Image Dental, LLC v. Citizens Ins. Co. of Am.

• Decision Date: 11 June 2021
• Docket Number: Case No. 20-cv-02759
• Parties: IMAGE DENTAL, LLC, Plaintiff, v. CITIZENS INSURANCE COMPANY OF AMERICA, Defendant.
• Court: U.S. District Court — Northern District of Illinois

543 F.Supp.3d 582

IMAGE DENTAL, LLC, Plaintiff,

v.CITIZENS INSURANCE COMPANY OF AMERICA, Defendant.

Case No. 20-cv-02759

United States District Court, N.D. Illinois, Eastern Division.

Signed June 11, 2021

Elena N. Liveris, Michael M. Mulder, Law Offices of Michael M. Mulder, Evanston, IL, for Plaintiff.

Jennifer Lynn Smith, Todd S. Schenk, Zachary R. Greening, Tressler LLP, Chicago, IL, Michael Menapace, Mr., Pro Hac Vice, Robyn E. Gallagher, Pro Hac Vice, Wiggin and Dana LLP, Hartford, CT, for Defendant.

MEMORANDUM OPINION AND ORDER

Steven C. Seeger, United States District Judge

Plaintiff Image Dental, LLC lost business during the COVID-19 pandemic, when people largely stopped going to the dentist. It submitted a claim for coverage to its insurance carrier, Defendant Citizens Insurance Company of America, under a policy that covers certain types of losses of business income. The insurer denied the claim, prompting Image Dental to file suit.

Citizens filed a motion to dismiss, arguing that the policy in question does not cover business losses caused by the pandemic. For the reasons stated below, the motion to dismiss is granted.

Background

Image Dental owns and operates dental offices in the Chicagoland area. See Second Am. Cplt., at ¶ 1 (Dckt. No. 32). Image Dental mostly provides elective procedures, such as routine check-ups and teeth cleanings, to its patients. Id.

Like so many businesses, Image Dental suffered losses during the coronavirus pandemic. Elective dental work was deemed "non-essential" during the shutdown. Id.

So, when the Governor of Illinois prohibited non-essential health procedures to curb the spread of the virus, Image Dental stopped its in-person operations. Id. at ¶¶ 1, 35; see also Executive Order 2020-10 (Dckt. No. 42-3). And needless to say, dental procedures take place in person.

Image Dental had an insurance policy issued by Citizens. See Second Am. Cplt., at ¶ 6 (Dckt. No. 32); Policy No. OBC-H180952-00 ("Policy")¹ (Dckt. No. 42-1). The policy provided coverage for the "direct physical loss of or damage to" property:

SECTION I – PROPERTY

A. Coverage

We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.

See Policy, at 49 of 282 (Dckt. No. 42-1). The phrase "Covered Cause of Loss" means "[r]isks of direct physical loss," unless an exclusion or limitation applies. Id. at 51.

The policy defined "Covered Property" to include "Buildings" and "Business Personal Property." Id. at 49. "Buildings," in turn, means "the buildings and structures at the premises," plus completed additions, fixtures, permanently installed machinery and equipment, and so on. Id. "Business Personal Property" includes things like property used to run the business. Id.

The policy also included a section entitled "Additional Coverage," which covered losses relating to debris removal, water damage, the collapse of a building, and so forth. Id. at 55 of 282. One of the "Addition[s]" is Business Income Coverage. Id. The policy covered business losses caused by direct physical loss of or damage to the premises:

5. Additional Coverages

...

f. Business Income

When Business Income Coverage is provided under this policy:

(a) 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 a described premises shown 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.

Id.

The Business Income Coverage included extra expenses incurred as a result of direct physical loss or damage to the property. But as before, a "physical loss or damage to property" was a necessary hook for coverage:

g. Extra Expense

When Business Income Coverage is provided under this Coverage Form:

(1) We will pay the necessary Extra Expense 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 at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.

Id. at 57 of 282.

