Midwest Orthodontic Associates, Ltd. v. Cincinnati Casualty Company et al

Filing 62

ORDER granting #7 Motion to Dismiss for Failure to State a Claim. There being no coverage under the policy, the Court must dismiss Plaintiff's claims for declaratory relief relating to Business Income, Extra Expense, and Civil Authority coverage (Counts III, VI, and IX). Further, because the remaining counts are predicated on an interpretation of Defendants policy that the Court cannot accept, the Court also dismisses Plaintiff's counts for breach of contract (Counts I, IV, VII) and damages pursuant to 215 ILL. COMP. STAT. 5/155 (Counts II, V, VIII). The Court further finds that the failure to state a claim is not tied to a pleading deficiency that can be corrected with an amended complaint. As such, the Court will not grant leave to amend.For the above-stated reasons, Defendants Motion to Dismiss (Doc. 7) is GRANTED. Plaintiff's Complaint (1-1) is hereby DISMISSED with prejudice. The Clerk of the Court is directed to enter judgment accordingly and close this case. Signed by Magistrate Judge Gilbert C. Sison on 9/30/2021. (mjf)

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
MIDWEST ORTHODONTIC
ASSOCIATES, LTD, on behalf of itself
and all others similarly situated,
Plaintiff,
vs.
THE CINCINNATI CASUALTY
COMPANY, INC. and THE
CINCINNATI INSURANCE
COMPANY,
Defendants.

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No. 3:20-cv-01167-GCS

MEMORANDUM & ORDER
SISON, Magistrate Judge:
INTRODUCTION AND BACKGROUND
Plaintiff, Midwest Orthodontic Associates, LTD, conducts a dental practice limited
to orthodontic services and treatments in Peoria and Washington, Illinois. (Doc. 1-1, ¶¶ 1,
13). On March 20, 2020, Governor Pritzker issued his first stay-at-home order for Illinois.
Id. at ¶ 41. Plaintiff also received various guidance directives from the American Dental
Association (“ADA”), Illinois State Dental Society (“ISDA”), Centers for Disease Control
(“CDC”), and the Illinois Department of Public Health (“IDPH”). Id. at ¶¶ 6-8. See also Id.
at ¶¶ 31-47. As such, beginning on March 20, 2020, and continuing for approximately six
weeks thereafter, Plaintiff shut down its practice, resulting in a substantial loss of
revenue. Id. at ¶ 8.

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On or about September 3, 2020, Plaintiff, on behalf of itself and all others similarly
situated, filed a nine count Class Action Complaint in the Circuit Court of Madison
County, Illinois, against Defendants, The Cincinnati Casualty Company, Inc. and The
Cincinnati Insurance Company. (Doc. 1, ¶ 2). The Defendants removed the matter to this
Court on diversity jurisdiction grounds on November 4, 2020. (Doc. 1). In its complaint,
Plaintiff seeks relief related to Defendants’ denial of Plaintiff's insurance claim for alleged
business damages sustained during the COVID-19 pandemic. (Doc. 1-1). Plaintiff also
seeks an order certifying appropriate classes and/or subclasses; designating Plaintiff as
the class representative and his counsel as class counsel; a declaration determining the
meaning of the Business Income, Extra Expense, and Civil Authority coverage provisions;
and awarding damages, as appropriate. Id. Plaintiff further asserts claims for breach of
contract for failing to provide coverage. Id. Id. It finally requests damages and attorneys'
fees for vexatious and unreasonable conduct under 215 ILL. COMP. STAT. § 5/155. Id.
Now before the Court is Defendants’ Motion to Dismiss, which Defendants filed
on November 12, 2020. (Doc. 7, 8). Plaintiff filed a response in opposition on January 8,
2021. (Doc. 28). Defendant filed a reply in support on January 22, 2021. (Doc. 29). During
the pendency of this motion, both parties filed a number of supplementary authorities.
(Doc. 35, 36, 39, 43, 46, 51, 52, 55, 60). Having reviewed the briefing, arguments, and
supplementary authorities, the Defendants’ Motion to Dismiss (Doc. 7) is GRANTED for
the reasons set forth below.
FACTUAL ALLEGATIONS AND PERTINENT POLICY PROVISIONS
During the time period that Plaintiff shut down its practice, it only saw a

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“handful” of patients for urgent problems. (Doc. 1-1, ¶¶ 8, 49). From May through June
30, 2020, Plaintiff’s practice was limited to seeing 50% of its usual number of patients. Id.
at ¶ 49. This was due to the need for adhering to social distancing requirements because
of COVID-19. Id. Plaintiff argues that the losses incurred during the shutdown are
covered under an insurance policy issued by Defendant for the period of August 7, 2018
to August 7, 2021. Id. at ¶ 59. Plaintiff contends that coverage exists under the policy's
Business Income and Extra Expenses coverage and Civil Authority coverage provisions.
Id. at ¶¶ 61-74.
The relevant policy provisions upon which Plaintiff relies can be found in the
Building and Personal Property Coverage Form (Including Special Causes of Loss). (Doc.
1-1, p. 68-107). The policy's general coverage provision states that Defendants "will pay
for direct 'loss' to Covered Property at the 'premises' caused by or resulting from any
Covered Cause of Loss." (Doc. 1-1, p. 70). The term “Covered Cause of Loss,” which is
used in the Business Income, Extra Expense and Civil Authority sections set forth below,
is defined as “direct ‘loss’ unless the ‘loss’ is excluded or limited in this Coverage Part.”
(Doc. 1-1, p. 72). “Loss” is further defined as "accidental physical loss or accidental
physical damage." (Doc. 1-1, p. 105).
The Business Income section of the Building and Personal Property Coverage
Form states, in pertinent part:
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

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Cause of Loss.
(Doc. 1-1, p. 85-86).
The Extra Expense coverage section of the Building and Personal Property
Coverage Form provides in pertinent part as follows:
(a)

We will pay Extra Expense you sustain during the “period of restoration.”
Extra Expense means necessary expenses you sustain . . . 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 . . . to:
1)

Avoid or minimize the “suspension” of business and to continue
“operations” either:
a)
b)

2)

(c)

At the “premises;” or
At replacement “premises” or temporary locations, including
relocation expenses and costs to equip and operate the
replacement location or temporary location; or

Minimize the “suspension” of business if you cannot continue
“operations.”

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 . . .
...

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(Doc. 1-1, p. 86).
The Building and Personal Property Coverage Form also provides for Civil
Authority coverage and states:
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

(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. . . .

