Business Interruption Insurance Does Not Cover COVID-19 Losses

We continue to monitor legal changes due to COVID-19, including decisions by Courts as well as regulatory authorities.

A class action lawsuit led by the owners of a Logan Square restaurant was dismissed by a federal Court. The federal Court rejected the claims that the insurance company owed overage to the restaurant owners—and other Illinois business owners—impacted by Governor J.B. Pritzker’s orders due to the COVID-19 pandemic. 

The restaurant obtained business interruption insurance on July 20, 2019 to cover the restaurant, Navigator Taproom. The insurance company, Cincinnati, denied the claim and issued a blanket denial for losses linked to the pandemic, including orders from the Governor to close businesses. After Cincinnati provided a denial letter, a four-count class action complaint was filed against the insurance company for: (1) declaratory judgment; (2) breach of contract; (3) breach of the duty of good faith and fair dealing; and (4) bad faith denial of insurance under Illinois law.

U.S. District Judge Harry Leinenweber granted Cincinnati’s motion to dismiss the restaurant’s complaint against it. The Court specifically stated that it sympathizes with the restaurant, but the loss of use of the property “without physical change to that property cannot constitute direct physical loss or damage to the property.” Courts will carefully examine the specific language of the policy.

Businesses will obtain “all risk” coverage to insure against loss owing to anything except those specifically excluded in the policy, unlike policies for specific types of damage from fire or flood. Although it is termed “all risk,” the all risk policy does not actually cover any and all possible risks. The insurance policy’s use of “loss to” as opposed to “loss of” phrasing supports the Court’s conclusions.