For insurers of restaurants, bars and other small businesses in the Chicago area, the decisions will come as a big relief. One in particular, Fond du Lac, Wis.-based Society Insurance, is a defendant in multiple cases because it specializes in covering local restaurants and bars and is small enough that adverse rulings could have meant its liquidation.
Society’s policies, unlike many larger insurers, didn’t contain an explicit exclusion against covering business losses in the event of a viral outbreak. That made it considerably more vulnerable in court, attorneys said.
But exclusions aren’t really needed to protect insurers in the 7th Circuit from paying damages due to COVID-related economic shutdowns under the reasoning the judges put forth.
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.
The decisions are too recent to determine how Billy Goat and other local restaurants, hotels, bar owners and other businesses will respond in their cases before lower courts. But it seems clear that, if any are to succeed in Illinois, they will have to involve highly unique circumstances not present in most of these situations.