A federal judge has tossed another lawsuit against an insurer over business losses caused by Illinois Gov. JB Pritzker’s response to COVID-19, as the judge said, even though the policy covered losses from government action, the policy still didn’t apply if the government action came in response to an infectious virus.
On Nov. 25, U.S. District Judge Manish S. Shah dismissed the action brought by AFM Mattress, which operates the American Mattress chain of bedding stores.
According to the court documents, AFM operates 52 stores in Illinois and Indiana.
Timothy Reed
| Molzahn, Reed & Rouse
The company closed its doors this spring in response to executive orders from Pritzker and his counterpart in Indiana, Gov. Eric Holcomb, as the state governments sought to grapple with the recently arrived novel coronavirus that causes COVID-19.
In Illinois, that response took the form of a so-called stay-at-home order that resulted in the shuttering of all but “essential” retail. AFM determined its stores did not count as such under Pritzker’s order.
After being hit with steep financial losses from being closed for weeks, AFM filed a claim for coverage under the business interruption insurance policies it held through Motorists Commercial Mutual Insurance Company. Based in Edina, Minn., Motorists Commercial Mutual is affiliated with BrickStreet Insurance.
According to court documents, AFM’s policy specifically included coverage for revenue lost from actions by a “civil authority” that resulted in their shops’ being closed. That policy included coverage caused by “civil authority,” or government, action in response to an emergency that prohibits the stores from operating.
However, Motorists Commercial Mutual still denied AFM’s claim. The insurer pointed to an exclusion in the policy which they said allowed them to deny coverage for business interruption caused by an outbreak of a virus.
AFM then sued, asking the court to order Motorists Commercial Mutual to pay.
Judge Shah, however, sided with the insurer.
He conceded that the shutdown orders issued by the state governments were an action by a civil authority that caused AFM’s stores to close. However, the judge said because those actions were precipitated by the outbreak of the virus that causes COVID-19, the virus exclusions should still apply.
“Governments typically don’t issue shutdown orders for no reason, so the underlying cause of damage matters,” Shah wrote in his order. “For example, courts have found civil authority coverage applied when governments prohibited access in response to damage caused by the September 11 terrorist attacks, hurricanes, and civil unrest.
“In this case, the governments issued shutdown orders in response to the virus, an excluded cause of loss. Without a covered cause of loss, there is no civil authority coverage, and plaintiffs do not plead that some other event triggered the shutdown orders. That other governments reacted differently or imposed looser restrictions doesn’t change the fact that the governments at issue here restricted public access to plaintiff’s stores in response to the virus.”
The judge further noted that it is “irrelevant” to the case at hand that COVID-19 was unknown at the time the parties entered into the policy agreement, as the policy excluded coverage for “’any’ virus.”
AFM has been represented in the case by attorney Glenn L. Udell and others with the firm of Brown, Udell, Pomerantz & Delrahim Ltd., of Chicago.
Motorists Commercial Mutual has been represented by attorney Timothy J. Reed, of the firm of Molzahn Reed & Rouse LLC, of Chicago.