(Doc. 1-1, p. 86).
Business Income, Extra Expense and Civil Authority provisions are also found in
the Business Income (And Extra Expense) Coverage Form. (Doc. 1-1, p. 138-146). The
Business Income section is generally the same, except for the omission of “Rental Value.”
The section states:
We will pay for the actual loss of Business Income 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" which is described in the Declarations and for which a
Business Income Limit of Insurance is shown in the Declarations. The
"loss" must be caused by or result from a Covered Cause of Loss.
(Doc. 1-1, p. 138).
The Extra Expense section is also generally the same, but with some minor
variations. The section provides as follows:
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(a)

Extra Expense Coverage is provided at the “premises” described in the
Declarations only if the Declarations show that “Business Income” coverage
applies at that “premises.”

(b)

Extra Expense means necessary expenses you sustain (as described in
Paragraphs 2.c., d. and e.) 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.

(c)

If these expenses reduce the otherwise payable “Business Income” “loss,”
we will pay expenses . . . to:
1)

Avoid or minimize the “suspension” of business and to continue
“operations” either:
a)
b)

2)

(d)

At the “premises;” or
At replacement “premises” or temporary locations, including
relocation expenses and costs to equip and operate the
replacement location or temporary location; or

Minimize the “suspension” of business if you cannot continue
“operations.”

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 . . .
...
(Doc. 1-1, p. 138-139).
The coverage provided for in the Civil Authority is essentially the same. (Doc. 1-

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1, p. 139). As for the term “Covered Cause of Loss,” the Business Income (And Extra
Expense) Coverage Form refers back to the definition contained in the Building and
Personal Property Coverage Form. Id. Finally, the definition of “Loss” is the same. Id. at
p. 146.
LEGAL STANDARDS
"The purpose of a motion to dismiss is to test the sufficiency of the complaint, not
to decide the merits." Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). To
survive dismissal, Plaintiff must state a claim that is 'plausible on its face.'" Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). A plausible claim
exists "when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129
S. Ct. 1937, 173 L. Ed. 2d 868 (2009). However, the plaintiff’s allegations of fact must rise
above a speculative level in order to constitute a “showing” that makes the claims in a
complaint rise to the level of plausibility. Bell Atlantic Corp., 550 U.S. at 555 (internal
citations omitted).
The Court will accept all well-pleaded factual allegations as true and will construe
all reasonable inferences in Plaintiff's favor. See Gibson, 910 F.2d 1510 at 1520-21; Zablocki
v. Merchants Credit Guide Co., 968 F.3d 620, 623 (7th Cir. 2020). “Well-pleaded facts,”
however, include neither legal conclusions nor unsupported conclusions of fact. Hickey
v. O’Bannon, 287 F.3d 656, 658 (7th Cir. 2002) (internal citations omitted). See also Iqbal, 556
U.S. at 679 (stating the Court is not required to accept the allegations of “a plaintiff armed
with nothing more than conclusions.”); Zablocki, 968 F.3d at 623 (noting that the Court

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need not accept statements of law or unsupported conclusory factual allegations as true).
Finally, when a plaintiff "relies on a document attached to the complaint, and does not
deny its accuracy, the facts communicated by that document control over allegations to
the contrary." Zablocki, 968 F.3d at 623.
DISCUSSION
I.

Scope of Coverage
The interpretation of an insurance policy is a matter of state law. See Windridge of

Naperville Condominium Assoc. v. Philadelphia Indemnity Ins. Co., 932 F.3d 1035, 1039 (7th
Cir. 2019). The parties agree that Illinois law controls this dispute. In Illinois, the proper
construction of an insurance policy is a legal question, and the Court's primary objective
is to ascertain and give effect to the intentions of the parties as expressed in the policy.
See Windridge, 932 F.3d at 1039 (citing Hobbs v. Hartford Ins. Co. of the Midwest, 214 Ill.2d
11, 823 N.E.2d 561, 291 Ill. Dec. 269 (Ill. 2005)). To ascertain the meaning of the policy's
language, the Court "must construe the policy as a whole and 'take into account the type
of insurance purchased, the nature of the risks involved, and the overall purpose of the
contract.'" Windridge, 932 F.3d at 1039 (citing Traveler's Ins. Co. v. Eljer Mfg., 197 Ill. 2d 278,
757 N.E.2d 481, 258 Ill. Dec. 792 (Ill. 2001)). If the policy language is unambiguous, it will
be applied as written, unless it contravenes public policy. See Windridge, 932 F.3d at 1039;
Founders Ins. Co. v. Munoz, 237 Ill. 2d 424, 930 N.E.2d 999, 341 Ill. Dec. 485, 490 (Ill. 2010).
Policy provisions, however, are not ambiguous solely because the parties disagree about
its interpretations; rather, an ambiguity exists when the policy language is "subject to
more than one reasonable interpretation." Windridge, 932 F.3d at 1039; Founders, 341 Ill.

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Dec. at 490.
When interpreting state law, a federal court must determine how the state’s
highest court would rule. See Rodas v. Seidlin, 656 F.3d 610, 626 (7th Cir. 2011). If the state’s
supreme court has not yet addressed the issue, the federal court should “consult and
follow the decisions of intermediate appellate courts” to predict how the supreme court
would act, unless “there is convincing reason to predict the state’s highest court would
disagree.” ADT Sec. Servs., Inc. v. Lisle-Woodridge Fire Prot. Dist., 672 F.3d 492, 498 (7th Cir.
2012). Absent any authority from the relevant state courts, the federal court must examine
the reasoning of courts in other jurisdictions addressing the same issue. See In re Zimmer,
NextGen Knee Implant Products Liability Litigation, 884 F.3d 746, 751 (7th Cir. 2018)(citing
Pisciotta v. Old Nat’l Bancorp, 499 F.3d 629, 635 (7th Cir. 2007)).
A.

Direct Physical Loss under the Business Income and Extra Expense
Coverage Provisions.

The concept of “direct loss” is critical to Plaintiff’s coverage argument under the
Business Income and Extra Expense Coverage provisions. Under the Business Income
provision, the Defendant will pay for lost business income resulting from the suspension
of operations if such a suspension is “caused by direct ‘loss’ to a property at a ‘premises’
. . . .” (Doc. 1-1, p. 85). The Extra Expense provision likewise relies on this “direct loss”
concept as it provides for expenses sustained during a “period of restoration” that
“would not have [been] sustained if there had been no direct ‘loss’ to property . . . .” (Doc.
1-1, p. 86). The phrase “direct loss” is not defined in the policy. However, the term “loss”
is defined as “accidental physical loss or accidental physical damage.” (Doc. 1-1, p. 105).

