” policies differ from policies that cover only
specified risks, like hurricanes or earthquakes. (Compl. ¶¶ 65–
66.) Despite referring to its policy as an “all risks” policy,
Plaintiff acknowledges that the policy does not actually cover
“all risks.” (Id. ¶ 67.) Indeed, the policy provides for specific
exclusions. (Id.) Thus, if an exclusion does not apply the risk is

- 2 -

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 3 of 12 PageID #:898

covered and if an exclusion applies then the risk is not covered.
(Id.)
The specific provisions involved are:
SECTION A. COVERAGE.
We will pay for direct “loss” to Covered Property at the
“premises” caused by or resulting from any Covered Cause
of Loss.
* * *
(1) Business Income
We will pay for the actual loss of “Business Income” and
“Rental Value” you sustain due to the necessary
“suspension” of your “operations” during the “period of
restoration”. The “suspension” must be caused by direct
“loss” to property at a “premises” caused by or resulting
from any Covered Cause of Loss. With respect to “loss”
to personal property in the open or personal property in
a vehicle or portable storage unit, the “premises”
include the area within 1,000 feet of the building or
1,000 feet of the “premises”, whichever is greater.
* * *
(2) Extra Expense
(a) We will pay Extra Expense you sustain during the
“period of restoration”. Extra Expense means necessary
expenses you sustain (as described in Paragraphs (2)
(b), (c) and (d)) during the “period of restoration”
that you would not have sustained if there had been no
direct “loss” to property caused by or resulting from a
Covered Cause of Loss.
(b) If these expenses reduce the otherwise payable
“Business Income” “loss”, we will pay expenses (other
than the expense to repair or replace property as
described in Paragraph (2)(c)) to:
1) Avoid or minimize the “suspension” of business
and to continue “operations” either:
a)
At the “premises”; or
b)
At replacement “premises” or temporary
locations, including relocation expenses and costs to
equip and operate the replacement location or temporary
location; or

- 3 -

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 4 of 12 PageID #:899

2) Minimize the “suspension” of business if you
cannot continue “operations”.
(c) We will also pay expenses to:
1)
Repair or replace property; or
2)
Research, replace or restore the lost
information on damaged “valuable papers and
records”;
but only to the extent this payment reduces the
otherwise payable “Business Income” “loss”. If any
property obtained for temporary use during the
“period
of
restoration”
remains
after
the
resumption of normal “operations”, the amount we
will pay under this Coverage will be reduced by the
salvage value of that property.
(d) Extra Expense does not apply to “loss” to Covered
Property as described in the BUILDING AND PERSONAL
PROPERTY COVERAGE FORM.
(Policy at 31 & 46–47.) The Illinois Business Income endorsement
also

provides

additional

separate

Business

Income

and

Extra

Expense coverage grants, utilizing the same language. (See id. at
91–99.)
The policy’s definitions section defines the term loss as
“accidental physical loss or accidental physical damage.” (Id. at
66.) The policy also contains a provision covering loss caused by
civil authority as follows:
When a Covered Cause of Loss causes damage to property
other than Covered Property at a "premises", we will pay
for the actual loss of "Business Income" and necessary
Extra Expense you sustain caused by action of civil
authority that prohibits access to the "premises",
provided that both of the following apply:
(a) Access to the area immediately surrounding the
damaged property is prohibited by civil authority as a
result of the damage; and

- 4 -

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 5 of 12 PageID #:900

(b) The action of civil authority is taken in response
to dangerous physical conditions resulting from the
damage or continuation of the Covered Cause of Loss that
caused the damage, or the action is taken to enable a
civil authority to have unimpeded access to the damaged
property.
This Civil Authority coverage for "Business Income" will
begin immediately after the time of that action and will
apply for a period of up to 30 days from the date of
that action.
This Civil Authority coverage for Extra Expense will
begin immediately after the time of that action and will
end:
1) 30 consecutive days after the time of that action; or
2) When your "Business Income" coverage ends;
whichever is later.
(Id.

at

47.)

