ABW Dev., LLC v. Cont'l Cas. Co.
| Docket Number | 1-21-0930 |
| Decision Date | 30 March 2022 |
| Citation | 2022 IL App (1st) 210930,203 N.E.3d 922,461 Ill.Dec. 320 |
| Parties | ABW DEVELOPMENT, LLC, d/b/a PAW Management, Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY, Defendant-Appellee. |
| Court | United States Appellate Court of Illinois |
2022 IL App (1st) 210930
203 N.E.3d 922
461 Ill.Dec. 320
ABW DEVELOPMENT, LLC, d/b/a PAW Management, Plaintiff-Appellant,
v.
CONTINENTAL CASUALTY COMPANY, Defendant-Appellee.
No. 1-21-0930
Appellate Court of Illinois, First District, THIRD DIVISION.
Filed March 30, 2022
Glenn L. Udell, Michael S. Pomerantz, and Bryan D. King, of Brown, Udell, Pomerantz & Delrahim, Ltd., of Chicago, for appellant.
Brent R. Austin, Michael L. McCluggage, and Caroline P. Malone, of Eimer Stahl, LLP, of Chicago, for appellee.
JUSTICE McBRIDE delivered the judgment of the court, with opinion.
¶ 1 Plaintiff, ABW Development, LLC, doing business as PAW Management, is the owner and operator of medical imaging clinics in Illinois and Indiana. Plaintiff sought to recover from its insurer, defendant, Continental Casualty Company, losses that plaintiff allegedly suffered due to the COVID-19 pandemic and due to governmental orders issued in response. After defendant denied plaintiff's claim, plaintiff sought a declaratory judgment that the losses were covered by its policy and that it was entitled to recover them. On motion of defendant, the circuit court dismissed plaintiff's complaint, concluding that the unambiguous terms of the policy did not cover plaintiff's alleged losses. Plaintiff appeals that dismissal.
¶ 2 The record shows that plaintiff purchased an insurance policy from defendant. The policy was effective for the period from January 3, 2020, to January 3, 2021, and provided coverage for plaintiff's business personal property located at three clinic locations in Illinois and one clinic location in Indiana.
¶ 3 The policy contained a "Businessowners Special Property Coverage Form," pursuant to which defendant agreed to "pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from a Covered Cause Of Loss." A "Covered Cause of Loss" was defined as "Risks of Direct Physical Loss," unless an exclusion or limitation applied.
¶ 4 The policy also contained a "Business Income and Extra Expense" endorsement, providing coverage for "Business Income" and "Extra Expense." Regarding "Business Income," defendant agreed to "pay for the actual loss of Business Income [plaintiff] sustain[ed] due to the necessary ‘suspension’ of [its] ‘operations’ during the ‘period of restoration.’ " "Suspension" was defined as the "partial or complete cessation of [plaintiff's] business activities" and "operations" was defined as "the type of [plaintiff's] business activities occurring at the described premises and tenantability of the described premises." The "period of restoration" was defined as the period that:
"Begins with the date of direct physical loss or damage caused by or resulting from any Covered Cause of Loss at the described premises; and [e]nds on the earlier of: (1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or (2) The date when business is resumed at a new permanent location."
¶ 5 The provision further stated that the suspension "must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss."
¶ 6 As to "Extra Expense," the policy defined that term to mean "reasonable and necessary expenses [plaintiff] incur[ed] during the ‘period of restoration’ that [plaintiff] would not have incurred if there had been no direct physical loss of or damage to property caused by or resulting from a Covered Cause of Loss."
¶ 7 The policy further provided that defendant would "not pay for loss or damage caused by *** Fungi, Wet Rot, Dry Rot and Microbes." "Microbes" was defined as "Any non-fungal microorganism or nonfungal, colony-form organism that causes infection or disease."
¶ 8 Finally, the policy included a Civil Authority endorsement, which "extended
[plaintiff's Business Income and Extra Expense coverage] to apply to the actual loss of Business Income [plaintiff] sustain[ed] and reasonable and necessary Extra Expense [plaintiff] incur[red] caused by action of civil authority that prohibits access to the described premises." The endorsement further provided that the civil authority action "must be due to direct physical loss of or damage to property at locations, other than described premises, caused by or resulting from a Covered Cause of Loss."
