Biltrite Furniture Inc v. Liberty Mutual Insurance Company

Filing 25

ORDER signed by Judge J P Stadtmueller on 7/20/2021: GRANTING request to name Ohio Security Insurance Company as Defendant; GRANTING 17 Defendant's Motion for Judgment on the Pleadings; and DISMISSING CASE with prejudice. See Order. (cc: all counsel)(jm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
BILTRITE FURNITURE, INC.,
Plaintiff,
v.
OHIO SECURITY INSURANCE
COMPANY,

Case No. 20-CV-656-JPS-JPS

ORDER

Defendant.
On April 24, 2020, Biltrite Furniture, Inc., (“Plaintiff”), a furniture
retailer, filed a class action complaint alleging breach of contract and
anticipatory breach of contract, and seeking declaratory judgment against
insurer Ohio Security Insurance Company (“Defendant”).1 Plaintiff alleges
that Defendant failed to carry out its “contractual obligation under common
all-risk commercial property insurance policies to indemnify Plaintiff” for
lost business income arising from the COVID-19 pandemic. (Docket #1).
Specifically, Plaintiff brings claims for coverage under three provisions of

Plaintiff purchased its insurance policy from Ohio Security Insurance
Company, an affiliate of Liberty Mutual, but originally named Liberty Mutual in
the complaint. See (Docket #21 at 8). Liberty Mutual contends that Plaintiff has “no
claim against [it] as there is no contract between these parties.” (Docket #18 at 8).
However, Liberty Mutual has proceeded to answer and rigorously defend the
lawsuit, see generally id.; (Docket #14, #23), and Plaintiff requested leave to amend
the complaint to name Ohio Security Insurance Company as the defendant.
(Docket #21 at 9 n.4). Liberty Mutual did not contest this. The Court will construe
this as an instance of correcting a misnomer and will grant the amendment. Fed.
R. Civ. P. 15(c)(1)(C); Eison v. McCoy, 146 F.3d 468, 471 (7th Cir. 1998) (noting that
a “misnomer situation [i]s one in which the ‘proper defendant is already before
the court and the effect [of the amendment] is merely to correct the name under
which he is sued.’”) (quoting Wood v. Worachek, 618 F.2d 1225, 1229 (7th Cir. 1998)).
1

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the insurance policy: (1) the Business Income coverage provision; (2) the
Extra Expenses coverage provision; and (3) the Civil Authority coverage
provision. On September 9, 2020, Defendant filed an answer to the
complaint. (Docket #14).2 On November 16, 2020, Defendant filed a motion
for judgment on the pleadings. (Docket #17). That motion is now fully
briefed. For the reasons explained below, the motion will be granted, and
the case will be dismissed.
1.

LEGAL STANDARD
Federal Rule of Civil Procedure Rule 12(c) “permits a party to move

for judgment after the complaint and answer have been filed by the
parties.” Buchanan-Moore v. County of Milwaukee, 570 F.3d 824, 827 (7th Cir.
2009). A motion for judgment on the pleadings “is governed by the same
standards as a motion to dismiss for failure to state a claim under Rule
12(b)(6).” Adams v. City of Indianapolis, 742 F.3d 720, 727–28 (7th Cir. 2014).
To survive a challenge under Rule 12(c) or 12(b)(6), a complaint must
provide “a short and plain statement of the claim showing that the pleader
is entitled to relief.” Fed. R. Civ. P. 8(a)(2). In other words, the complaint
must give “fair notice of what the. . .claim is and the grounds upon which
it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The allegations
must “plausibly suggest that the plaintiff has a right to relief, raising that
possibility above a speculative level[.]” Kubiak v. City of Chicago, 810 F.3d
476, 480 (7th Cir. 2016) (citation omitted). In reviewing the complaint, the
Court is required to “accept as true all of the well-pleaded facts in the

The case was initially stayed pending a decision by the Judicial Panel on
Multidistrict Litigation (“JPML”) regarding consolidation and transfer. (Docket
#11, #12). However, the JPML declined to centralize the action with other COVID19 related insurance disputes. (Docket #13).
2

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complaint and draw all reasonable inferences in favor of the plaintiff.” Id.
at 480–81.
2.