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Thus, the plain and ordinary meaning of “direct loss” is central to whether Plaintiff’s
Class Action Complaint survives Defendants’ Motion to Dismiss.
Defendants argue that Plaintiff cannot allege that Covid-19, guidance and
directives from the CDC, ADA, ISDA, and IDPH, and/or the Governor's executive orders
caused "direct physical loss" to its property. Defendants maintain that this language
unambiguously requires some form of actual "tangible loss" or a "physical alteration" to
the structure of Plaintiff's property. Defendants reason that the policy only indemnifies
against loss or damage to property. Because an infectious disease like COVID-19 only
damages people, it cannot cause the requisite physical or material damage necessary to
trigger coverage. Thus, because Plaintiff has not alleged that its property structure was
physically altered by COVID-19, coverage is unavailable, and the complaint must be
dismissed.
In support, Defendant relies on Sandy Point Dental, PC v. The Cincinnati Ins. Co.,
488 F. Supp. 3d 690 (N.D. Ill. 2020). In Sandy Point, the court interpreted similar language
and concluded that there was no coverage because COVID-19 did not “physically alter
the appearance, shape, color, structure, or other material dimension of the property.” Id.
at 694. The vast majority of federal courts to have considered the issue have denied
coverage. This includes most federal district courts in Illinois,1 as well as one circuit court

1
See T&E Chicago LLC v. The Cincinnati Ins. Co., No. 20 C 4001, 2020 WL 6801845 (N.D. Ill. Nov. 19,
2020); Bradley Hotel Corp. v. Aspen Specialty Ins. Co., No. 20 C 4249, 2020 WL 7889047, at *1 (N.D. Ill. Dec. 22,
2020); TJBC, Inc. v. The Cincinnati Ins. Co., No. 20-cv-815-DWD (N.D. Ill. Jan. 25, 2021); The Bend Hotel
Develop. Co., LLC v. The Cincinnati Ins. Co., 515 F. Supp. 3d 854 (N.D. Ill. 2021); Crescent Plaza Hotel Owner v.
Zurich Am. Ins. Co., No. 20 C 3463, 2021 WL 633356 (N.D. Ill. Feb. 18, 2021); Smeez, Inc. v. Badger Mutual Ins.
Co., No. 20-cv-01132-DWD, 2021 WL 3476402 (S.D. Ill. Mar. 22, 2021); Zajas, Inc. v. Badger Mutual Ins. Co.,
No. 20-cv-1055-DWD, 2021 WL 1102403 (S.D. Ill. March 23, 2021); Chief of Staff LLC v. Hiscox Ins. Co. Inc.,

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of appeals.2
Plaintiff, on the other hand, asserts that the policy language contemplates losses
from any "deprivation" of the property. Specifically, Plaintiff contends that "physical loss"
does not require a physical alteration to the physical structure of the property, but instead
also includes coverage for the “tangible deprivation, loss of possession, and inability to
utilize its physical property for the income-generating purposes for which the property
was insured.” (Doc 28, p. 10). Plaintiff reasons that physical loss and physical damage
cannot be equated and that to do so would render the policy terms superfluous. (Doc. 28,
p. 16). In sum, Plaintiff argues that the policy language provides coverage for its income
losses because the losses resulted from the dispossession of Plaintiff’s property due to the
COVID-19 pandemic and resulting civil authority orders.
In support of its position, Plaintiff relies on North State Deli, LLC v. The Cincinnati
Ins. Co., No. 20-CVS-02569, 2020 WL 6281507 (N.C. Super. Oct. 9, 2020). In North State Deli,
the North Carolina Superior Court held that “‘direct physical loss’ include[d] the loss of
use or access to covered property even where that property ha[d] not been structurally
altered.” Id. at *3. See also Studio 417, Inc. v. The Cincinnati Ins. Co., 478 F. Supp. 3d 794,
802 (W.D. Mo. 2020)(denying motion to dismiss because the plaintiffs “have plausibly

No. 20 C 3169, 2021 WL 1208969 (N.D. Ill. Mar. 31, 2021); Melcorp, Inc. v. West Am. Ins. Co., No. 20 C 4839,
2021 WL 2853371 (N.D. Ill. July 8, 2021); CFIT Holding Corp. v. Twin City Fire Ins. Co., No. 20 C 3453, 2021
WL 2853376 (N.D. Ill. July 8, 2021); Cozzini Bros., Inc. v. The Cincinnati Ins. Co., Inc., No. 20-cv-04274, 2021
WL 3408499 (N.D. Ill. Aug. 4, 2021); Park Place Hospitality, LLC v. Continental Ins. Co., No. 20 C 6403, 2021
WL 3549770 (N.D. Ill. Aug. 10, 2021).
See, e.g., Oral Surgeons, P.C. v. The Cincinnati Ins. Co., 2 F.4th 1141, 1145 (8th Cir. 2021)(rejecting the
plaintiff’s argument that the lost business income and extra expense it incurred as a result of the suspension
of non-emergency dental procedures due to COVID-19 were caused by a direct loss to property).

2

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alleged that COVID-19 particles attached to and damaged their property which made
their premises unsafe and unusable.”) (emphasis added). Other federal district courts in
Illinois have likewise ruled in favor of coverage, but such decisions are in the minority.3
A plain language reading of the policy, however, appears to belie Plaintiff’s
interpretation that it can recover for loss of use or access to covered property. For such
an interpretation to work, the language should read loss “of property,” but the relevant
and salient language throughout the policy is “loss to” property. One federal court noted
this key distinction when it held that the “policy’s use of ‘loss to’ versus ‘loss of’ phrasing
supports th[e] conclusion” that “loss of use of property without any physical change to
that property cannot constitute direct physical loss or damage to the property.” T&E
Chicago, LLD v. Cincinnati Ins. Co., No. 20 C 4001, 2020 WL6801845, at *5 (N.D. Ill. Nov.
19, 2020). Moreover, the type of coverage Plaintiff seeks appears to be excluded in that
the policy unequivocally states that it “will not pay for ‘loss’ caused by or resulting from
. . . [d]elay, loss of use or loss of market.” (Doc. 1-1, p. 75).
This plain language reading is further supported by the “period of restoration”
provision in the Business Income and Extra Expense coverage sections. The policy defines
"period of restoration" in relevant part as the period of time that “[e]nds on the earlier of:
(1) the date when the property at the 'premises' should be repaired, rebuilt or replaced . .
. or (2) The date when business is resumed at a new permanent location." (Doc. 1-1 at p.