Further,

the

Illinois

Business

Income

endorsement provides additional, separate civil authority
coverage as follows:
b. Civil Authority
When a Covered Cause of Loss causes direct damage to
property other than Covered Property at the “premises”,
we will pay for the actual loss of “Business Income” you
sustain and necessary Extra Expense you sustain caused
by action of civil authority that prohibits access to
the “premises”, provided that both of the following
apply:
(1) Access to the area immediately surrounding the
damaged property is prohibited by civil authority as a
result of the damage; and
(2) The action of civil authority is taken in
response to dangerous physical conditions resulting from
the damage or continuation of the Covered Cause of Loss
that caused the damage, or the action is taken to enable
a civil authority to have unimpeded access to the damaged
property.
Civil Authority coverage for “Business Income” will
begin immediately after the time of the first action of
civil authority that prohibits access to the “premises”
- 5 -

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 6 of 12 PageID #:901

and will apply for a period of up to 30 consecutive days
from the date on which such coverage began.
Civil Authority coverage for Extra Expense will begin
immediately after the time of the first action of civil
authority that prohibits access to the “premises” and
will end 30 consecutive days after the date of that
action; or when your Civil Authority coverage for
“Business income” coverage ends, whichever is later.
(Id. at 92.)
After Defendant’s denial letter, Plaintiff filed a four-count
putative class action complaint. Count One seeks a declaratory
judgment,

Count Two

alleges

breach

of

contract,

Count

Three

alleges breach of the duty of good faith and fair dealing, and
Count Four alleges bad faith denial of insurance under Illinois
state law. Defendant now moves to dismiss the Complaint pursuant
to FED. R. CIV. P. 12(b)(6).
II.

LEGAL STANDARD

A Rule 12(b)(6) motion challenges the legal sufficiency of
the complaint. To survive a Rule 12(b)(6) motion, the allegations
in the complaint must meet a standard of “plausibility.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 564 (2007). A claim is facially
plausible “when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009). The Court will accept all well-pleaded factual
allegations as true and construes all reasonable inferences in the

- 6 -

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 7 of 12 PageID #:902

plaintiff's favor. Marshall-Mosby v. Corp. Receivables, Inc., 205
F.3d 323, 326 (7th Cir. 2000). “If it is possible to hypothesize
a set of facts, consistent with the complaint, that would entitle
the

plaintiff

to

relief,

dismissal

under

Rule

12(b)(6)

is

inappropriate.” Alper v. Altheimer & Gray, 257 F.3d 680, 684 (7th
Cir. 2001) (citations omitted).
III.

DISCUSSION

The parties agree that in this diversity case the choice of
law favors Illinois. See Lapham-Hickey Steel Corp. v. Prot. Mut.
Ins.

Co.,

655

N.E.2d

842,

844–45

(Ill.

1995).

The

proper

construction of the policy is a question of law and the primary
objective is to ascertain and give effect to the intentions of the
parties as expressed in the policy. Am. States Ins. Co. v. Koloms,
687 N.E.2d 72, 75 (Ill. 1997). If a policy term is susceptible to
more than one reasonable interpretation, it is ambiguous and will
be construed in favor of the insured. Outboard Marine Corp. v.
Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1212 (Ill. 1992). However,
a policy provision is not ambiguous solely because the parties
disagree about its interpretation. Founders Ins. Co. v. Munoz, 930
N.E.2d 999, 1004 (Ill. 2010).
On this motion, Defendant argues the Court should dismiss the
Complaint because the Plaintiff has not alleged a direct physical
loss

or

damage

to

property.

Defendant

- 7 -

contends

the

policy

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 8 of 12 PageID #:903

indemnifies against loss or damage to property while an infectious
disease like COVID-19 damages people. The Business Income, Extra
Expense, and Civil Authority coverages likewise apply only to
income losses tied to physical loss or damage to property and not
losses incurred to protect the public from disease. Thus, without
direct physical loss or damage to property, Defendant argues that
coverage is not available.
Plaintiff

responds,

arguing

that

the

policy

covers

both

physical loss and physical damage, which Defendant incorrectly
treats as synonymous. The policy does not define either term, and
to equate the two would render one or the other superfluous. See
11 Williston on Contracts § 32:5 (4th ed.) (“An interpretation
which gives effect to all provisions of the contract is preferred
to one which renders part of the writing superfluous, useless or
inexplicable.”).
Next, Plaintiff argues that an average person would interpret
the phrase “accidental physical loss” to include a sudden inability
by the insured to use the property that was previously useable.
Plaintiff claims that it is entitled to coverage under the Civil
Authority provision for the same reason: it has lost the physical
use of its property. Plaintiff also points out that Defendant did
not avail itself of an “Exclusion for Loss Due to Virus or
Bacteria” endorsement developed in 2006 by the Insurance Services

- 8 -

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 9 of 12 PageID #:904

Office, a nonprofit corporation composed of insurance companies.
(Resp. at 9, Dkt. No. 19 (citing ISO Form CP 01 40 07 06).) Finally,
Plaintiff argues that, at worst, the policy provision is ambiguous
and must be construed in favor of the insured, thus providing
coverage.
In reply the Defendant points out that the policy clearly
applies only to situations where there is “direct physical loss or
damage to property” and not to “purely financial losses.” (Reply
at 2, Dkt. No. 20.) Additionally, there are a multitude of cases,
including two from Illinois, that have since been decided to
interpret policy provisions like these as not providing coverage
for COVID-19-related losses.
Defendant is correct—this issue has been the subject of
numerous decisions issued by various state and federal courts in
the United States, including Illinois. As Defendant points out,
most of these decisions, including the two from Illinois, have
found

for

the

insurance

companies.