RELEVANT ALLEGATIONS
2.1

Factual Background3

In December 2019, a highly infectious and potentially deadly virus,
later identified as SARS-CoV-2 (“COVID-19”) began circulating the globe.
By March 2020, COVID-19 was declared a global pandemic. In major
metropolitan areas, intensive care units ran over-capacity, and doctors had
to turn away sick patients. To curb the number of infections—and to ensure
adequate resources for those who did become sick—governments restricted
travel, gathering, and general daily activities.
In Wisconsin, these restrictions took the form of a series of
Emergency Orders, which attempted to respond to the rapidly changing
public health crisis. On March 24, 2020, Governor Tony Evers issued a
“Safer at Home Order,” which required individuals to “stay at home or
their place of residence” with certain exceptions, none of which were
applicable to Plaintiff, a furniture retailer. (Docket #20-5 at 3). Accordingly,
Plaintiff shut down its store for an indeterminate amount of time in order
to comply with the rule.
Shortly after shutting down, Plaintiff filed a business interruption
claim under its all-risk insurance policy for lost profits. On April 5, 2020,
Defendant informed Plaintiff that its claim had been denied because

Without converting this motion into one for summary judgment, the
Court will consider the insurance contract at issue and the relevant Emergency
Orders. These documents are appropriate for consideration at this stage because
they are incorporated by reference in the complaint, central to Plaintiff’s claims,
and “concededly authentic.” Hecker v. Deere & Co., 556 F.3d 575, 582–3 (7th Cir.
2009).
3

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(1) Plaintiff “had not suffered direct physical loss or damage for purposes
of” its Business Income and Extra Expense coverage, and (2) “no
surrounding property had suffered direct physical loss or damage. . .for
purposes of the Civil Authority coverage.” (Docket #1 ¶ 29). Plaintiff’s claim
was also purportedly excluded because it fell under the “Virus and
Bacteria” exclusion, which precludes coverage for closures resulting from a
contagious bacteria and virus. (Id. ¶ 32).
Plaintiff disputes the denial of the claim, and filed suit on behalf of
itself and other policyholders who were denied coverage for losses incurred
due to closures required by the COVID-19 pandemic. Specifically, Plaintiff
is suing on behalf of a nationwide class and Wisconsin sub-class of those
who have “entered into standard all-risk commercial property insurance
policies with Liberty Mutual . . .where such policies provide for business
income loss and extra expense coverage and do not exclude coverage for
pandemics and who have suffered losses due to measures put in place by
civil authorities’ stay-at-home or shelter-in-place orders since March 15,
2020[.]” (Id. ¶ 49).
2.2

Insurance Policy Provisions

Plaintiff’s insurance policy provides, in relevant part:
A.

Coverage

1.

Business Income

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 physical loss of or damage to property at
premises which are described in the Declarations and for
which a Business Income Limit Of Insurance is shown in the
Declarations. The loss or damage must be caused by or result
from a Covered Cause of Loss.
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…
2.

Extra Expense

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 incur
during the “period of restoration” that you would not have
incurred if there had been no direct physical loss or damage
to property caused by or resulting from a Covered Cause of
Loss.
…
5.

Additional Coverage
a. Civil Authority

In this Additional Coverage, Civil Authority, the described
premises are premises to which this Coverage Form applies,
as shown in the Declarations. When a Covered Cause of Loss
Causes damage to property other than property at the
described premises, we will pay for the actual loss of Business
Income you sustain and necessary Extra Expense caused by
action of civil authority that prohibits access to the described
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 the described premises are within that
area but are not more than one mile from the damaged
property; 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.
(Docket #19-3 at 145–46). A “Covered Cause of Loss” means “direct
physical loss,” subject to certain exclusions. (Id. at 169). The policy does not
cover losses or damages “caused by or resulting from . . . [d]elay, loss of use

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or loss of market.” (Id. at 171). Additionally, the contract specifically
disclaims liability for losses arising from viruses:
COMMERCIAL
PROPERTY
COVERAGE
STANDARD PROPERTY POLICY

PART

A.
The exclusion set forth in Paragraph B. applies to all
coverage under all forms and endorsements that comprise
this Coverage Part or Policy, including but not limited to
forms or endorsements that cover property damage to
buildings or personal property and forms or endorsements
that cover business income, extra expense or action of civil
authority.
B.
We will not pay for loss or damage caused by or
resulting from any virus, bacterium or other microorganism
that induces or is capable of inducing physical distress, illness
or disease. However, this exclusion does not apply to loss or
damage caused by or resulting from “fungus,” wet rot or dry
rot. Such loss or damage is addressed in a separate exclusion
in this Coverage Part or Policy.
(Id. at 160).
3.

