Lee v. State Farm Fire & Casualty Co. , 2022 IL App (1st) 210105 ( 2022 )

2022 IL App (1st) 210105FIRST DISTRICT
FIRST DIVISION
March 21, 2022
No. 1-21-0105
JAEWOOK LEE, d/b/a Evanston Grill, Individually ) Appeal from the
and on Behalf of a Class of Similarly Situated ) Circuit Court of
Individuals, ) Cook County
)
Plaintiff-Appellant, ) No. 20 CH 04589
)
v. ) Honorable
) Allen Price Walker,
STATE FARM FIRE AND CASUALTY ) Judge Presiding.
COMPANY, )
)
Defendant-Appellee. )
JUSTICE COGHLAN delivered the judgment of the court, with opinion.
Presiding Justice Hyman and Justice Walker concurred in the judgment and opinion.
OPINION
¶1 As a result of the business closure orders due to the coronavirus disease 2019 (COVID-
19), many businesses across the country filed claims for business interruption coverage with their
insurance carriers, which were denied. In fact, “[a]s of the week ending June 28, 2021, a total of
1,937 business interruption lawsuits ha[d] been filed.” 1 This is one such lawsuit.
¶2 In this insurance coverage dispute, plaintiff Jaewook Lee, d/b/a Evanston Grill (Evanston
Grill), individually and on behalf of similarly situated individuals, appeals the dismissal of its
complaint pursuant to section 2-615 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615
(West 2020)), seeking a declaratory judgment that its business interruption claim was a “covered
cause of loss” under the businessowners policy issued by defendant State Farm Fire and Casualty
1
Information provided by the Restaurant Law Center and Illinois Restaurant Association amici
curiae brief (citing University of Pennsylvania Carey Law School, Insurance Law Center, Covid Coverage
Litigation Tracker, https://cclt.law.upenn.edu/cclt-case-list (last visited July 13, 2021)).
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Company (State Farm). Evanston Grill also seeks reversal of the circuit court’s dismissal of its
breach of contract count and bad faith denial of insurance in violation of section 155 of the Illinois
Insurance Code (215 ILCS 5/155 (West 2020)) count, both stemming from the same denial of
coverage. We affirm.
¶3 I. BACKGROUND
¶4 Hyun Lee and his father, Jaewook Lee, owned and operated Evanston Grill, which is a
restaurant located in Evanston, Illinois. State Farm is an insurance company engaged in the
business of insuring properties and “is authorized to write, sell, and issue insurance policies
providing property and business income coverage.” State Farm sold and issued “property coverage
to Evanston Grill” (policy No. 93-KH-H688-5) for the policy period of August 15, 2019, to August
15, 2020 (policy).
¶5 On March 16, 2020, Illinois Governor J. B. Pritzker issued Executive Order 2020-07 in
response to “the ongoing spread of COVID-19 and the danger the virus poses to the public’s health
and wellness,” ordering that “Beginning March 16, 2020 at 9 p.m. through March 30, 2020, all
businesses in the State of Illinois that offer food or beverages for on-premises consumption‒
including restaurants, bars, grocery stores, and food halls—must suspend service for and may not
permit on-premises consumption.” Exec. Order No. 2020-07, 44 Ill. Reg. 5536 (Mar. 16, 2020),
https://www2.illinois.gov/Documents/ExecOrders/2020/ExecutiveOrder-2020-07.pdf
[https://perma.cc/6AQN-FBAS]. On March 20, 2020, Governor Pritzker issued Executive Order
2020-10, directing that “Non-essential business and operations must cease” and “all individuals
*** are ordered to stay at home or at their place of residence except as allowed in this Executive
Order.” (Emphasis omitted.) Exec. Order No. 2020-10, 44 Ill. Reg. 5857 (Mar. 20, 2020),
https://www2.illinois.gov/Documents/ExecOrders/2020/ExecutiveOrder-2020-10.pdf
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[https://perma.cc/3GXY-UM64].
¶6 Evanston Grill complied with the executive orders (hereinafter referred to collectively as
the “closure orders”) but “suffered business income losses and incurred extra expense” from the
business interruption. Evanston Grill claimed that it “suffered a loss of revenue in excess of
$100,000 in the month of April 2020, as compared to April 2019—a decrease attributable to the
Closure Orders.” Therefore, Evanston Grill submitted a claim to State Farm requesting coverage
for the “business interruption losses.” State Farm denied the claim the same day, finding no
“covered cause of loss” because “there was no accidental direct physical loss to Covered Property
to trigger coverage.” State Farm also asserted that “the policy specifically exclude[d] loss caused
by enforcement of ordinance or law, virus, consequential losses, and acts or decisions.”
