The owners of the Chicago area chain of Rosebud Italian restaurants can’t sue their insurance company for refusing to cover the losses they suffered after they shutdown in compliance with COVID-19 orders issued by Gov. JB Pritzker, a federal judge has ruled.
Rosebud Restaurants Inc. filed suit in 2020 against Regent Insurance, claiming Regent violated the business insurance policy Rosebud held, when the insurer denied coverage for the restaurant company’s lost business income claim.
In the lawsuit and documents filed in support, Rosebud argued the insurers should be required to cover their losses, because they did not close voluntarily. Rather, they said, they were following an order issued by Gov. Pritzker last spring, when he ordered all restaurants to close their indoor dining rooms. The governor said the order was intended to slow the spread of the coronavirus that causes COVID-19.
Amid the shutdown, Rosebud, like other restaurants, lost large sums of money when it closed its 11 Chicago area locations.
Rosebud then filed a claim with its insurers, seeking coverage under the “all-risk” policy the restaurateur held through Regent. That policy included coverage for “direct physical loss of or damage to Covered Property … caused by or resulting from any Covered Cause of Loss,” including “loss of ‘Business Income’ and ‘Extra Expense.’”
The policy also included a clause covering “the actual loss of Business Income” the restaurant chain might suffer “caused by action of civil authority that prohibits access” to the restaurants.
Since Rosebud closed in compliance with the orders from a civil authority – in this case, Gov. Pritzker – the restaurant company said the insurer owed it for the income it lost while closed amid the COVID shutdowns.
Regent, however, argued the closures were instead the result of the virus, not the governor’s shutdowns. Therefore, they owed no coverage under a clause which excludes coverage for losses caused by a virus or other “contagion.”
Further, the insurer argued the restaurants suffered no actual physical damage from the shutdowns, so they owed no coverage under that portion of the policy, either.
The dispute is nothing new, as similar arguments have defined a host of other lawsuits filed against insurance companies by businesses who were ordered closed by governors or mayors across Illinois and the U.S. amid the COVID-19 pandemic.
Different lawsuits, however, have met with different results from different judges. In the Northern District of Illinois, alone, for instance, different judges have sided with insurers or businesses, but most cases to date have gone in favor of insurers.
In the Rosebud case, U.S. District Judge Virginia M. Kendall came down on the side of the insurer.
She followed a well-trodden path of legal reasoning, declaring the virus exclusion should hold, and rejecting the restaurant’s contention that Pritzker’s orders caused the closure.
“… Rosebud’s distinction between the virus and the closure orders ignores the fact that the orders were issued ‘in direct response due to’ the coronavirus, and that the exclusion applies to loss or damage ‘caused by or resulting from’ any virus,” Judge Kendall wrote. “Thus, while Rosebud’s loss of use of its premises may not have been directly caused by the coronavirus, it certainly resulted from the coronavirus.”
She also found that Rosebud couldn’t prove the closure orders caused physical damage or “demonstrable, tangible consequences” to its physical business locations sufficient to invoke coverage for losses.
“The sequence of events is clear here: the coronavirus pandemic caused the closure orders, which caused Rosebud to shut down its restaurants, which resulted in Rosebud’s claimed losses,” Judge Kendall wrote.
Kendall dismissed Rosebud's lawsuit without prejudice, giving them 21 days to amend their complaint to address the shortcomings identified in Kendall's decision.
Rosebud has been represented in the action by attorney Anthony Cuda, of the Cuda Law Offices, of Oak Park.
Regent has been represented by attorneys Danny L. Worker and Abigail C. Horvat, of Lewis Brisbois Bisgaard & Smith, of Chicago, and Elizabeth V. Kniffen and Dennis C. Anderson, of Zelle LLP, of Minneapolis.