These

decisions

found

no

coverage for business closures resulting from civil authority
closure orders. For example, a case in this District—Sandy Point
Dental, PC v. Cincinnati Insurance Company, 20CV2160, 2020 WL
5630465 (N.D. Ill. Sept 21, 2020)—was decided in favor of the
defendant insurance carrier. Plaintiff acknowledges this decision,
but argues

that

it

was

“wrongfully

- 9 -

decided.”

(Resp.

at

19.)

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 10 of 12 PageID #:905

Similarly, in a recent Illinois state court decision, the court
interpreted the language “loss to” to require a physical loss to
the property itself, not including the loss of use of the property
to the insured. It’s Nice, Inc. v. State Farm Fire and Cas. Co.,
No. 2020L000547 (Ill. Cir. Ct. Sept. 29, 2010).
There are other cases deciding against coverage for losses
resulting from closure orders under similar policy provisions.
See, e.g., Diesel Barbershop, LLC, et al. v. State Farm Lloyds,
No. 5:20-CV-461-DAE, 2020 WL 4724305 (W.D. Tex. Aug. 13, 2020);
Gavrilides Mgmt. Co. v. Mich. Ins Co., No 20-258-CB, 2020 WL
4561979 (Mich. Cir. Ct. July 21, 2020); Rose’s 1, LLC v. Erie Ins.
Exch., No. 2020 CA 002424 B., 2020 WL 4589206 (D.C. Super. Ct.
Aug. 6, 2020); Hillcrest Optical, Inc. v. Cont’l Cas. Co., l:20CV-275-JB-B, 2020 WL 6163142 (S.D. Ala. Oct. 21, 2020); UnCork and
Create LLC v. Cincinnati Ins. Co., 2:20-cv-00401, 2020 WL 6436948
(S.D. W.Va. Nov 2, 2020); Raymond H. Nahmad, DDS PA v. Hartford
Cas. Ins. Co., No. 1:20-cv-22833-BLOOM/Louis, 2020 WL 6392841
(S.D. Fla. Nov. 2, 2020). True, there have been decisions to the
contrary, including those cited by Plaintiff. See, e.g., North
State Deli, LLC v. Cincinnati Ins. Co., No. 20-CVS-02569, 2020 WL
6281507 (N.C. Super. Ct. Oct. 9, 2020); Studio 417, Inc. v.
Cincinnati Ins. Co., 20-cv-03127-SRB, 2020 WL 4692385 (W.D. Mo.,
Aug 12, 2020). The Court notes though that the Central District of

- 10 -

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 11 of 12 PageID #:906

California explicitly declined to follow Studio 417 in West Coast
Hotel Mgmt., LLC v Berkshire Hathaway Guard Ins. Co., 2:20-cv05663-VAP-DFMx, 2020 WL 6440037, at *4 n.4 (C.D. Cal. Oct. 27,
2020), and interpreted the insurance policy at issue in favor of
the insurance company.
The

Court

sympathizes

with

Plaintiff.

Nevertheless,

the

policy’s phrasing requires the Court to find in Defendant’s favor.
The Court agrees with the courts that have found that loss of use
of property without any physical change to that property cannot
constitute direct physical loss or damage to the property. The
policy’s use of “loss to” versus “loss of” phrasing supports this
conclusion.

(See

Policy

at

46

(covering

“direct

‘loss’

to

property”).) In addition, the provision of coverage for a “period
of restoration,” see id., clearly implies a requirement of loss to
property rather than loss of property. Defendant’s interpretation
is the correct one.
There being no coverage under the policy, the Court must
dismiss Count One. Because the remaining counts, Counts Two, Three,
and Four, rely on an interpretation of Defendant’s policy that the
Court cannot accept, the Court also dismisses Counts Two, Three
and Four.

- 11 -

Case: 1:20-cv-04001 Document #: 25 Filed: 11/19/20 Page 12 of 12 PageID #:907

IV.
For

the

foregoing

CONCLUSION

reasons,

the

Court

grants

Defendant’s

Motion to Dismiss Plaintiff’s Complaint. (Dkt. No. 11.)

IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
Dated: 11/19/2020

- 12 -