¶7 The “Loss of Income and Extra Expense” endorsement (Form CMP-4705) to the
“Businessowners Coverage Form,” which Evanston Grill filed its claim under, states in relevant
part:
“The coverage provided by this endorsement is subject to the provisions of SECTION I-
PROPERTY, except as provided below.
COVERAGES
1. Loss of Income
a. We will pay for the actual ‘Loss of Income’ you sustain due to the necessary
‘suspension’ of your ‘operations’ during the ‘period of restoration.’ The
‘suspension’ must be caused by accidental direct physical loss to property at the
described premises. The loss must be caused by a Covered Cause of Loss. ***.”
“Section I—Covered Causes of Loss” (standard form CMP 4100) states “[w]e insure for accidental
direct physical loss to Covered Property unless the loss is: 1. Excluded in Section I–Exclusions;
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or 2. Limited in the Property Subject to Limitations provision.” Under the policy’s “exclusions,”
State Farm does “not insure under any coverage for any loss” because of any “[v]irus, bacteria or
other microorganism that induces or is capable of inducing physical distress, illness or disease.”
¶8 Following State Farm’s denial of coverage, Evanston Grill filed a three-count complaint,
including one count for a declaratory judgment that the “past and future business income loss(es)
and extra expense from the closure orders” were “covered losses” under the policy, one count for
breach of contract relating to the denial of coverage, and one count for the bad faith denial of
coverage.
¶9 State Farm moved to dismiss under section 2-615 of the Code (735 ILCS 5/2-615 (West
2020)), arguing that “the clear language of the policy and its endorsement” “requires ‘accidental
direct physical loss to’ Covered Property,” but Evanston Grill’s “alleged loss is an economic loss,
not a physical injury to covered property.” State Farm also argued that the “presence or suspected
presence of a virus” did not constitute an “ ‘accidental direct physical loss to’ Covered Property.”
¶ 10 The circuit court dismissed Evanston Grill’s complaint with prejudice under section 2-615
of the Code (id.), finding that Evanston Grill’s “alleged economic losses do not constitute
‘accidental direct physical loss to’ Covered Property.” The circuit court noted that its “inquiry need
not proceed any further,” but found “that even if Plaintiffs had met their initial burden, their claims
would not succeed under the Virus Exclusion of the Policy.” The circuit court also dismissed the
breach of contract and bad-faith denial of coverage counts on the basis that coverage under the
policy was not triggered.
¶ 11 The Restaurant Law Center and Illinois Restaurant Association filed amici curiae brief in
support of reversing the circuit court’s dismissal of Evanston Grill’s complaint, and American
Property Casualty Insurance Association and National Association of Mutual Insurance
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Companies filed amici curiae brief in support of affirming dismissal of the complaint.
¶ 12 II. ANALYSIS
¶ 13 Evanston Grill claims that the circuit court erred in dismissing its complaint with prejudice,
arguing that the “loss of use of its property is a direct physical loss to covered property” because
the closure orders “physically prohibited customers from entering” the property. Evanston Grill
also argues that its “all-risk” insurance policy 2 is “intended to provide broad protection,” and “[a]n
average, ordinary, and reasonable person would interpret the meaning of ‘direct physical loss of
*** covered property’ to include the sudden inability to use property that was previously usable.”
¶ 14 A section 2-615 motion to dismiss attacks the legal sufficiency of a complaint by alleging
defects apparent on the face of the complaint. Khan v. Deutsche Bank AG, 2012 IL 112219, ¶ 47.
The critical inquiry raised by a section 2-615 motion to dismiss is “whether the allegations of the
complaint, when construed in the light most favorable to the plaintiff, are sufficient to establish a
cause of action upon which relief may be granted.” Cochran v. Securitas Security Services USA,
Inc., 2017 IL 121200, ¶ 11. All well-pleaded facts in the complaint are accepted as true, as well as
any reasonable inferences arising from those facts. Id. A section 2-615 motion to dismiss should
not be granted “unless it is clearly apparent from the pleadings that no set of facts can be proven
that would entitle the plaintiff to recover.” Id. We review a section 2-615 dismissal de novo. Id.¶ 15 In this case, we must interpret the policy’s plain and ordinary language to determine
whether Evanston Grill’s business interruption claim triggered coverage under the policy as a
“covered cause of loss.” Although the phrase “covered cause of loss” is defined in the policy to
include a “direct physical loss” to covered property unless the loss is “excluded,” the term
2
“As a rule, recovery under an all-risk policy will be allowed for all fortuitous losses not resulting
from misconduct or fraud.” Village of Rosemont v. Lentin Lumber Co., 144 Ill. App. 3d 651, 664 (1986).
