CHICAGO — A Cook County judge has turned aside a class action brought by the owners of an Evanston restaurant against State Farm over the insurer's denial of claims from the restaurant for hundreds of thousands of dollars in lost income, because of state-ordered restaurant closures in response to the COVID-19 pandemic.
However, lawyers behind the class action have appealed that dismissal.
Attorneys Alexander Loftus, David Eisenberg and Jeffrey Dorman, of the firm of Loftus & Eisenberg Ltd., of Chicago, filed their class action suit in Cook County Circuit Court against Bloomington-based State Farm in June.
Cook County Judge Allen Walker granted State Farm’s motion to dismiss the complaint in an opinion filed Jan. 13; the plaintiffs filed their notice of appeal Feb. 3.
The lawsuit, on behalf of Evanston Grill owners Jaewook and Hyun Lee, was similar to scores of other class actions filed last summer as insurance companies denied business interruption coverage to restaurants, bars and other businesses that were ordered closed on several occasions as government officials issued lockdown-style orders in response to COVID-19.
In arguing for dismissal, State Farm said the restaurant’s policy required “accidental direct physical loss” to the covered property, and argued the 2001 Illinois Supreme Court opinion in Travelers Insurance Co. v. Eljer Manufacturing Inc. established “physical” loss must include alterations in “appearance, shape, color or in other material dimension." Economic losses from COVID-19 are legally distinct from losses caused by being deprived physical access to a restaurant building, even if they were also forced to close their doors to the public by order of the governor
Like many other judges nationwide, Judge Walker agreed with State Farm on that contrast, rejecting the Lees’ contention they had an “all risk” policy intended to cover anything that was not specifically excluded.
“The policy at issue in this case does not explicitly provide for ‘loss of use’ coverage,” Walker wrote. “There is a difference between direct physical loss of property and physical loss to property.”
According to the Lees, the restaurant lost more than $100,000 in April alone. But Walker said they failed to allege any physical alterations or damage to the restaurant and further that they couldn’t do so if granted leave to amend their complaint.
Even if the Lees could establish the policy was intended to cover loss of access to run their business, Walker continued, the complaint would fail under “the policy’s virus exclusion, which bars coverage for ‘any loss which would not have occurred in the absence’ ” of something like coronavirus. That policy language is unambiguous, State Farm argued, adding the Lees can’t sidestep the claim by alleging the loss actually caused by Pritzker's orders, and not by the virus itself.
“The COVID-19 virus is plainly at the root of these orders, especially since each of the closure orders cited by plaintiffs state they were issued in response to COVID-19,” Walker wrote. “If there were no COVID-19 virus, there would be no government orders to prevent its spread.”
Pointing to a 2015 First District Appellate Court opinion in Phusion Projects Inc. v. Selective Insurance Company, State Farm argued Illinois law protescs an insurer’s right to limit policy coverage and for courts to follow “the plain language” of policy limitations. Walker agreed, and said “the Illinois Supreme Court has long held that the burden rests with an insured to establish that their claim is covered under its policy.”
In addition to dismissing a claim for declaratory judgment, Walker dismissed the Lees’ claims of breach of contract and bad faith. Since State Farm proved the policy doesn’t cover the losses, Walker said, there is no breach, and without a breach there can be no successful bad faith claim.
In an emailed statement to the Cook County Record, Loftus acknowledged the difficult task faced by those suing insurance companies over such claims.
But, he said, "there is a close question here" in this case.
To that end, Loftus said he appreciated the "thoughtful opinion" from Judge Walker, which he said could give the plaintiffs an opportunity to secure a better outcome at the Illinois First District Appellate Court in coming weeks.
State Farm has been represented in the action by attorneys Bradley Andreozzi and Sulema M. Novak, of the firm of Faegre Drinker Biddle & Reath, of Chicago.