See In re: Society Ins. Co. Covid-19 Bus. Interruption Protect. Ins. Litigation, No. MDL No. 2964, 2021
WL 679109 (N.D. Ill. Feb. 22, 2021); Derek Scott Williams PLLC v. The Cincinnati Ins. Co., No. 20 C 2806, 2021
WL 767617 (N.D. Ill. Feb. 28, 2021); Treo Salon, Inc. v. West Bend Mutual Ins. Co., No. 20-cv-1155-SPM, 2021
WL 1854568 (S.D. Ill. May 10, 2021).
3

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105-106). Without underlying physical loss or damage to the insured's property, no
repair, rebuilding, replacement, or permanent location would outwardly be required,
rendering this definition unclear at best. Accord T & E Chi. LLC v. Cincinnati Ins. Co., 501
F. Supp. 3d 647, 652 (N.D. Ill. 2020)(noting that the definition of "period of restoration"
necessarily "implies a requirement of loss to property rather than loss of property").
On the other hand, Defendants seem to narrow the concept of direct loss too far in
the other direction by arguing that there must be some type of physical alteration to the
property to warrant coverage. Plaintiff, for example, points to asbestos and noxious gas
contamination cases, as well as falling rock cases, where Illinois state and federal courts
have found coverage. In those situations, there is arguably no physical alteration to the
property, but the insured clearly suffers from the loss of use or access to the property.
Both parties agree that there is no binding authority in the State of Illinois or in the
Seventh Circuit finding that COVID-19 results in direct physical loss to property. The
Court is therefore tasked with predicting how the Illinois Supreme Court would rule in
this matter. The parties seem to place an undue emphasis on the interpretation of the
terms “loss” and “damage.” However, the key term in the construction of the policy is
the word “physical,” as it modifies both loss and damage.
While it is true that there is no binding authority on this issue, the Illinois Supreme
Court has interpreted the term “physical” in an insurance policy dealing with physical
injury to tangible property. See Traveler’s Ins. Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278
(Ill. 2001). In Travelers, the Illinois Supreme Court addressed the interpretation of a
“property damage” provision in a Comprehensive General Liability (“CGL”) policy as it

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related to the installation of a defective plumbing system which had a propensity to leak.
Id. at 290-291. As a result of the installation, a homeowner was exposed to a 5% risk that
the system would fail in the future. Id. at 313. Illinois law governed the policy at issue,
and the operative language defined “property damage” as “physical injury to tangible
property which occurs during the policy period.” Id. at 298. The insurers argued that
“property damage” did not occur until the system actually failed, leaked, and caused
water damage to the claimant’s property. Id. at 291. The policyholders, on the other hand,
argued that homes which contained the defective plumbing system did, in fact, suffer
injury because of the system’s propensity to leak. Id. at 299.
The Illinois Supreme Court found for the insurers, holding that the installation of
the defective plumbing system did not cause “physical injury to tangible property.”
Traveler’s, 197 Ill. 2d at 301. In arriving at its holding, the Court relied on the word
“physical,” which it defined as “‘of or relating to natural or material things as opposed
to things mental, moral, spiritual, or imaginary:

Material, Natural.’” Id. (quoting

WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 1706 (1993)). The Court went on to
conclude that an average, ordinary person would interpret “physical” injury to property
as occurring when such property “is altered in appearance, shape, color or in other
material dimension.” Id. The Court acknowledged that something physical happened to
the property when the system was installed, but it was not an injury. Id. at 304. The Court
further determined that a “physical” injury does not take place when there is only “an
economic injury.” Id. at 308. Finally, the Court found that the purpose of a CGL policy
was to protect the insured from liability for injury or damage to the persons or property

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of others and that finding coverage for economic losses would transform the policy into
something different. Id. at 314 As such, the Court held that the policyholders could not
recover for the diminution of value caused by the expected failure of the system to
function as promised. Id. at 301-302.
Clearly, Travelers is distinguishable and cannot be directly applied to the
construction of the relevant policy provisions in the instant case. The most obvious point
of distinction is that the policy language is different. Here, the relevant language is “direct
physical loss or damage to property,” whereas in Travelers, the relevant language was
“property damage,” which was defined as “physical injury to tangible property.”
The use of the word “tangible” in the policy’s definition is yet another point of
distinction and also appeared to be critical to the holding of the case. Because the relevant
policy language here does not incorporate the term “tangible,” physical loss or damage
to property may be intangible. See, e.g., Newman Myers Kreines Gross Harris, P.C. v. Great
Northern Ins. Co., 17 F. Supp. 3d 323, 330 (S.D.N.Y. 2014)(noting that the policy term
“requiring ‘physical loss or damage,’ does not require that the physical loss or damage
be tangible, structural or even visible.”). This is the point Plaintiff is clearly trying to make
through its reliance on cases dealing with asbestos and noxious gas contamination, as
well as falling rock.
Travelers, however, provides an important guidepost for the Court because of its
analysis of the term “physical.” In Travelers, the Illinois Supreme Court was careful to
make sure that its interpretation did not read the term “physical” out of the policy. In
fact, the Illinois Supreme Court criticized the Seventh Circuit for doing just that in Eljer

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Manufacturing Inc. v. Liberty Mutual Ins. Co., 972 F.2d 805 (7th Cir. 1993). In Eljer, a divided
panel of the Seventh Circuit concluded that under Illinois law “physical injury to tangible
property occurred” when the defective plumbing system was installed. Traveler’s, 197 Ill.
2d at 302. The Seventh Circuit concluded the covered property did not have to be injured
in a “physical” sense; rather, the “physical” component was satisfied through any loss
resulting from physical contact or linkage with the defective plumbing system. Id. at 303.
The Illinois Supreme Court, however, ruled “that Eljer was incorrectly decided under
Illinois law.” Id. at 303. The Illinois Supreme Court reasoned that the Seventh Circuit
deviated from fundamental rules of construction and failed to interpret the term
“physical injury” consistently with what that term was meant to do in a CGL policy. Id.
The Court is tasked with interpreting and applying Illinois law and predicting
what the Illinois Supreme Court would do with this case. As such, the Court must take
its guidance from Travelers and its definition of the word “physical.” The Court must thus
determine whether COVID-19 constitutes “direct physical loss to property” much like
the Illinois Supreme Court in Travelers was charged with determining whether the
installation of a defective plumbing system amounted to “physical injury” within the
meaning of the policy. In doing so, the Court must also be careful not to read the term
“physical” out of the policy. Its interpretation must further comport with the purpose
that the phrase “direct physical loss to property” is meant to serve in the policy at issue.
Here, the Court predicts that the Illinois Supreme Court would find the policy
language in the instant case to be unambiguous. Contrary to Defendants’ position,
physical loss to property is not limited to tangible, physical alterations to the structure of