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“physical loss” is undefined. The “rules applicable to contract interpretation govern the
interpretation of an insurance policy.” Sproull v. State Farm Fire & Casualty Co., 2021 IL 126446,
¶ 19. The primary objective of the court “when construing an insurance policy is to ascertain and
give effect to the intention of the parties, as expressed in the policy language.” Id. “Undefined
terms will be given their plain, ordinary, and popular meaning; i.e., they will be construed with
reference to the average, ordinary, normal, reasonable person.” Id. The interpretation of an
insurance policy’s language raises a question of law subject to de novo review. Phusion Projects,
Inc. v. Selective Insurance Co. of South Carolina, 2015 IL App (1st) 150172, ¶ 40.
¶ 16 Although this court and our supreme court have not yet addressed the COVID-19 business
interruption coverage issue raised here, the parties cite numerous decisions of other state and
federal courts addressing this issue. In fact, “an avalanche of insurance claims has followed in the
wake of the pandemic, as the suffering businesses look for assistance in absorbing those losses.”
Sandy Point Dental, P.C. v. Cincinnati Insurance Co., 20 F.4th 327, 329 (7th Cir. 2021). While not
binding on this court, we are persuaded by and agree with the conclusions reached in Sandy Point
Dental, P.C., which interpreted the same policy language of “ ‘direct physical loss’ to covered
property.” Id.; see Colagrossi v. Royal Bank of Scotland, 2016 IL App (1st) 142216, ¶ 57 (federal
decisions may be considered as persuasive authority).
¶ 17 In Sandy Point Dental, P.C., three businesses, like Evanston Grill, were “required to close
or dramatically scale back [their] operations in response to a series of executive orders issued by
Illinois Governor J. B. Pritzker in an effort to curb the spread of the virus in the state.” Sandy Point
Dental, P.C., 20 F.4th at 329. The businesses procured insurance providing “coverage for income
losses sustained on account of a suspension of operations caused by ‘direct physical loss’ to
covered property.” Id. The businesses all had policies with the same insurer and submitted claims
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for lost business income to the insurance company, which denied coverage and litigation followed.
Id.
¶ 18 The Sandy Point Dental, P.C. court stated that for the businesses to survive a Federal Rule
of Civil Procedure, Rule 12(b)(6) (Fed. R. Civ. P. 12(b)(6)) motion to dismiss for failure to state a
claim upon which relief could be granted, “they needed to allege that either the virus or the
resulting closure orders caused direct physical loss or direct physical damage to covered property.”
Sandy Point Dental, P.C., 20 F.4th at 329, 331. The parties agreed that Illinois law applied, and the
court stated that its “task [was] to predict how the Supreme Court of Illinois would resolve the
issue.” Id. at 331. Noting that “[n]o decision of the Illinois Supreme Court has addressed the
precise policy language before [it],” the court determined that it was “not entirely without
guidance” and looked to Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278(2001). Sandy Point Dental, P.C., 20 F.4th at 331. In examining Travelers, the court found that the
Illinois Supreme Court “addressed similar language, holding that ‘the term “physical injury”
unambiguously connotes *** an alteration in appearance, shape, color or in other material
dimension.’ ” Id. (quoting Travelers Insurance Co., 197 Ill. 2d at 312). The Sandy Point Dental,
P.C. court also noted that “[w]hen interpreting ‘direct physical loss’ in other cases involving
coverage disputes over COVID-19-related losses, many courts have turned to this language from
Travelers and concluded that the phrase ‘direct physical loss,’ like the language in Travelers,
requires a physical alteration to property.” See id. (citing, e.g., Paradigm Care & Enrichment
Center, LLC v. West Bend Mutual Insurance Co., 529 F. Supp. 3d 927, 935 (E.D. Wis. 2021)).
¶ 19 In Travelers, our supreme court explicitly concluded that “the phrase ‘physical injury’ does
not include intangible damage to property, such as economic loss.” Travelers Insurance Co., 197
Ill. 2d at 312. Applying the holding of Travelers to the policy language at issue here, we interpret
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“direct physical loss” as requiring a physical alteration to property, which is the plain, ordinary,
and popular meaning given to that phrase by the average, ordinary, normal, reasonable person. See
id.; Sproull, 2021 IL 126446, ¶ 19. Evanston Grill argues that Travelers is not directly on point
because the relevant policy language there implicated an interpretation of “physical injury” 3 and
not “physical loss,” but we find any such distinction irrelevant.
