CHICAGO — A federal judge has dulled a breach of contract lawsuit from a knife-sharpening firm that sued its insurance carrier for denying business interruption claims amid the ongoing COVID-19 pandemic.
Cozzini Brothers, a commercial knife sharpener, sued Cincinnati Insurance Company in federal court in Chicago in July 2020, saying the carrier failed to live up to obligations of a commercial general liability policy. According to Cozzini Brothers, it suffered losses because government shutdown orders aimed at mitigating coronavirus affected its customers like restaurants, grocery stores and commercial kitchens, but Cincinnati denied its claims in June 2020.
Cincinnati asked U.S. District Judge John Kness to dismiss the claim, which he did in an opinion issued Aug. 4. It is the latest in a mounting quantity of similarly failed lawsuits challenging insurance claim denial, often with expressions of sympathy from the judge.
“The onset of the COVID-19 pandemic in early 2020 and the ensuing restaurant shutdown severely blunted plaintiff’s business; after all, shuttered restaurants do not need any knives, sharp or dull,” Kness wrote. However, “the world-altering events of the COVID-19 pandemic — although indisputably damaging — are not covered under the relevant policy.”
According to Kness, the dispute turns on the policy phrase “direct physical loss or damage” because Cincinnati argued the presence of COVID at a Cozzini Brothers property alone can’t trigger coverage. But Cozzini Brothers said it was deprived of use of its property, then spent extra money to disinfect and take other preventive measures.
Kness said the policy’s language is clear with regard to its business income provision.
Cozzini Brothers “does not allege there was any physical change, alteration or damage to its covered property that would satisfy the requirement of ‘direct physical loss or damage’ and thus trigger coverage under the policy,” Kness wrote. “As several judges in this district have held, plaintiff’s purely economic loss does not constitute direct physical loss or damage to property.”
A claim under the policy’s interruption by civil authority provision similarly failed, Kness explained, because it relies on “loss or damage to property” somewhere besides one of the explicitly covered locations, and that such damage results in a government order barring access to the covered premises.
Whereas Cozzini Brothers maintained the spread of COVID rendered countless businesses “unfit for their intended use,” Kness agreed the company didn’t allege damage or loss to any property because “the mere presence of the SARS-CoV-2 at any given location does not constitute a ‘physical loss or damage’ to that premises.”
Further, Kness said, the complaint doesn’t allege any specific government order directly denied Cozzini Brothers access to its own property.
Kness dismissed the complaint without prejudice and said Cozzini Brothers could amend its claims on or before Aug. 27.
Cozzini has been represented by attorneys Robert A. Chapman, John M. Owen and Robert J. Shapiro, of the firm of Chapman Spingola, of Chicago.
Cincinnati Insurance has been represented by attorneys Brian M. Reid and Laurence J. W. Tooth, of the firm of Litchfield Cavo, of Chicago.