ANALYSIS
Defendant moves for judgment on the pleadings based on several

grounds. First, there was no “direct physical loss of or damage to covered
property” sufficient to trigger the policy. Second, and relatedly, mere loss
of use of the premises does not fall within the Business Income and Extra
Expense provisions. Third, the Civil Authority coverage provision does not
apply to the Emergency Orders. Finally, Defendant contends that Plaintiff’s
claims are barred by the policy’s virus exclusion.
The parties agree that Wisconsin law applies. (Docket #21 at 10 n.5).
Under Wisconsin law, “[i]nsurance policies are construed as they would be
understood by a reasonable person in the position of the insured.” Am.

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Family Mut. Ins. Co. v. Am. Girl, Inc., 673 N.W.2d 65, 73 (Wis. 2004). Courts
will first “examine the facts of the insured’s claim to determine whether the
policy’s insuring agreement makes an initial grant of coverage.” (Id.) If the
policy covers the claim, courts “next examine the various exclusions to see
whether any of them preclude coverage[.]” (Id.) If the exclusion is
“uncertain,” it will be “narrowly or strictly construed against the insurer.”
(Id.)
3.1

Policy Coverage – Business Income and Extra Expenses

Plaintiff does not have coverage under either the Business Income or
Extra Expenses provision. Each provision makes an initial grant of coverage
to lost business income or extra expenses where there is “direct physical
loss . . .or damage to property.” (Docket #19-3 at 145). Here, Plaintiff alleges
that the “direct physical loss of and damage to property” is the inability to
“use th[e] property for its intended purpose.” (Docket #1 ¶ 28). Plaintiff
argues that “loss” must be constructed to encompass “loss of use” in order
to avoid surplusage. Otherwise, “direct physical loss” would elide with
“damage to” property, rendering the latter meaningless.
This falls short of reason. These terms are undefined, therefore the
Court must apply “their common and ordinary meaning,” as they would
be understood by a reasonable insured party. Leicht Transf. & Storage Co. v.
Pallet Cent. Enter., Inc., 928 N.W.2d 534, 538 (Wis. 2019). “Direct physical
loss . . .unambiguously requires some form of actual, physical damage to
the insured premises to trigger coverage.” Green Beginnings, LLC v. West
Bend Ins. Co., Case No. 20-CV-1661, 2021 WL 2210116, at *4 (E.D. Wis. May
28, 2021) (applying Illinois law to an insurance dispute bearing the same
language as the policy at issue in this case) (quoting Sandy Point Dental, PC
v. Cincinnati Ins. Co., 488 F. Supp. 3d 690, 693 (N.D. Ill. 2020)). As many
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courts have noted, “direct physical loss” encompasses theft, misplacement,
or total destruction of property, while “damage” addresses specifically
harmed components, or other “lesser” injuries. Michael Cetta, Inc. v. Admiral
Indem. Co., Case No. 20 Civ. 4612, 2020 WL 7321405, at *18–19 (S.D.N.Y. Dec.
11, 2020) (calling plaintiff’s argument requiring “direct physical loss” to
include “loss of use” an “untenable leap in logic.”).
Plaintiff’s own proposed definition of “loss” supports this reading:
it observes that “the dictionary defines ‘loss’ as ‘destruction, ruin’ or ‘the
act of losing possession.’” (Docket #21 at 12). Indeed, “[g]iving separate
effect to ‘loss’ and ‘damage’ in the phrase, ‘direct physical loss of or damage
to’ only highlights the distinction between ‘the permanent dispossession of’
and ‘damage’.” Real Hosp., LLC v. Travelers Cas. Ins. Co. of Am., 499 F. Supp.
3d 288, 294 (S.D. Miss. 2020). It is not superfluous for “loss” to mean exactly
what it says. The Court is not persuaded of the term’s ambiguity or
surplusage merely because one single, outlier district court has come to
another conclusion. See e.g., Studio 417, Inc. v. Cincinnati Ins. Co., 478 F. Supp.
3d 794, 803 (W.D. Mo. 2020) (finding a direct physical loss to a restaurant
where plaintiff alleged that COVID-19 is “a physical substance” that lives
on physical surfaces, making plaintiff’s property “unsafe and unusable.”).
Plaintiff has not alleged that it was deprived of its premises, nor that its
covered property was destroyed or damaged.4 Therefore, coverage under
the Business Income and Extra Expenses provisions is inapplicable.