¶ 9 On June 22, 2020, plaintiff filed a complaint for a declaratory judgment in the circuit court. Plaintiff alleged that it had been forced to suspend "much of its business activities *** due to the COVID-19 crisis and the ensuing orders of civil authorities." Plaintiff noted that on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. Thereafter, Illinois Governor J.B. Pritzker issued executive orders "closing" nonessential businesses on or about March 16, 2020, and requiring Illinois residents to stay at home, with exceptions for essential activities, on March 20, 2020. Plaintiff further alleged that the Indiana Governor issued a similar "Stay at Home Order" on March 23, 2020, requiring Indiana residents to stay at home, except for essential activities. Plaintiff alleged that it "sustained and continues to sustain, losses due to the virus that causes COVID-19," due to the "spread of COVID-19 in the community" and due to "the actions of the above referenced civil authorities."
¶ 10 Plaintiff asserted that it was "likely" that SARS-CoV-2, the virus that causes COVID-19 (the COVID-19 virus), had been physically present at plaintiff's premises during the policy period and that plaintiff had "sustained direct physical loss and damage to items of property and *** to their premises *** as a result of the presence of" the virus "and/or the COVID-19 crisis." It further alleged that the "presence" of any particles from the COVID-19 virus "render[ed]" the premises, and items of physical property, "unsafe," impairing their "value, usefulness and/or normal function," and causing "direct physical harm or loss to property." Plaintiff maintained that its operations had "been suspended" due to the "physical loss and damage" to its property and the premises and due to the "orders issued by civil authorities, thereby causing an actual loss of income."
¶ 11 Plaintiff stated that it had submitted a claim to defendant, but that defendant refused to pay plaintiff's claim for losses. Among other things, plaintiff requested a declaration that it sustained physical loss or damage, that the presence of the COVID-19 virus in the community and on plaintiff's property is a covered cause of loss, that "the COVID-19 crisis" constituted a covered cause of loss, and that the losses plaintiff incurred were covered under the policy.
¶ 12 Finally, plaintiff asserted a claim for bad faith denial of coverage pursuant to section 155 of the Illinois Insurance Code ( 215 ILCS 5/155 (West 2018) ), contending that defendant's refusal to provide coverage was "vexatious and unreasonable."
¶ 13 On November 5, 2020, defendant filed a motion to dismiss plaintiff's complaint pursuant to section 2-615 of the Code of Civil Procedure ( 735 ILCS 5/2-615 (West 2018) ). Defendant contended that plaintiff had not alleged, and could not allege, that there was "direct physical loss of or damage to" its property as required for business loss coverage or that there was "direct physical loss of or damage to" another property as required for coverage under the civil authority endorsement. Defendant explained that the Illinois Supreme
Court had held that "physical" injury to property requires that a property be "altered in appearance, shape, color or in other material dimension" and that plaintiff alleged no such physical alteration. Indeed, plaintiff had not "allege[d] that the virus causing COVID-19 was even found at the covered properties." (Emphasis in original.) Additionally, even if plaintiff had adequately alleged the presence of the virus, the virus did "not physically alter the appearance, shape, color, structure, or other material dimension of the property," where the virus dies naturally on surfaces within hours or days or can be killed or removed with disinfectants or routine cleaning. Defendant argued that plaintiff's allegations asserted only economic loss from its inability to use its premises and not any "direct physical loss of or damage to" property and the policy specifically excluded such "loss of use" coverage.
¶ 14 As to civil authority coverage, defendant alleged that such coverage applied when there was "physical loss of or damage to" property at other locations and that plaintiff's allegations did not suggest that the COVID-19 virus causes physical property damage. Defendant also explained that civil authority coverage is triggered only when physical access to the premises is "prohibit[ed]" and not when an insured is prevented from operating its business. Defendant argued that none of the...
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