Illinois Appellate Court Denies Business Interruption Insurance Claim Related To COVID-19

Published date08 June 2022
Subject MatterInsurance, Coronavirus (COVID-19), Insurance Laws and Products, Insurance Claims
Law FirmGould & Ratner
AuthorHannah R. Batsche

In the wake of the COVID-19 pandemic, many businesses across the country filed claims for business interruption coverage with their insurance carriers, most, if not all of which, were denied. Indeed, by the end of June 2021, a total of 1,937 business interruption lawsuits had been filed. In a recent opinion from Lee v. State Farm Fire & Casualty Co., 2022 IL App (1st) 210205, the Illinois Appellate Court addresses the business interruption due to COVID-19 claim for the first time, ultimately denying coverage.

Following a series of executive orders by Governor J.B. Pritzker in March 2020, plaintiff Evanston Grill sought judgment that its business interruption claim was a "covered cause of loss" under the businessowners policy issued by defendant State Farm Fire and Casualty Co. Specifically, the executive orders forced all businesses in Illinois that offered food or beverages for on-premises consumption to suspend service, and all non-essential businesses and operations cease due to the "novel and rapidly spreading coronavirus."

Hyun Lee and his father, Jaewook Lee, who owned and operated the Evanston Grill, claim they suffered business income losses in excess of $100,000 in the month of April 2020 as compared to April 2019 and incurred extra expense from the business interruption caused by the shutdown. However, State Farm Fire & Casualty disagreed, finding there was no covered cause of loss because "there was no accidental direct physical loss to Covered Property to trigger coverage" and "the policy specifically excluded loss caused by enforcement of ordinance or law, virus, consequential losses and acts or decisions."

The court agreed with State Farm's assessment that the language of the policy requires accidental direct physical loss to covered property, not economic loss. However, in the policy, the term "physical loss" is undefined, so the court had to turn elsewhere for guidance. The court looked to an Illinois federal case Sandy Point Dental, P.C. v. Cincinnati Insurance Co., which also dealt with a business interruption claim due to COVID-19, and wherein the policy provided for "coverage for income losses...

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