¶ 20 Like many of the courts that have addressed the coverage issue presented here, we conclude
that Evanston Grill’s business interruption claim resulting from the COVID-19 closure orders
constituted an economic loss and not a “physical loss” to covered property needed to trigger
coverage under the policy. Bradley Hotel Corp. v. Aspen Specialty Insurance Co., 19 F.4th 1002,
1007-08 (7th Cir. 2021); Mudpie, Inc. v. Travelers Casualty Insurance Co., 15 F.4th 885, 892 (9th
Cir. 2021); Santo’s Italian Café LLC v. Acuity Insurance Co., 15 F.4th 398, 401 (6th Cir. 2021);
Oral Surgeons, P.C. v. Cincinnati Insurance Co., 2 F.4th 1141, 1144 (8th Cir. 2021). Therefore,
the circuit court properly dismissed Evanston Grill’s declaratory judgment count. Although
Evanston Grill argues that section 2-615 of the Code (735 ILCS 5/2-615 (West 2020)) was not the
proper procedural mechanism to dismiss that count, we find otherwise because it is clearly
apparent that no set of facts can be proved that would entitle it to relief, i.e., an alteration in
appearance, shape, color or in other material dimension to covered property. See Travelers
Insurance Co., 197 Ill. 2d at 312.
¶ 21 Moreover, Evanston Grill’s declaratory judgment action was also properly dismissed under
the virus exclusion. Evanston Grill’s argument that “the Virus Exclusion unambiguously does not
apply because [its] losses arise from the Orders—not a virus” is unavailing.
3
The insurance policy in Travelers defined “ ‘property damage’ ” as “ ‘physical injury to ***
tangible property which occurs during the policy period.’ ” (Emphasis omitted.) Travelers Insurance Co.,
197 Ill. 2d at 298.
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¶ 22 The virus exclusion’s plain and ordinary language excludes “any coverage for any loss”
from a “[v]irus, bacteria or other microorganism that induces or is capable of inducing physical
distress, illness or disease.” “There is no dispute that the coronavirus at the heart of the COVID-
19 pandemic can induce physical distress, illness, and disease.” Mashallah, Inc. v. West Bend
Mutual Insurance Co., 20 F.4th 311, 320 (7th Cir. 2021). Therefore, the virus exclusion provides
an additional ground to find that the declaratory judgment count was properly dismissed. See id.
at 320-21 (rejecting similar arguments raised by the insured regarding the virus exclusion, finding
that “the novel coronavirus causing the COVID-19 pandemic led directly to the issuance of the
government orders, which the complaint alleges as the cause of the losses and expenses”); Bradley
Hotel Corp., 19 F.4th at 1007 (rejecting the argument that the closure orders and the coronavirus
were two distinct causes of loss); Goodwill Industries of Central Oklahoma, Inc. v. Philadelphia
Indemnity Insurance Co., 21 F.4th 704, 714 (10th Cir. 2021) (rejecting the insured’s argument that
a similarly worded virus exclusion was limited to instances where the virus was physically present
at or on the property); see also Colagrossi, 2016 IL App (1st) 142216, ¶ 57 (stating that we may
consider federal decisions as persuasive authority). Because we find that Evanston Grill’s claim
falls within the virus exclusion, we need not determine whether any other exclusions applied or
State Farm’s independent alternative grounds for affirming the dismissal.
¶ 23 Based on our conclusion that coverage was not triggered under the policy relating to
Evanston Grill’s economic loss of business income and not any “direct physical loss” to covered
property, there can be no breach of the insurance contract premised on the allegation that State
Farm improperly failed to provide coverage. See Joseph T. Ryerson & Son, Inc. v. Travelers
Indemnity Co. of America, 2020 IL App (1st) 182491, ¶ 47 (affirming dismissal of the breach of
contract count where no duty to defend existed under the insurance policy). Likewise, Evanston
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Grill’s bad faith denial of coverage count was properly dismissed because “no coverage [was]
owed under the policy.” Id. ¶ 48.
¶ 24 III. CONCLUSION
¶ 25 The circuit court properly dismissed Evanston Grill’s complaint because its business
interruption claim did not qualify as a “covered cause of loss,” given that there was no “direct
physical loss” of covered property and the economic loss was subject to the policy’s virus
exclusion.
¶ 26 Affirmed.
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No. 1-21-0105
Cite as: Lee v. State Farm Fire & Casualty Co., 2022 IL App (1st) 210105Decision Under Review: Appeal from the Circuit Court of Cook County, No. 20-CH-
04589; the Hon. Allen Price Walker, Judge, presiding.
Attorneys Alexander N. Loftus and David Eisenberg, of Loftus & Eisen-
for berg, Ltd., of Chicago, for appellant.
Appellant:
Attorneys Bradley J. Andreozzi and Sulema Medrano Novak, of Faegre
for Drinker Biddle & Reath LLP, of Chicago, for appellee.
Appellee:
Amicus Curiae: Matthew Thomas Dattilo, of Simpson Dattilo, LLC, of Chicago,
for amici curiae Restaurant Law Center et al.
Michael R. Enright, of Robinson & Cole LLP, of Hartford, Con-
necticut, for amici curiae American Property Casualty Insurance
Association et al.
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