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the property, but can also include intangible elements as well. The weakness of
Defendants’ position is that it does not account for the falling rock, asbestos and noxious
gas cases cited by the Plaintiff where the courts found coverage for loss of use or access.
However, Plaintiff cannot recover for loss of use or access to its property because of
COVID-19. Relying on the definition of “physical” used in Travelers, there must be some
material change or alteration to the property or premises in order to constitute physical
loss to property. The presence of COVID-19 on the premises does not constitute a material
change or alteration to the property or premises. Therefore, the Court concludes that
there is no coverage.
The Illinois Supreme Court’s definition of the term “physical” requires the
property or premises to undergo some “alteration in appearance, shape, color or in other
material dimension." Traveler’s, 197 Ill. 2d at 301. See also Windridge of Naperville
Condominium Assoc., 932 F.3d 1035, 1040 n.4 (7th Cir. 2019). The key terms to take from
this definition are “an alteration” and “in other material dimension.” The term alteration
suggests that, to some extent, the injury in question has transformed the property such
that the property cannot be un-intertwined with the injury without either significant time
or purposeful action to undo the injury. See, e.g., ”Alter,” CAMBRIDGE BUSINESS ENGLISH
DICTIONARY

(2021),

https://dictionary.cambridge.org/dictionary/english/alter

(defining “alter” as a verb meaning “to change the appearance, character, or structure of
something . . .”). The changes which result in alteration are intertwined with the property
which is altered.

Page 17 of 35

Equally, the term “material dimensions” connotes more than merely tangible
property; it also implies the intangible, but physical, elements of the property which
makes the property more than the sum of its parts. See, e.g., “Material, entry 2(1)(a)(1)(2)”,

MERRIAM-WEBSTER

DICTIONARY

(2021),

https://www.merriam-

webster.com/dictionary/material (defining “material” as “the elements, constituents, or
substances of which something is composed or can be made” and “matter that has
qualities which give it individuality and by which it may be categorized”). Together,
these terms include damage or loss to property which is either tangible or intangible, so
long as that damage or loss is to the property, i.e., injury which is intertwined with the
property after it occurs. These terms exclude effects of an injury, i.e., damage or loss which
is part of a chain reaction initiated by the injury in question.
In order to illustrate how the terms “alter” and “material dimensions” interact
with the phrase “loss or damage to property,” the Court has constructed a modified
Square of Opposition (the “Square”). The Square contains four complimentary and
contradictory sections:

Intertwined and Tangible

Not Intertwined, but Tangible

Intertwined, but Intangible

Not Intertwined and Intangible

Page 18 of 35

The diagonal of the Square is contradictory, while the sections of the Square which
are next to each other are complimentary. By analyzing which sections of the Square are
included in the term “direct physical loss or damage,” the Court can also determine
which sections of the Square are excluded, and what separates those sections from the
others. The Court includes both the terms “tangible” and “intangible” because Illinois
jurisprudence has found coverage for physical loss or damage to property in both
circumstances. The Court includes the term “intertwined” to ensure that it does not read
the word “physical” out of the relevant policy provision, which is “loss or damage to
property.”
First, “direct physical loss or damage” clearly includes an injury which is both
intertwined with the property and is tangible. For example, in Advance Cable, the Seventh
Circuit held that, under Wisconsin law, the phrase "direct physical loss" includes both
hail damage that diminished the functionality of the insured's roof and hail dents that
were only cosmetic. Advance Cable Co., LLC v. Cincinnati Ins. Co., 788 F.3d 743, 747 (7th
Cir. 2015). The hailstorm "caused visible indentions to the surface of the roof" and
"change[d] the physical characteristics of the roof." Id. This damage was intertwined with
the property and thus was not intangible. Therefore, the policy's "direct physical loss"
language was satisfied. Id. Thus, the term “direct physical loss or damage to property”
includes the first section of the Square.

Page 19 of 35

Intertwined and Tangible

Not Intertwined, but Tangible

Cosmetic and functional damage to a car roof
from a hailstorm
Intertwined, but Intangible

Not Intertwined and Intangible

Second, courts within the Seventh Circuit have acknowledged that certain
intangible damage may be included in the phrase “direct physical loss” when the
property’s “function [is] severely impaired or destroyed and the property [is] rendered
useless” by the alleged injury. See Byberry Services and Solutions, LLC v. Mt. Hawley
Insurance Co., Case No. 20-cv-03379, 2021 WL 3033612, at *5 (N.D. Ill. Jul. 19, 2021)(quoting
Sentinel Mgmt. Co. v. New Hampshire Ins. Co., 563 N.W.2d 296, 300 (Minn. Ct. App. 1997)).
See also U.S. Fidelity & Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 931 (Ill.
1991)(listing cases)(noting that the essence of asbestos allegations is that “the buildings
have been contaminated by asbestos to the point where corrective action . . . must be
taken”). For instance, asbestos arguably does not cause “tangible” loss or damage to
property; however, asbestos fibers are intertwined with the air inside the property such
that the building is rendered useless without significant effort to untangle the property
from the injury. This typically requires removing the asbestos from the property. See
Byberry Services and Solutions, LLC, 2021 WL 3033612, at *5. The same can also be said of
the noxious gas contamination cases, where the dangerous gas or fumes are intertwined

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with the air. Thus, the complimentary box of “Intertwined, but Intangible” in the Square
is also covered under “direct physical loss or damage to property.”

Intertwined and Tangible

Not Intertwined, but Tangible

Cosmetic and functional damage to a car roof
from a hailstorm
Intertwined, but Intangible

Not Intertwined and Intangible

The release of asbestos fibers; noxious gas or
fumes

The next section of the Square which is complimentary to “Intertwined and
Tangible” is “Not Intertwined, but Tangible.” Courts in this Circuit have found that this
type of damage is also covered under “direct physical damage.” For example, in One Place
Condominium, LLC v. Travelers Property Cas. Co. of America, the Northern District of Illinois
noted that the threat of falling rocks constituted physical damage to property in the path
of the potential rockfall. No. 11 C 2520, 2014 WL 4977331, at *14 (N.D. Ill. Oct. 6, 2014).
Erosion and negligent construction of a nearby highwall contributed to the rockfall threat;
neither cause was inherent to nor intertwined with the property, as both could be
remedied. Id. However, the threat of loss, injury, or damage was to the tangible structure

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of the property.4 Accordingly, the third section of the Square is also covered under “direct
physical loss or damage to property.”

