Court declines to dismiss business interruption case

The case’s decision will have an impact well beyond Illinois, according to the plaintiff’s attorney.

“Not all policy language is the same, particularly when it comes to civil authority and other business interruption coverage extensions for which policyholders often pay substantial premiums,” Robin Cohen, of Cohen Ziffer Frenchman & McKenna, said. (Credit: ETAJOE/Shutterstock.com)

An Illinois court has refused to dismiss a COVID-19 business interruption lawsuit, which was filed against CNA Financial Corp. by a construction development firm and a management company. The plaintiffs alleged evidence of physical loss or damage, which is covered under the policy.

According to the ruling, JDS Construction group and construction developer Dekalb Fee Onwer LLC filed a business interruption lawsuit against Continental Casualty Co. Both companies were insured under a builders risk policy covering March 2019 to June 2022.

In the refusal to dismiss the case, the court said that the plaintiffs alleged that the virus caused the direct physical loss or damage that is required for coverage under the policy. The ruling said that the complaint alleged that “the COVID-19 droplets or nuclei were present on solid surfaces and in the air at insured property and that the virus, a physical substance, has attached and adhered to plaintiffs’ properties.”

The plaintiffs further alleged how virus droplets are conveyed from infected people to solid surfaces in the property, into the heating and air conditioning systems, causing damage and alteration to the property. Evidence was also given that the air becomes altered “from safe and breathable to unsafe and dangerous, capable of surviving on the surfaces for an extended significant period of time,” according to the ruling.

The court agreed with the plaintiffs that they had sufficiently alleged that the direct physical loss triggered the civil authority coverage within the policy.

The all-women team representing the plaintiffs included Robin Cohen, member of PropertyCasualty360.com’s sister outlet Insurance Coverage Law Center‘s Editorial Advisory Board and chair of Cohen Ziffer Frenchman & McKenna.

Cohen made the following comments about the case, one of few so far that seem to favor the policyholder at this point in litigation: “This decision is a victory that will resonate beyond Cook County for policyholders seeking business interruption insurance arising from the pandemic. This is in key part because even in Illinois’ more stringent ‘fact pleading’ as opposed to ‘notice pleading’ jurisdiction — Judge Mitchell found that allegations of COVID-19 on premises or being transmitted to surfaces and air sufficiently alleges ‘physical loss or damage.’ These allegations overcame a motion to dismiss even where physical or material ‘alteration’ concepts are being read into policies that, in fact, contain no such express requirement.”

She added the decision also undercuts carriers’ efforts to date to have pandemic insurance cases dismissed by “ignoring” the language unique to the policies.

“But the reality is, not all policy language is the same, particularly when it comes to civil authority and other business interruption coverage extensions for which policyholders often pay substantial premiums,” Cohen said.

Additionally, the ruling also acknowledged that the science is still developing around how COVID-19 alters and impacts the physical surfaces and air with which it comes into contact, according to Cohen.

“Judges who are willing to dig in and apply the proper standard on a motion to dismiss (taking allegations as true) are aptly accounting for this nuance,” she said. “Policyholders pay varied (often substantial) premiums for varied levels of protection, and despite carriers’ best efforts to show otherwise, many policies reflect a clear intent to cover exactly the types of business interruption losses so many businesses have suffered.”

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