CHICAGO — In another blow to business owners forced to modify operations to comply with COVID-related government orders, a federal judge has largely halted the efforts of a group of dental practices suing the insurance provider that denied them coverage for lost business.
The named plaintiffs, 14 dental practices operating in several states, sued Massachusetts Bay Insurance Company in Illinois in August, alleging the company failed to provide coverage under three policy provisions: business income, disease contamination and civil authority. Massachusetts Bay removed the complaint to federal court in October, then asked U.S. District Judge Matthew Kennelly to dismiss 14 counts, arguing the policy doesn’t cover the losses under the business income and civil authority provisions.
In an opinion issued May 1, Kennelly noted the parties agree the policy is governed by Illinois law, as it was negotiated in Illinois and delivered to a Dental Experts office in Chicago. Although the insurer paid $25,000 under the disease contamination provision, the dental practices said they were entitled to that much for each of their locations — including 18 in Illinois — which would run the tally to more than $500,000.
The practices said Massachusetts Bay operated in bad faith, when the insurer classified lost business income as a single occurrence spread across every dental office. But Kennelly called those allegations “inappropriately conclusory” and dismissed the claims, leaving room to amend the complaint to flesh out the allegations.
Massachusetts Bay further said it was right to withhold payments under other policy provisions because there wasn’t a direct physical loss under the policy’s definition, and that a virus exclusion bars the claims to coverage. Even if the practices “could somehow show direct physical loss of or damage to property,” Massachusetts Bay wrote in its motion to dismiss, neither provision would offer coverage because the “plain and unambiguous language of the virus exclusion” makes it clear there is no payment for “loss or damage caused by or resulting from any virus.”
To bolster its position, Massachusetts Bay pointed to decisions from other federal courts, including those in California and Pennsylvania, in which insurers successfully used virus exclusion clauses to defeat challenges related to the coronavirus pandemic. The dental practices argued the exclusion doesn’t apply because they only lost the income as a result of state and local authorities imposing COVID-related shutdown orders.
“The shutdown orders were enacted in direct response to the coronavirus global pandemic,” Kennelly wrote. “It therefore follows that within the meaning of the policy, any business income loss Dental Experts suffered due to a shutdown order resulted from the virus, even if one could say that the loss was not caused directly by the virus.”
Kennelly further said that although the U.S. Seventh Circuit Court of Appeals hasn’t addressed virus exclusion policies in light of COVID, several judges in his district have reached the same conclusion Massachusetts Bay sought. Determining the claims challenging the exclusion policy are not viable, he dismissed them without prejudice. He also said the virus exclusion undercuts the breach of contract claims based on the business income and civil authority provisions.
“Accordingly, because no coverage exists under either provision, Massachusetts Bay has not failed to meet its contractual obligations under the law of any of the states where a Dental Experts office is located,” Kennelly wrote. “For this reason, Dental Experts has not asserted a plausible basis for relief based on bad faith, whether under Illinois law or under the law of any of the other states at issue.”
Kennelly gave the dental practices until May 17 to file any amendments to the bad faith claims.
The dental practices are represented in the action by attorney David B. Goodman and others with the firm of Goodman Law Group Chicago.
Massachusetts Bay has been defended by attorneys Zachary R. Greening, Todd S. Schenk and Jennifer L. Smith, of the firm of Tressler LLP, of Chicago.