Intertwined and Tangible

Not Intertwined, but Tangible

Cosmetic and functional damage to a car roof

The threat of falling rocks due to negligent

from a hailstorm

construction of a nearby highwall

Intertwined, but Intangible

Not Intertwined and Intangible

The release of asbestos fibers; noxious gas or
fumes

The last section of the Square is the section contradictory to “Intertwined and
Tangible,” i.e., “Not Intertwined and Intangible.” Courts interpreting Illinois law in the
Seventh Circuit have consistently held that damage or loss to property which is neither
intertwined with the property nor tangible is not covered under the term “direct physical
loss or damage.” In Chief of Staff, LLC v. Hiscox Ins. Co., Inc., No. 20 C 3169, 2021 WL
1208969, at *3 (N.D. Ill. Mar. 31, 2021), the Northern District of Illinois provides a helpful
example in determining why the last section of the Square is not included in “direct
physical loss or damage to property.” When a thief steals a desktop computer, the
damage or loss is intertwined with the property (e.g., the nature of the property has
changed from “in its owner’s possession” to “not in its owner’s possession[]”), and this

Though the damage had not yet occurred in One Place Condominium, LLC, the threat of damage was
all but certain and thus was arguably treated as tangible damage. 2014 WL 4977331, at *13-14. This certainty
was sufficient for coverage.
4

Page 22 of 35

change cannot be undone without significant effort to catch the thief and track down the
computer. See id. However, the damage or loss is not tangible because the computer itself
has not changed. See id. Nevertheless, this constitutes “direct physical loss” of the
computer. Id.
Similarly, a thief who destroys the computer with a hammer because he cannot
carry it out of the premises has caused the computer damage which is both intertwined
and tangible. See id. This is also an example of “direct physical damage.” Id. In contrast,
however, when the thief merely changes the password on the computer, rendering it
inoperable, the injury is neither “direct physical damage” nor “direct physical loss.” Id.
This scenario illustrates damage which is neither tangible nor intertwined with the
property. The computer itself has not been changed by the action, and the damage may
be easily remedied with a call to the IT department. This damage is therefore not covered
under the policy language. Accordingly, when completed, the Square looks like this:

Intertwined and Tangible

Not Intertwined, but Tangible

Cosmetic and functional damage to a car roof

The threat of falling rocks due to negligent

from a hailstorm

construction of a nearby highwall

Intertwined, but Intangible

Not Intertwined and Intangible

The release of asbestos fibers; noxious gas or

A thief changes a computer’s password

fumes

Page 23 of 35

The Square therefore illustrates that the operative elements of “direct physical loss
or damage” are that the injury must be tangible, intertwined with the property, or both.
“Direct physical loss or damage” does not include the contradictory scenario, in which
the damage is neither intertwined with the injured property nor tangible. Damage
resulting from COVID-19 falls squarely within this section of the Square. Though the
virus may be physically present in the air inside of or on the surfaces of items within the
property in question, it does not alter, transform or change the property, air, or any of the
items. See L & J Mattson’s Co. v. Cincinnati Ins. Co., Inc., No. 20 C 7784, 2021 WL 1688153,
at *5 (N.D. Ill. Apr. 29, 2021). This is in contrast to asbestos fibers and noxious gases or
fumes, which alter or transform the air in the property. In that sense, there is physical loss
of the air at the property because the air transforms from being safe to breathe to not
being safe to breathe. Air that contains COVID-19, however, is not inherently unsafe to
breathe. For example, one can continue to breathe such air with a mask. COVID-19 thus
does not cause damage or loss to the air. Any areas or items infected with the virus also
do not require repair or replacement; instead, the property owner can clean the infected
surfaces and wait until the virus dies. Id. COVID-19 is thus not intertwined with the
property.
Equally, the loss or damage to the property resulting from COVID-19 is not of a
tangible nature. Though the virus may cause injury to humans, it does not alter a
“material dimension” of the property through its presence. See Chief of Staff LLC, 2021 WL
1208969, at *4 (listing cases). Unlike the threat of falling rocks, which would alter some
physical aspect of the property by crashing into it, no “material dimension” is altered by

Page 24 of 35

the presence of COVID-19. COVID-19 is thus neither tangible nor intertwined with the
property.
The Square also illustrates why there was no coverage in Travelers for the
installation of the defective plumbing system. Because the system in question was
expected to fail in 5% of the homes, the threat of failure was not deemed imminent, as it
was in One Place Condominium. Therefore, any damage posed by the plumbing system’s
potential to fail was not tangible. It was also not intertwined because the system had not
yet leaked. Had it leaked, it would have altered and/or transformed the property in
question thus making the injury intertwined. Thus, Travelers is a situation where the
injury, loss or damage was not intertwined and not tangible. As such, there was no
coverage.
The Court’s final Square illustrates all of the examples discussed to this point:

Intertwined and Tangible

Not Intertwined, but Tangible

Cosmetic and functional damage to a car roof

The threat of falling rocks due to negligent

from a hailstorm

construction of a nearby highwall

Intertwined, but Intangible

Not Intertwined and Intangible

The release of asbestos fibers; noxious gas or
fumes

(i)

A

thief

password

Page 25 of 35

changes

a

computer’s

(ii)

The presence of the COVID-19 virus
on surfaces or in the air inside a
property

(iii)

Installation of defective plumbing
system that had not failed

The Illinois Supreme Court in Travelers has provided a straightforward path for
interpreting the key policy language of “direct physical loss or damage to property.”
Based on the definition of “physical” in Travelers, there must be some injury, loss or
damage to the property that is so intertwined with the property that it alters, transforms
or changes the property in question. If that circumstance exists, then the injury, loss or
damage can either be tangible or intangible. The intertwining of the injury, loss or
damage with the property satisfies the “physical” element required by the policy.
Coverage also exists if the injury, loss or damage to the property is not intertwined with
the property so long as the injury, loss or damage has a tangible and imminent element
to it, i.e., the falling rock which threatens the destruction of the property. This tangible
element likewise satisfies the “physical” element of the policy because the tangible nature
of the injury, loss or damage is readily perceivable. Thus, there is no question that it
equates to being “physical.”
The Court’s construction is also consistent with the Illinois Supreme Court’s
admonition to “construe the policy as a whole and 'take into account the type of insurance
purchased, the nature of the risks involved, and the overall purpose of the contract.'"

Page 26 of 35

Windridge, 932 F.3d at 1039 (citing Traveler's Ins. Co. v. Eljer Mfg., 197 Ill. 2d 278, 757 N.E.2d
481, 258 Ill. Dec. 792 (Ill. 2001)). The policy in question is a CGL policy, and as the Illinois
Supreme Court noted, such a policy is designed “to protect the insured from liability for
injury or damage to the persons or property of others.” Travelers, 197 Ill. 2d at 314. This is
precisely why coverage is only provided for direct loss or damage that has a physical
aspect to it. It is not designed to provide coverage for economic injury resulting from the
loss of use or access to property. In fact, the policy specifically notes that the Defendant
“will not pay for ‘loss’ caused by or resulting from . . . [d]elay, loss of use or loss of
market.” (Doc. 1-1, p. 75). The Court’s construction of the policy is thus consistent with
the policy as a whole, the type of insurance purchased and the overall purpose of the
contract. Because COVID-19 does not cause “direct physical loss” to property, there is no
coverage under the policy, and Plaintiff’s claim must be dismissed.
B.