The cases that Plaintiff cites in support of the notion that physical losses
do not require physical alteration are readily distinguishable—each case that
Plaintiff cites deals with a physical peril that made entering a structure hazardous.
See Murray v. State Farm Fire & Cas. Co., 509 S.E.2d 1, 5 (W. Va. 1998) (holding that
a yet-undamaged home situated underneath a negligently constructed vertical
highwall that suffered ongoing rockfalls may be covered by home insurance
4

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Plaintiff’s contention that “loss of use and functionality” should be
covered by the policy falls short for another reason: as stated above, the
insurance policy at issue does not cover losses or damages “caused by or
resulting from . . . [d]elay, loss of use or loss of market.” (Docket #19-3 at 171)
(emphasis added). As Plaintiff would have it, the cause of the loss is the
Emergency Order; the result is the loss of use. (Docket #1 ¶ 11) (explaining
that “Covered Cause[s] of Loss” are “the orders issued by civil authorities
to stop the spread of the Covid-19 outbreak[.]”); (id. ¶ 32) (“the efficient
proximate cause of . . .losses[] were [sic] precautionary measures taken by
the State of Wisconsin and other governmental authorities to prevent the
spread of COVID-19 in the future”). However, under these circumstances,
the lost business income and extra expenses still result from the loss of use—
rather than any physical loss or damage. Since the insurance policy
explicitly does not cover business income losses resulting from loss of use,
Plaintiff’s proposed construction—which purportedly avoids surplusage—
would render the policy’s “loss of use” exception superfluous. (Docket #193 at 171). Indeed, the existence of a “separate provision for loss of use

policies because losses “may exist in the absence of structural damage”); Gregory
Packaging, Inc. v. Travelers Prop. Cas. Co. of Am., Case No. 2:12-cv-4418, 2014 WL
6675934, at *5–6 (D.N.J. Nov. 25, 2014) (finding a direct physical loss when a juice
packaging facility was contaminated with ammonia); W. Fire Ins. Co. v. First
Presbyterian Church, 437 P.2d 52, 55 (Colo. 1968) (noting that loss of use “standing
alone, does not in and of itself constitute a ‘direct physical loss,’” but holding that
the “accumulation of gasoline around and under the church building” such that it
became “so infiltrated and saturated as to be uninhabitable” was a direct physical
loss); Or. Shakespeare Festival Ass’n v. Great Am. Ins. Co., 2016 WL 3267247, at *4–5
(D. Or. June 7, 2016) (finding physical loss or damage where wildfire smoke
infiltrated a theater) (vacated on parties’ joint stipulation). Here, by contrast, there
was nothing toxic or inherently dangerous about the premises. Rather, the concern
was that many people in close proximity to one another—regardless of where—
would quicken the transmission of COVID-19.

