* The 7th US Court of Appeals has ruled that the pandemic and Gov. Pritzker’s resulting emergency order closing down businesses did not trigger insurance policies covering income reductions caused by “direct physical loss.” Here’s Steve Daniels at Crain’s…
In the linchpin cases—suits by Sandy Point Dental in Lake Zurich, the owner of the Hyatt Place hotel in East Moline and a Southern Illinois restaurant owner against Cincinnati Insurance—a three-judge panel decided that Gov. J.B. Pritzker’s actions in the spring of 2020 to keep the virus from spreading out of control didn’t constitute a “physical loss” that virtually every business policy requires for payment of claims.
In the decision, Judge Diane Wood emphasized that businesses were able to function in part even during the most restrictive phases of Pritzker’s orders. Restaurants could serve takeout orders. The dentists’ office could perform emergency work.
“(T)he businesses’ preferred use of the premises was partially limited, while other uses remained possible,” she wrote. “Without any physical alteration to accompany it, this partial loss of use does not amount to a ‘direct physical loss.’”
With this ruling, the 7th Circuit joins four other federal judicial circuits around the country in arriving at this interpretation. Unless another circuit rules that insurers are liable for these losses, the U.S. Supreme Court is highly unlikely to weigh in on what last year looked like it might be one of the most intense insurance industry legal wars in years.
* From the decision…
“Loss” means accidental loss or damage.
In other words, incorporating the stated definition of “loss,” the Businesses were covered for income losses resulting from direct physical loss or direct physical damage to property. Thus, to survive Cincinnati’s Rule 12(b)(6) motion, they needed to allege that either the virus or the resulting closure orders caused direct physical loss or direct physical damage to covered property. […]
Sandy Point insured its property, not its ideal use of that property. Having alleged neither a physical alteration to the property nor its equivalent in its amended complaint, Sandy Point failed adequately to allege a “direct physical loss” under the Policy. […]
Bend Hotel has not alleged loss of use so substantial as to amount to a physical dispossession of its property. […]
To state a claim under the Policy before us, the Businesses needed to allege more than a partial loss of their preferred use of the insured properties. But they alleged neither a physical alteration to property nor an access- or use- deprivation so substantial as to constitute a physical dispos- session. They thus have not managed to state claims upon which relief could be granted.
- Wow - Tuesday, Dec 14, 21 @ 10:34 am:
I also believe that most of those businesses refused to add “pandemic coverage” to their policy. You can pay an extra premium for pandemic loss coverage.
- Ron Burgundy - Tuesday, Dec 14, 21 @ 10:36 am:
These are tough decisions, but correct ones. The businesses paid for coverage but that coverage didn’t contemplate pandemics. Coverage for such circumstances was available but not widely known or sought, nor included in standard business interruption policies.
- Rich Miller - Tuesday, Dec 14, 21 @ 10:38 am:
=== refused to add “pandemic coverage” to their policy===
Maybe, but it’s not mentioned in the decision that I saw.
- Flyin' Elvis'-Utah Chapter - Tuesday, Dec 14, 21 @ 10:54 am:
Have learned from both personal experience and experiences of others that there is no such thing as being over-insured.
- The Captain - Tuesday, Dec 14, 21 @ 10:55 am:
If insurance isn’t going to pay out when it’s clearly needed, regardless of how lawyers split hairs, the people who sign checks are going to stop paying insurance companies that won’t help them.
- Flyin' Elvis'-Utah Chapter - Tuesday, Dec 14, 21 @ 10:56 am:
“stop paying insurance companies”
Yeah, go with that.
- Ron Burgundy - Tuesday, Dec 14, 21 @ 10:59 am:
-If insurance isn’t going to pay out when it’s clearly needed-
They don’t pay out if it is “needed,” they pay out if it is covered.
- Ares - Tuesday, Dec 14, 21 @ 11:02 am:
Not surprising, since most carriers scaled back coverage after the H1N1 scare of a decade ago. I still recall predictions of H1N1 mutations causing hospitals, morgues, and mortuaries to fill up, which, sadly, played out in 2020-21. “Those who forget the past are condemned to repeat it.”
- ChicagoBars - Tuesday, Dec 14, 21 @ 11:05 am:
These policies were often sold under the term “all risk” by thee brokers/agents pitching them to bars and restaurants. Caveat emptor indeed, but a lot of small businesses would love to drop a truck of coal on those brokers Christmas trees these days.
And I read multiple insurance proposals for new bars or restaurants over the years and remember some “civil unrest” and basically mass shooting additional coverage riders but don’t ever recall one for pandemic losses. They might have existed but before 2020 it wasn’t even a thing being pitched by brokers who specialize in the industry. Probably because it had been 100 years since the last one…
- King Louis XVI - Tuesday, Dec 14, 21 @ 11:25 am:
–regardless of how lawyers split hairs–
How lawyers read the fine print of the insurance’s provisions.
- Pundent - Tuesday, Dec 14, 21 @ 12:32 pm:
=If insurance isn’t going to pay out when it’s clearly needed, regardless of how lawyers split hairs=
An insurance policy is a contract, not a blank check. And if it was a blank check the people that ultimately pay the claim (other policyholders) couldn’t afford it.
- Chicagonk - Tuesday, Dec 14, 21 @ 12:33 pm:
I always tell my clients to make sure to read the exclusions in their policies very carefully. After SARS 1, property policies excluded coverage for viruses. The All Risk policies which are considered the best in the industry and cover all property damage and business interruption unless specifically excluded all had virus exclusions. The government should backstop insurers like they did with TRIA.
- Ares - Tuesday, Dec 14, 21 @ 1:05 pm:
One must not only read the exclusions, but the exceptions to the exclusions.
- Skeptic - Tuesday, Dec 14, 21 @ 2:22 pm:
“when it’s clearly needed” I’ve got news for you, unless you explicitly have water damage or flood coverage, your insurance company won’t pay for feet of water in your basement or when the sewer backs up.
- Shield - Tuesday, Dec 14, 21 @ 3:10 pm:
There’s at least one bill to change this for the future
https://ilga.gov/legislation/billstatus.asp?DocNum=3166&GAID=16&GA=102&DocTypeID=HB&LegID=132091&SessionID=110
- Ron Burgundy - Tuesday, Dec 14, 21 @ 3:17 pm:
-There’s at least one bill to change this for the future-
And if it ever passed (good luck), the dramatic rate increases necessary to absorb the additional liability would be passed on to those very same businesses - some of which would no longer be able to afford to insure their businesses at all. Insurers aren’t the solution for pandemics. We need them solvent to pay out for the things they agreed to pay out for.
- The Captain - Tuesday, Dec 14, 21 @ 3:54 pm:
Insurance companies see us as a blank check.