The Business Income Coverage also applied to business losses caused by government authorities that limit access to the property. Once again, a "direct physical loss or damage" to property – here, property within one mile of the dental office – was a necessary element for coverage:

i. Civil Authority

When Business Income Coverage is provided under this Coverage Form:

(1) 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 due to direct physical loss or damage to the property within one mile of the described 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 ...

(b) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.

Id. at 58 of 282.

The policy also included a number of exclusions for things like war, volcanoes, nuclear radiation, and so on. Id. at 85 ("We will not pay for loss or damage caused directly or indirectly by any of the following."). Two of the exclusions are in play here.

One of the exclusions was the "Ordinance or Law" exclusion. There is no coverage for losses from the "enforcement of or compliance with any ordinance or law: (a) Regulating the construction, use or repair of any property; or (b) Requiring the tearing down of any property, including the cost of removing its debris." Id. The policy contained a "Virus" exclusion, too. The policy does not cover loss or damage "caused directly or indirectly" by "[a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease." Id. at 87.

Image Dental "cease[d] most of its operations" during the pandemic as a result of the shutdown orders, and thus suffered a significant loss of business. See Second Am. Cplt., at ¶¶ 1, 48 (Dckt. No. 32). Image Dental turned to its insurance carrier to recoup its losses.

Citizens, in turn, denied the claim. An insurance agent offered the following explanation: "Your Business Owners Policy does not extend coverage for the [loss of] business income due to the Coronavirus. We are not aware of any insurance policy that would provide coverage, this is an industry wide standard. Business or BI is covered within the BOP, but only when it's triggered by a direct physical loss to the insured property." Id. at ¶ 49 (emphasis in original letter); see also 3/17/20 Email (Dckt. No. 31).

This suit followed. Image Dental seeks a declaratory judgment that it is entitled to coverage for the business losses caused by the shutdown orders. What's more, Image Dental claims that Citizens has improperly denied coverage to other policyholders, too. So Image Dental brings claims on behalf of itself and three putative classes. The classes track the language of the policy: there is a Business Interruption Class (Count I), a Civil Authority Class (Count II), and an Extra Expense Class (Count III). See Second Am. Cplt., at ¶¶ 51–53 (Dckt. No. 32).

Citizens moved to dismiss on two grounds. See generally Mtn. (Dckt. No. 38). First, Citizens argues that the policy only applies when there is "direct physical loss of or damage to a property," and a shutdown from the Governor's COVID-19 Orders does not qualify. See Mem. in Support of Mtn. to Dismiss, at 8 (Dckt. No. 42). Second, Citizens argues that, even if Image Dental's COVID-19-related losses were covered under the policy, the exclusions preclude coverage. Id.

Legal Standard

A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its merits. See Fed. R. Civ. P. 12(b)(6) ; Gibson v. City of Chicago , 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded facts in the complaint and draws all reasonable inferences from those facts in the plaintiff's favor. See AnchorBank, FSB v. Hofer , 649 F.3d 610, 614 (7th Cir. 2011). To survive a Rule 12(b)(6) motion, the complaint must provide the defendant with fair notice of the basis for the claim, and it must be facially plausible. See Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; see also Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.

A court normally cannot consider extrinsic evidence without converting a motion to dismiss into a motion for summary judgment. See Hecker v. Deere & Co. , 556 F.3d 575, 582–83 (7th Cir. 2009). But when a complaint refers to a document that is central to the plaintiff's claims, the Court may consider it when ruling on a motion to dismiss. Id. The Court may also take judicial notice of matters of public record. See Gen. Elec. Capital Corp. v. Lease Resolution Corp. , 128 F.3d 1074, 1080–81 (7th Cir. 1997).

Discussion

The parties agree that Illinois law governs the Court's interpretation of the insurance policy at issue. "Under Illinois law, an insurance policy is a contract, and the general rules governing the interpretation of other types of contracts also govern the interpretation of...