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suggests that the ‘direct physical loss of . . . property’ clause was not
intended to encompass a loss where the property was rendered unusable
without an intervening physical force.” Mudpie, Inc. v. Travelers Cas. Ins. Co.
of Am., 487 F. Supp. 3d 834, 842 (N.D. Cal. 2020) (emphasis added).
Finally, Plaintiff’s argument that its loss of use and functionality are
“physical losses” within the policy’s grant of coverage is unsupported by
Wisconsin law. See Wis. Label Corp. v. Northbrook Prop. & Cas. Ins. Co., 607
N.W.2d 276, 284 (Wis. 2000). In Wisconsin Label, the court found no physical
damage to items that were accidentally mislabeled and resulted in lost costs
to a store. Id. Rather, because the items were “undamaged” and “saleable,”
the pricing issue could be fixed with another label. Id. Similarly, there is no
physical damage to the store or items therein by virtue of the COVID-19
pandemic or the attendant closure orders—the store is still inhabitable, and
the products still saleable. As another court aptly noted, if loss of use is a
“direct physical loss,” then any “government order barring access to a
property would itself trigger business income or extra expense coverage[.]”
Moody v. Hartford Fin. Grp., Inc., Case No. 20-2856, 2021 WL 135897, at *6
(E.D. Pa. Jan. 14, 2021). This would render the Civil Authority provision,
which grants “coverage when civil authority orders bar access to premises
under more limited circumstances[,]” useless. (Id.)
This Court thus follows the many courts that have held that “a
complaint which only alleges loss of use of the insured property fails to
satisfy the requirement for physical damage or loss.” Food for Thought
Caterers Corp. v. Sentinel Ins. Co., Ltd., Case No. 20-cv-3418, 2021 WL 860345,
at *4 (S.D.N.Y. Mar. 6, 2021) (citing cases). The insurance policy at issue
clearly does not cover business income losses and extra expenses resulting
from Plaintiff’s mere inability to use the premises.
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3.2

Policy Coverage – Civil Authority

In order for Civil Authority Coverage to apply, three criteria must
exist: (1) damaged off-premises property within one mile of the premises,
which resulted from a covered cause of loss; (2) a civil authority order
barring access to the area surrounding the damaged property; and (3) either
the civil authority order was taken in response to dangerous physical
conditions caused by damage or the covered cause of loss, or the civil
authority required “unimpeded access to the damaged property.” (Docket
#19-3 at 146). Not one of these criteria exist in the current situation.
First, there is no damaged off-premises property alleged in the
complaint (nor are the premises themselves alleged to be damaged; see
Section 3.1, above). Second, the civil authority order does not bar access to
an area surrounding a property—rather, the Emergency Orders generally
require people to stay at home to stop the spread of a virus, with certain
exceptions. Third, neither the “damage” (which, recall, is loss of use and
functionality) nor the “covered cause of loss” (which Plaintiff frames as the
civil authority order) caused a dangerous condition—in fact, both likely
prevented a dangerous condition. Finally, no civil authority required
“unimpeded access to [a] damaged property,” if any were to have been
alleged.
The parties seem to agree that civil authority orders “intended to
prevent future harm, rather than existing property loss or damage,” do not
fall within Civil Authority Coverage provisions. (Docket #21 at 28–29); see
United Airlines, Inc. v. Ins. Co. of the State of Penn., 439 F.3d 128, 134–35 (2d
Cir. 2006) (no business interruption coverage under terrorism provisions
where closures were due to government orders heightening safety
standards, rather than a crash at the Pentagon); Syufy Enters. v. Home Ins.
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Co. of Ind., Case No. 94—0756-FMS, 1995 WL 129229, at *2 (N.D. Cal. Mar.
21, 1995) (no civil authority coverage for a theater when a dawn-to-dusk
curfew was imposed because “theater access was not specifically
foreclosed.”).

However,

Plaintiff

argues

that

“[t]hose

cases

are

distinguishable because the civil authority orders in those cases were
intended to prevent future harm, rather than existing property loss or
damage . . . Here, the [Emergency] Orders have already caused Plaintiff to
suffer a ‘physical loss of’ property.” (Docket #21 at 28–29).5 This does not
make sense. Here, too, the Emergency Orders were intended to prevent
future harm—i.e., the increased rate of transmission of COVID-19, which,
absent the Orders, was certain.
3.3