Civil Authority Provision

Plaintiff’s claim for coverage under the Civil Authority provision fares no better.
The Civil Authority provision provides for the payment of lost business income and
necessary extra expenses incurred as a result of a civil authority’s action, which prohibits
access to the insured premises because of loss or damage to other nearby property. (Doc.
1-1, p. 86). By its plain language, the Civil Authority coverage applies only if there is a
Covered Cause of Loss, i.e., risks of direct physical loss or damage to property, other than
at the "premises." Id. Just as COVID-19 did not cause direct physical loss to Plaintiff's
property, Plaintiff fails to allege that COVID-19 caused direct physical loss or damage to
other property. Therefore, by the policy's own terms, the Civil Authority provision does

Page 27 of 35

not apply.
Even if the Court were to adopt Plaintiff’s interpretation of direct physical loss to
property, Plaintiff has failed to plead the necessary preconditions to trigger coverage.
Two conditions must be satisfied. First, the civil authority must prohibit access to the area
immediately surrounding the damaged property. (Doc. 1-1, p. 86). Second, the civil
authority’s action must be “in response to dangerous physical conditions resulting from
the damage or continuation of the Covered Cause of Loss that caused the damage.” Id.
With respect to the first condition, Plaintiff alleges that a civil authority, namely
the Governor, prohibited access to the area immediately surrounding its property due to
the presence of COVID-19 on property close to Plaintiff’s property. (Doc. 1-1, ¶ 73).
Plaintiff further alleges that another civil authority, namely, the Illinois Department of
Public Health, prohibited access to Plaintiff’s property for non-emergency, routine care.
Id. Cases interpreting similar provisions have applied it strictly, requiring the civil
authority to restrict access specifically to the property in question. For example, in Syufy
Enterprises v. Home Ins. Co. of Indiana, No. 94-0756-FMS, 1995 WL 129229 (C.D. Cal. Mar.
21, 1995), the Court denied coverage under a civil authority provision. Id. at *2. The civil
authority imposed a dawn-to-dusk curfew to reduce the possibility of rioting and looting,
which had the practical effect of prohibiting people from entering the property. Id.
However, because access to the property in question was not specifically denied, civil
authority coverage was never implicated. Id. See also The Philadelphia Parking Authority v.
Federal Ins. Co., 385 F. Supp. 2d 280, 289 (S.D.N.Y. 2005)(holding that an FAA order aimed
at aircraft operators, which effectively prevented the ingress and egress of passengers at

Page 28 of 35

the Philadelphia International Airport and its parking facilities, did not trigger civil
authority coverage because it did not specifically prohibit access to Plaintiff’s garage and
parking facilities). Here, Plaintiff cannot allege that access to its property or to the
surrounding area was prohibited. In fact, Plaintiff concedes that it saw a handful of
patients for urgent and emergency matters during the time that it was forced to suspend
its practice. (Doc. 1-1, ¶¶ 8, 49). Thus, based on Plaintiff’s own allegations, access to its
property or the surrounding area was not prohibited.
Plaintiff also fails to satisfy the second precondition. The civil authority’s action
must be a response to dangerous physical conditions at a property near Plaintiff’s
property, and Plaintiff has failed to allege facts to satisfy this condition. The Court finds
Judge Feinerman’s reasoning in CFIT Holding Corp. v. Twin City Fire Ins. Co., No. 20 C
3453, 2021 WL 2853376 (N.D. Ill. July 8, 2021) to be persuasive. In CFIT Holding, the Court
denied civil authority coverage because the COVID-19 closure orders were in response
to the pandemic in general and not because of COVID-19 contamination at a nearby
property. Id. at *6. The Court reasoned that the closure orders were not a reaction to the
presence of COVID-19 at any particular location; rather, such orders were designed to
“implement[] prophylactic measures in light of the pandemic as a whole.” Id. See also
Henry’s Louisiana Grill, Inc. v. Allied Ins. Co. of America, 495 F. Supp. 3d 1289, 1297 (N.D.
Ga. 2020)(denying civil authority coverage because plaintiff, inter alia, failed to identify
any particular property that was damaged by COVID-19).
Here, Plaintiff argues that this condition is satisfied through governmental orders
which required dentistry practices to cease all non-emergency procedures and

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individuals to stay at home unless performing essential activities. (Doc. 28, p. 19). But,
the orders must be issued because of damage to other property, i.e., COVID-19
contamination at that other property. It is clear from Plaintiff’s own allegations that the
guidance it received to suspend its practice was not because of the existence of COVID19 at any particular property; rather, such guidance was designed to curb the spread and
risk of infection. See, e.g., (Doc. 1-1, ¶ 33)(noting that recommendation of state-ADA
affiliate to close dental offices was because dentists were in “one of the highest risk
categories for transmission and contraction of the virus, . . . .”); ¶ 34 (noting that reason
for guidance to postpone elective procedures was the “risk of spread to dental office staff
and patients.”); ¶ 37 (explaining that CDC “recommendations were based on the risk of
infection in dental offices, especially because of the splatter of bodily fluids and
microorganisms). As such, the second precondition is not satisfied, which is fatal to
Plaintiff’s claims for coverage under the Civil Authority provision.
II.

Plaintiff’s Class Action Complaint and the Twombly Pleading Standard
Defendants contend that Plaintiff has made speculative and conclusory allegations

of physical loss to the property and that such allegations are not adequate under the
Twombly pleading standard. (Doc. 8, p. 7-8). Under Federal Rule of Civil Procedure 8, the
Court accepts as true all well-pleaded facts in the complaint. See Ashcroft v. Iqbal, 556 U.S.
662, 678-679 (2009). See also O’Brien v. Village of Lincolnshire, 955 F.3d 616, 621 (7th Cir.
2020) (internal citations omitted). However, the Court is not required to accept the
allegations of “a plaintiff armed with nothing more than conclusions.” Ashcroft, 556 U.S.
at 679. The plaintiff’s allegations of fact must rise above a speculative level in order to

