A multistate dental care chain can continue with demands for its insurer to cover losses in each jurisdiction where government officials ordered closures at the onset of the Covid-19 pandemic.
Dental Experts has been engaged in a protracted legal battle with Massachusetts Bay Insurance Company after the insurer paid out only $25,000 under a business insurance policy’s provision for coverage for "disease contamination." Dental Experts sued for breach of contract in August 2020 in Illinois, arguing it was entitled to coverage in each different jurisdiction. Massachusetts Bay removed the complaint to federal court.
In an opinion issued July 7, U.S. District Judge Matthew Kennelly granted summary judgment in favor of Dental Experts, which operates 73 practices in nine states and Washington, D.C. The ruling marks a rare win for businesses attempting to compel insurers to cover losses linked to governmental shutdown orders.
U.S. District Judge Matthew Kennelly
For much of the past two years, courts have routinely sided with insurers in denying claims placed by businesses who say they suffered steep losses when Gov. JB Pritzker and other governors and mayors in various states and cities throughout the U.S. ordered them to close, under lockdown-style restrictions the officials have asserted were needed to try to slow the spread of Covid. Despite those restrictions, Covid circulated throughout the country. Health officials said the disease claimed more than a million lives in the U.S.
A study from Johns Hopkins University, however, concluded such lockdown-style restrictions imposed significant harm on the economy and businesses, while having virtually no impact on reducing the number of Covid deaths.
After those orders were imposed, many businesses in Illinois and elsewhere across the country filed suit against insurers, seeking coverage for their losses. Nearly all of such claims filed under so-called "business interruption" coverage have been rejected, as courts have ruled financial losses suffered as a result of orders from Pritzker and other government offices generally don't entitle businesses to coverage.
A few businesses, however, have found success against their insurers.
Dental Experts initially sought financial recovery under three policy provisions for business income, disease contamination and civil authority.
On cross-motions for summary judgment, however, only the contamination provision was at issue, according to Kennelly.
“Dental Experts premises its theory of liability on the argument that 20 different executive orders — two in each jurisdiction, except for Massachusetts, where there were three, and Texas, where there was one — each qualify as an occurrence as set forth in the policy,” Kennelly wrote. He added both sides agreed Illinois law, specifically how an insurance policy is written, was the controlling principle.
Massachusetts Bay argued all the closures had a single cause: coronavirus mitigation. It also said that even if the executive closure orders are what caused the financial losses, those edicts should count as a “series of similar, related acts.”
Kennelly first said he agreed with Dental Experts that the orders were the operative event, not the pandemic.
“Governmental responses to the pandemic varied significantly across states and localities,” Kennelly wrote. “Some governors never issued stay-at-home or shutdown orders, meaning dental offices in states like Iowa and Nebraska were not required to close, notwithstanding the outbreak of coronavirus disease in those states. It is also significant in this regard that each executive order particularized its directives to the unique circumstances of the state or locality — for example, the types of businesses required to close were not uniform from jurisdiction to jurisdiction — and the orders differed in terms of duration, prompting the need for renewal orders at differing intervals.”
While Illinois uses a cause-based rule to govern insurance policies where liability is based on specific events, Kennelly explained, the Dental Experts policy has a provision modifying a default application that would’ve squared with the insurer’s position.
He pointed to a 2006 Illinois Supreme Court opinion, Nicor v. Association Electrical & Gas Insurance Services, stemming from Nicor contaminating hundreds of homes with mercury while replacing gas meters in the 1960s and 1970s. Ultimately the Supreme Court upheld an appellate ruling establishing Nicor’s liability for each home contamination as a distinct event.
“Similar to Nicor, each of Dental Experts’ claimed losses in this case was “the result of a separate and intervening human act” — specifically, executive orders issued separately by a number of different state or local governmental authorities,” Kennelly wrote. “As in Nicor, the court concludes that Dental Experts’ losses qualify as multiple occurrences.”
Kennelly, however, rejected Dental Experts' attempt to argue each new executive shutdown order should count as a separate occurrence.
The judge said “no reasonable jury could find that the orders issued by a governor in one state were caused by those entered by a governor in a different state.” But he also explained executive orders linked to each other — because they came from the same executive office — don’t establish a separate occurrence.
Kennelly set a status hearing for July 20, which he indicated could involve discussion of a settlement.
Dental Experts is represented in the case by attorneys David B. Goodman, Carrie E. Davenport and Kalli K. Nies, of Goodman Law Group, of Chicago.
Massachusetts Bay is represented by attorneys Todd S. Schenk, Jennifer L. Smith and Zachary R. Greening, of Tressler LLP, of Chicago.
Jonathan Bilyk contributed to this report.