Exemptions – Virus Exclusion Provision

In many ways, the sections above are an academic exercise, because
regardless of whether there was a “direct physical loss or damage” either
on the property or near the property, when the issue boils down to its
essence, the losses resulting from the COVID-19 pandemic are not a covered
cause of loss. The policy explicitly says that it “will not pay for loss or
damage caused by or resulting from any virus, bacterium or other
microorganism that induces or is capable of inducing physical distress,
illness or disease.” (Docket #19-3 at 160). Here, Plaintiff alleges that its losses
resulted from the Emergency Orders. These Emergency Orders resulted
from COVID-19, a virus. Thus, Plaintiff’s losses resulted from COVID-19, a

On that same page, Plaintiff recognizes that the Emergency Orders were
issued “during a pandemic based on a virus that damaged Plaintiff’s property.”
(Docket #21 at 28). This theory of relief is unavailable based on the Virus Exclusion
provision, discussed in Section 3.3. It also reveals a crack in Plaintiff’s tortured
attempt to find policy coverage: at the end of the day, the losses were caused by a
virus.
5

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virus. Accordingly, these losses are excluded from coverage. Green
Beginnings, LLC, 2021 WL 2210116 at *7 (holding that “[t]he language of the
virus exclusion provision . . .clearly and unambiguously preclude[s]
coverage” where “a virus resulted in the . . .Orders being issued, damage
caused by the orders was caused by the virus”). The fact that Plaintiff’s
property was not contaminated is not relevant—the policy does not require
contamination.
Plaintiff argues that there is a “distinction between losses caused by
precautionary measures taken to avoid an excluded peril, which trigger
coverage, and losses caused by the excluded peril itself, which do not.”
(Docket #21 at 31). In this case, that is a distinction without a difference—
one that Plaintiff has clumsily acknowledged in its own briefing. (Id. at 28)
(explaining that the Emergency Orders were issued “during a pandemic
based on a virus that damaged Plaintiff’s property.”). Additionally, the
Emergency Orders, as their name suggests, were hardly “precautionary.”
When the Emergency Orders took effect, the known number of COVID-19
cases had increased 102% in three days; five people were confirmed to have
passed away from the virus. (Docket #20-5 at 1). The virus’s rapid spread
was a calculated inevitability—the Emergency Orders were implemented
to “reduce further spread” in the future, not to reduce the risk of further
spread. C.f. Newman Myers, 17 F. Supp. 3d 323, 333–34 (S.D.N.Y. 2014)
(finding that an insurer had not met its burden of showing that a flood
exclusion applied when evidence showed that an electric grid shut down in
anticipation of flooding, rather than as the result of a flood); United Airlines,
439 F.3d at 134–35 (denying business interruption coverage to airline where
losses were the result of government orders to curb potential terrorism,
rather than terrorism itself). Additionally, though Plaintiff cites Newman
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Myers and United Airlines in support of their argument that the losses
caused by the “precautionary measure” are distinct from losses caused by
the peril itself, these cases are not squarely on point—in both, coverage was
denied due to a lack of physical loss or damages, and the inapplicability of
any other provision. Newman Myers, 17 F. Supp. 3d at 331; United Airlines,
439 F.3d at 131–34. In short, Plaintiff cannot overcome the virus exclusion
provision, which plainly denies coverage for damages or losses resulting
from viruses.
4.

CONCLUSION
The COVID-19 pandemic was a tragedy with many unfortunate

consequences, which include business losses. Though some insurance
policies may cover those losses, not all will. When a policy, read plainly,
does not cover the loss or the cause of loss, the Court simply cannot rewrite
the policy to provide coverage where none was due. Wis. Label Corp., 607
N.W.2d at 283. Better recourse for these losses might be found through
Congress.
Accordingly,
IT IS ORDERED that Plaintiff’s request to name Ohio Security
Insurance Company as Defendant be and the same is hereby GRANTED,
and Ohio Security Insurance Company will be deemed a party to these
proceedings;
IT IS FURTHER ORDERED that Defendant’s motion for judgment
on the pleadings (Docket #17) be and the same is hereby GRANTED; and
IT IS FURTHER ORDERED that this case be and the same is hereby
DISMISSED with prejudice.
The Clerk of Court is directed to enter judgment accordingly.

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Dated at Milwaukee, Wisconsin, this 20th day of July, 2021.
BY THE COURT:

____________________________________
J. P. Stadtmueller
U.S. District Judge

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