Page 30 of 35

constitute a “showing” that pushes the claims in the complaint from possible to plausible.
See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted).
“Well-pleaded facts” include neither legal conclusions nor unsupported
conclusions of fact. See Hickey v. O’Bannon, 287 F.3d 656, 658 (7th Cir. 2002) (internal
citations omitted). Unsupported conclusions of fact are those which require subjective
characterizations in order to verify. See Hilliard v. City of Venice, Illinois, Case No. 19-cv00229-JPG, 2020 WL 7645512, *3 (S.D. Ill. Dec. 22, 2020). For instance, in Hilliard, the
plaintiff alleged both that the defendant “did not properly ensure” that the decedent
“was safe in his cell” and that the defendant “failed to appropriately monitor” the
decedent. Id. While neither claim was a direct legal conclusion, both allegations required
the Court to determine the subjective meaning of the terms “proper” and “appropriate.”
Id. These statements were therefore insufficient to survive a motion to dismiss. Id.
This analysis applies with equal force to conclusions of fact premised on a faulty
assumption. See Watters v. Harris, 656 F.2d 234, 238 (7th Cir. 1980), overruled on other
grounds by, Boley v. Colvin, 761 F.3d 803 (7th Cir. 2014). In Watters, the plaintiff initially
failed to meet the six-month deadline to request a hearing on the merits of her social
security case. Id. She then requested a hearing on the issue of whether there was good
cause to excuse her untimeliness, which the Social Security Administration denied. Id.
When requesting leave to amend her complaint in district court in response to a motion
to dismiss, the plaintiff alleged that the Administrative Law Judge’s decision to deny a
hearing on the issue of good cause reflected an admission by the Social Security
Administration that good cause existed for her untimeliness. Id. The Seventh Circuit

Page 31 of 35

upheld the district court’s decision denying leave to amend and granted the motion to
dismiss. Because the primary assumption on which the plaintiff predicated her argument
was faulty, her conclusory statement of fact could not overcome a motion to dismiss. Id.
at 240.
In the same vein as the cases above, Plaintiff’s Class Action Complaint suffers from
a faulty assumption, i.e., the presence of COVID-19 on its premises has caused direct
physical loss. It is true that Plaintiff alleges it suffered direct physical loss because of its
inability to use the property for orthodontic treatment. (Doc. 1-1, ¶ 80). However, Plaintiff
also alleges that the presence of COVID-19 in property other than the Plaintiff’s property
has caused direct damage to that property entitling it to Civil Authority coverage. Id. at
¶ 73. Implicit in that allegation is that COVID-19 is also present on its premises and has
likewise caused damage or loss to its own property. Indeed, Plaintiff alleges general facts
about COVID-19 and various local, state, and national statistics regarding COVID-19
infections. Id. at ¶¶ 18-30. Plaintiff further alleges guidance that it received from various
entities regarding the suspension of most dental procedures. Id. at ¶¶ 31-47. All of these
allegations are presumably made with the purpose of demonstrating that COVID-19 is
present on its premises and has caused damage or loss to that premises. However,
Plaintiff fails to allege that COVID-19 was or has ever been on its property.
Plaintiff wrongfully assumes that COVID-19 was present on its premises and has
caused the premises damage or loss. Making that assumption would amount to nothing
more than mere speculation. Had Plaintiff alleged that a patient or employee tested
positive for COVID-19, there arguably would have been a basis to conclude that COVID-

Page 32 of 35

19 was on the premises. But see Torgerson Properties, Inc. v. Continental Casualty Co., 520 F.
Supp. 3d 1155, 1158 (D. Minn. 2021)(noting that the plaintiff’s broad statements that it
believed that one employee and one visitor had tested positive for the virus were
“insufficient . . . to give rise to a claim for ‘direct physical loss’ under the policy.”).
Without any such allegation, the Court is left to conclude that COVID-19 was at the
insured premises based solely on the general facts and statistics about COVID-19 alleged
in the Class Action Complaint. This is clearly insufficient to satisfy the Twombly pleading
standard, and as such, Plaintiff’s Class Action Complaint must be dismissed on this basis
as well.
III.

Breach of Contract and Bad Faith Denial of Insurance Claims
Plaintiff also alleges claims for Breach of Contract (Counts I, IV, VII) and Bad Faith

Denial of Insurance under 215 ILL. COMP. STAT. § 5/155 (Counts II, V, VIII). (Doc. 1-1, p.
24-35). With respect to the breach of contract claims, Plaintiff alleges that by denying
coverage, Defendants breached their various obligations under the policy. Id. at ¶¶ 101,
126, 152. However, the Court has already concluded that a proper construction of the
policy does not afford Plaintiff any coverage. As such, Plaintiff’s breach of contract claims
must be dismissed.
As for Plaintiff’s bad faith denial claims, Section 155 provides an extracontractual
remedy to policyholders when an insurer’s refusal to pay a claim is “vexatious and
without reasonable cause.” Cramer v. Insurance Exchange Agency, 675 N.E.2d 897, 901 (Ill.
1996). A claim under Section 155, however, can only proceed “if the insurer owed the
insured benefits under the terms of the policy.” First Ins. Funding Corp. v. Federal Ins. Co.,

Page 33 of 35

284 F.3d 799, 807 (7th Cir. 2002). Moreover, the statutory sanctions set forth in Section 155
are inappropriate when there is a bona fide and genuine dispute regarding coverage. See
Phillips v. Prudential Ins. Co. of America, 714 F.3d 1017, 1023 (7th Cir. 2013). It is also
appropriate to dismiss such claims at the pleading stage. See 9557, LLC and River W.
Meeting Assocs., Inc., Travelers Indem. Co. of Conn., No. 15-cv-10882, 2016 WL 464276, at *4
(N.D. Ill. Feb. 8, 2016). Here, such a dispute did exist, and the Court found that the policy
did not provide coverage. Thus, Plaintiff’s Section 155 claims fail as a matter of law and
likewise must be dismissed.
CONCLUSION
There being no coverage under the policy, the Court must dismiss Plaintiff's
claims for declaratory relief relating to Business Income, Extra Expense, and Civil
Authority coverage (Counts III, VI, and IX). Further, because the remaining counts are
predicated on an interpretation of Defendants’ policy that the Court cannot accept, the
Court also dismisses Plaintiff's counts for breach of contract (Counts I, IV, VII) and
damages pursuant to 215 ILL. COMP. STAT. § 5/155 (Counts II, V, VIII). The Court further
finds that the failure to state a claim is not tied to a pleading deficiency that can be
corrected with an amended complaint. As such, the Court will not grant leave to amend.
For the above-stated reasons, Defendants’ Motion to Dismiss (Doc. 7) is
GRANTED. Plaintiff's Complaint (1-1) is hereby DISMISSED with prejudice. The Clerk
of the Court is directed to enter judgment accordingly and close this case.

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IT IS SO ORDERED.
DATED: September 30, 2021.

Digitally signed
by Judge Sison 2
Date: 2021.09.30
19:58:43 -05'00'
___________________________________
GILBERT C. SISON
United States Magistrate Judge

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