Saying Gov. JB Pritzker’s “blanket knee jerk reaction” to the onset of the COVID-19 pandemic was no different than any other “natural disaster,” the owners of an Evanston restaurant have turned to a state appeals court, as they seek a court order requiring State Farm to pay them and many other small businesses across Illinois for losses suffered because of Pritzker’s COVID closure orders.
On July 16, attorneys Alexander Loftus and David Eisenberg, of the firm of Loftus & Eisenberg, of Chicago, filed their opening brief in the Illinois First District Appellate Court in a class action lawsuit led by named plaintiff Jaewook Lee, owner of the Evanston Grill.
In the brief, they argue a Cook County judge erred in dismissing their lawsuit against insurance giant State Farm. The plaintiffs argue the judge was too hasty in allowing State Farm to use certain policy exclusions to justify denying insurance coverage to the Evanston Grill and potentially thousands of other small businesses who suffered crippling losses in the weeks and months after Gov. Pritzker ordered restaurants and a host of other businesses closed in response to the COVID outbreak in Illinois in March 2020.
“The Governor’s reaction to the spread of COVID-19 throughout Illinois constitutes a natural disaster that insurance should cover,” Evanston Grill wrote in its appellate brief. “Businesses that were habitable and safe for their ordinary and intended use one day were deemed unsafe for their ordinary and intended use by aggressive government orders regardless of the presence of the virus at any particular location.
“The inability to use property because it has become unusable due to a physical condition outside the policyholder’s control is the exact type of ‘physical loss’ of property the ‘all-risk’ insurance policy here was purchased and sold to address.”
Evanston Grill had sued State Farm in August 2020, less than five months after Pritzker had ordered restaurants closed for all but takeout and delivery as part of the state’s pandemic response.
The lawsuit sought permission to expand the case into a statewide class action on behalf of other all other businesses insured by State Farm that were ordered closed.
According to the lawsuit, the Evanston Grill lost more than $100,000 in April alone. They argued the “all-risk” policy they and others had purchased from State Farm should cover the interruption to business they suffered from Pritzker’s closure orders.
State Farm, however, rejected their claims for coverage. In response to the lawsuit, State Farm asserted the policy required “accidental direct physical loss” to the covered property. The insurer argued Illinois Supreme Court precedent established such “physical loss” must include alterations in “appearance, shape, color or in other material dimension.” Financial losses from COVID-19 are legally distinct from such physical losses caused by being deprived of physical access to the business – even if the business was forced to close its doors by order of the governor or other civic authority.
Evanston Grill’s class action was similar to a host of other lawsuits and class actions brought against insurers by small business owners, whose livelihood was severely damages or even destroyed by “aggressive orders” from governors or state or local government officials.
However, in a vast number of those cases, judges have sided with the insurance companies in finding some way to exclude coverage for COVID-19 “business interruptions.”
In this case, Cook County Judge Allen Walker also sided with State Farm, rejecting the restaurant owners’ contention that their “all-risk” policy should be read to cover any occurrence or damage that was not specifically excluded.
The judge found “a different between direct physical loss of property and physical loss to property.”
He further ruled their claims would also fail under the policy’s “virus exclusion, which bars coverage for ‘any loss which would not have occurred in the absence’” of something like the coronavirus that causes COVID-19.
“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,” Judge Walker wrote in his January order, dismissing the case. “If there were no COVID-19 virus, there would be no government orders to prevent its spread.”
Evanston Grill appealed that ruling. Their attorney, Alexander Loftus, said he believes they are the first to bring such a case to appeal in Illinois state court.
They said Judge Walker wrongly dismissed their case.
“The ‘loss’ of Plaintiff’s in-restaurant dining areas was undoubtedly ‘physical’ as the dining rooms are composed of square footage and material, physical, tangible objects (like chairs, tables, dispensers and utensils) that are perceptible to the senses and interactive,” the plaintiffs wrote. “In addition, customers were prohibited from travelling to or accessing the restaurant, and employees were prohibited from working in close proximity to each other.
“As such, the Closure Orders prohibited access to, use of, and operations of Plaintiff’s property and business. This loss of use is a direct physical loss under Illinois law.”
Further, they argued against Judge Walker’s conclusion concerning the “virus exclusion,” as the restaurant was never closed because of “the presence of COVID-19 on its premises.”
Rather, they reiterated their losses were caused by Gov. Pritzker’s closure orders.
“… The Policy was clearly not intended to exclude claims resulting from Government Orders shutting down a business when the virus was not present at the insured property,” the plaintiffs wrote.
They argued Judge Walker’s determination that the closure orders were merely a natural and unavoidable response to the virus would “improperly broaden” the “virus exclusion.”
They pointed to rulings in other cases against insurance companies over COVID-19 coverage denials, in courts in Illinois, Virginia, Minnesota, Ohio and elsewhere, which limited the scope of the exclusions Judge Walker relied on.
Those decisions largely differentiated the closure orders from the onset of the virus at large.
At the same time, the Illinois Restaurant Association sought court permission to file a brief in support of Evanston Grill’s appeal.
In that brief, the Restaurant Association noted COVID-related closure orders from Pritzker and other governors across the country have resulted in “catastrophic losses” forcing “hundreds of restaurants” to already close, while “countless more will be forced to close permanently.”
They argued the position adopted by State Farm and all other insurers facing so-called “business interruption” claims related to the closure orders imperil the restaurant industry and the greater economy.
“For years, restaurants in Illinois and elsewhere have paid substantial premiums for business interruption coverage under ‘all risk’ commercial property insurance policies,” the association wrote in its brief.
“Yet when the Governor of Illinois and others issued executive orders that caused precisely what these restaurant owners believed to be physical loss or damage to property — by denying or limiting access to and use of physical property, detrimentally reducing physical property, imposing physical changes, and materially impairing physical spaces that rendered property nonfunctional for its intended purposes —insurers denied coverage without legitimate justification,” the association wrote.
The Illinois Restaurant Association is represented by attorney Matthew T. Dattilo, of Simpson Dattilo, of Chicago.
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.