State appeals courts have again shot down attempts by businesses to force insurers to pay for the steep financial losses they say they suffered amid closures orders by governors and mayors amid the Covid pandemic, and for costs they say they were forced to pay to allow their businesses to function, when they were allowed to resume operations.
On May 20, two different, three-justice panels of the Illinois First District Appellate Court turned aside appeals brought by different businesses who all accused Zurich American Insurance Company of wrongly denying them coverage for their lost business and opportunities amid the pandemic.
In one case, the owners of the HEI Hotels and Resorts claimed they suffered steep losses, particularly in the early days of the pandemic, when they closed their properties completely for two months.
Adam J. Levitt
| Dicello Levitt Gutzler
According to the HEI website, the group operates three hotels in Chicago - the W Chicago Lakeshore; The Hotel Chicago; and Hotel Gwen Chicago – but also operates properties in many other of the largest U.S. metropolitan areas, including Washington, D.C.; New York; Los Angeles; Atlanta; San Francisco; San Antonio; Dallas; Nashville; Miami; and more.
After they reopened, the hoteliers claimed their use of their hotels was still constrained by rules requiring them to increase social distancing in common areas and to implement capacity limits in hotel pools, spas, fitness centers, bars and restaurants.
They further claimed they were forced to “make structural alterations, changes, and/or repairs” to their buildings, including installing plexiglass barriers and hand sanitizer stations, among other changes.
The hoteliers had sought to lead a class action lawsuit in Cook County Circuit Court against Zurich, ostensibly on behalf of many other hotels and other businesses similarly denied insurance coverage for pandemic losses.
At the same time, Zurich was also sued separately by the owners of the Firebirds International restaurant group.
Firebirds operates restaurants under the Firebirds Wood Fired Grill brand. Firebirds has no locations in Chicago or elsewhere in Illinois, but operates in 19 other states, including Indiana and Iowa.
In their lawsuit, Firebirds said it also had been denied insurance coverage by Zurich after indoor dining was ordered closed at least briefly in all of the 19 states in which it operates, purportedly to slow the spread of Covid.
When they were allowed to reopen, Firebirds said it was also forced to reconfigure its restaurants and install and implement a host of workplace safety measures “to keep their employees and patrons safe.”
Firebirds said those closures and safety measures resulted in the restaurant chain having “their ‘gross revenues destroyed.’”
Nonetheless, in all cases, Zurich denied claims from these businesses.
While the businesses had purchased policies which included so-called “all-risk commercial” loss coverage, Zurich said it could deny coverage because of exclusions in the policies which limited coverage only to “direct physical loss or damage to property.”
While the businesses suffered losses from the virus and the government response to the virus, the businesses themselves suffered no “direct physical loss,” Zurich maintained.
After Cook County judges found in favor of Schaumburg-based Zurich, the businesses appealed their respective cases to the First District Appellate Court.
However, on appeal, the justices said Zurich was correct.
The Firebirds decision was authored by Justice Sheldon A. Harris, with concurrence from justices Mary L. Mikva and Sharon Oden Johnson.
The hotels decision was authored by Justice Thomas E. Hoffman, with justices Joy V. Cunningham and Maureen E. Connors concurring.
The justices in both cases noted the rapidly growing mountain of case law, in which nearly all judges in Illinois and many other jurisdictions have reached essentially the same conclusion:
The lack of physical damage dooms nearly all claims for coverage resulting from financial losses connected to Covid.
“… Without an allegation of a change to the physical nature of the existing property, these allegations are insufficient to establish a physical loss,” wrote Justice Hoffman in the hotels’ class action decision.
And the justices in both cases specifically noted the “all-risk” policies include no coverage against closures ordered by governments.
“We, like the trial court, greatly empathize with Firebirds as they struggle through the COVID-19 pandemic,” Justice Harris wrote in the Firebirds decision. “However, it is clear that no set of facts can be proven that would entitle Firebirds to recover for their claims under the Zurich policies.”
Firebirds was represented in its case by attorneys Adam J. Levitt, Amy E. Keller, Daniel R. Ferri, Mark Hamill, Laura E. Reasons, Kenneth P. Abbarno, Mark A. DiCello and Mark Abramowitz, of DiCello Levitt Gutzler, of Chicago and of Mentor, Ohio; Mark Lanier, Alex Brown and Skip McBride, of Lanier Law Firm, of Houston and New York; Douglas Daniels, of Daniels & Tredennick, of Houston; Timothy W. Burns, of Burns Bowen Bair, of Madison, Wisconsin; and Jeffrey P. Goodman and Marni S. Berger, of Saltz Mongeluzzi & Bendesky, of Philadelphia.
Zurich was represented by attorneys Eileen King Bower and Jared K. Clapper, of Clyde & Co, and Michael A. Scodro, of Mayer Brown, both of Chicago.
The Firebirds case also drew amicus curaie, or “friend of the court” briefs, from the American Property Casualty Insurance Association, in support of Zurich; and the Restaurant Law Center, in support of Firebirds.
The decision in the hotels case was entered as a unpublished order issued under Supreme Court Rule 23, which may limit its use as precedent.