Insurance company State Farm is breathing a little easier after a Cook County judge recently dismissed a putative class action lawsuit filed against the insurer by the owner of an Evanston restaurant over the insurer’s denial of loss of income claims. In the complaint, the restaurant alleged that it and other restaurants suffered hundreds of thousands of dollars in lost income, resulting from state-ordered closures in response to COVID-19. The restaurant alleges that it filed a business interruption claim with State Farm who denied coverage.
Following denial of the claim, the restaurant filed suit against the insurer. In response, State Farm asked the court to dismiss the claims against it. In arguing for dismissal, State Farm asserted two arguments. First, it argued that an “accidental direct physical loss” to the covered property, required for coverage, had not occurred. Second, it argued that coverage was excluded by the “Fungi, Virus or Bacteria” Exclusion to the plaintiff’s policy, which excluded from coverage losses due to “[v]irus, bacteria or other microorganism that induces or is capable of inducing physical distress, illness or disease.”
In arguing that the physical loss trigger to coverage had not been met, State Farm relied on the 2001 Illinois Supreme Court’s opinion in Travelers Insurance Co. v. Eljer Manufacturing Inc. that a “physical” loss must include alterations in “appearance, shape, color or in other material dimension.” As a result, State Farm contended, economic losses from COVID-19 are legally distinct from physical losses and not covered by the plaintiff’s policy. In other words, simply being deprived of physical access to a restaurant building is insufficient to trigger coverage, even if the closure was by order of the Governor. Continue reading ›