C.J.M., Inc. v. Mid-Century Ins. Co.

563 F.Supp.3d 826

C.J.M., INC. d/b/a The Fireside Grill, Plaintiff,

v.MID-CENTURY INSURANCE COMPANY, Defendant.

No. 21 C 793

United States District Court, N.D. Illinois, Eastern Division.

Signed September 23, 2021

Charles Aaron Silverman, Charles Aaron Silverman PC, Skokie, IL, Roberta Ann Becker, Becker & Becker, Hoffman Estates, IL, for Plaintiff.

David Newmann, Pro Hac Vice, Caitlyn Anne Mancuso, Pro Hac Vice, Jasmeet K. Ahuja, Pro Hac Vice, Hogan Lovells US LLP, Philadelphia, PA, Randall Allan Hack, Locke Lord LLP, Chicago, IL, for Defendant.

OPINION AND ORDER

SARA L. ELLIS, United States District Judge

Plaintiff C.J.M., Inc. d/b/a The Fireside Grill ("C.J.M."), which operates a restaurant in Sugar Grove, Illinois, suffered losses due to the COVID-19 pandemic. C.J.M. subsequently filed a claim with its insurer, Defendant Mid-Century Insurance Company ("Mid-Century"). Mid-Century denied the claim, and C.J.M. filed this suit in response. C.J.M. brings claims for breach of contract and related declaratory relief, as well as for bad faith denial of coverage under Illinois law. Mid-Century filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court finds that C.J.M. has not sufficiently alleged "direct physical loss of or damage to" property as required to obtain coverage under its insurance policy. This failure dooms C.J.M.'s breach of contract and declaratory judgment claims, as well as its bad faith claim. The Court thus grants Mid-Century's motion to dismiss and dismisses C.J.M.'s complaint without prejudice.

BACKGROUND

I. The Insurance Policy

C.J.M. owns and operates a restaurant in Sugar Grove, Illinois. C.J.M. obtained a commercial property insurance policy with policy number 60675-71-16 (the "Policy") from Mid-Century. The Policy covered the period from August 15, 2019 through August 15, 2020.

As relevant here, the Policy provides coverage for "direct physical loss of or damage to Covered Property ... caused by or resulting from any Covered Cause of Loss." Doc. 17-1 at 5. The Policy's "business income" coverage further provides:

We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your "operations" during the "period of restoration." The suspension must be caused by direct physical loss of or damage to property at the described premises.

Id. at 8. A policyholder may also recover for "Extra Expense" it "incur[s] during the ‘period of restoration’ that [it] would not have incurred if there had been no direct physical loss or damage to property at the described premises." Id. at 9. Finally, as relevant here, the Policy provides "civil authority" coverage:

We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss.

Id. at 10. The Policy defines "period of restoration" as the time period that begins "(1) 72 hours after the time of direct physical loss or damage for Business Income Coverage; or (2) [i]mmediately after the time of direct physical loss or damage for Extra Expense Coverage; caused by or resulting from any Covered Cause of Loss at the described premises." Id. at 26. The "period of restoration" ends on the earlier of "(1) [t]he date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or (2) [t]he date when business is resumed at a new permanent location." Id. at 27.

The Policy also includes a number of exclusions. As relevant here, the Virus Exclusion, which applies to all coverage, including that for business income, extra expense, or actions of civil authorities, states that Mid-Century "will not pay for loss or damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness or disease." Id. at 28. The Ordinance or Law Exclusion bars coverage for loss or damage caused directly or indirectly by the enforcement of any ordinance or law "regulating the construction, use or repair of any property." Id. at 13. Finally, the Consequential Losses Exclusion bars coverage for loss or damage caused directly or indirectly by "[d]elay, loss of use or loss of market." Id. at 15.

II. C.J.M.'s Insurance Claim

In response to the COVID-19 pandemic, Illinois Governor J.B. Pritzker issued Executive Order 2020-07 on March 15, 2020, which required all bars, restaurants, and movie theaters to close to the public. On March 20, 2020, Governor Pritzker issued Executive Order 2020-10, which closed all non-essential businesses in a further effort to combat the COVID-19 pandemic. As essential businesses, restaurants could remain open but only to prepare and serve food for off-premises consumption. No on-premises dining was allowed.

In response to the Executive Orders and the ongoing spread of COVID-19, C.J.M. initially suspended its operations and then resumed them in a limited manner. C.J.M. filed a claim with Mid-Century seeking coverage for its COVID-19 related business losses. Mid-Century denied C.J.M.'s claims, concluding that the Policy did not provide coverage for C.J.M.'s losses. This suit followed.

LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its merits. Fed. R. Civ. P. 12(b)(6) ; Gibson v. City of Chicago , 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion, the Court accepts as true all well-pleaded facts in the plaintiff's complaint and draws all reasonable inferences from those facts in the plaintiff's favor. Kubiak v. City of Chicago , 810 F.3d 476, 480–81 (7th Cir. 2016). To survive a Rule 12(b)(6) motion, the complaint must assert a facially plausible claim and provide fair notice to the defendant of the claim's basis. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Adams v. City of Indianapolis , 742 F.3d 720, 728–29 (7th Cir. 2014). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.

ANALYSIS

I. Scope of Coverage

Under Illinois law, which the parties agree governs the Policy, the construction of an insurance policy is a question of law. Country Mut. Ins. Co. v. Livorsi Marine, Inc. , 222 Ill. 2d 303, 311, 305 Ill.Dec. 533, 856 N.E.2d 338 (2006). The Court construes an insurance policy as a whole, giving effect to the true intentions of the contracting parties as expressed in the policy. First Ins. Funding Corp. v. Fed. Ins. Co. , 284 F.3d 799, 804 (7th Cir. 2002). The Court gives unambiguous policy language its "plain, ordinary, and popular meaning." Cent. Ill. Light Co. v. Home Ins. Co. , 213 Ill. 2d 141, 153, 290 Ill.Dec. 155, 821 N.E.2d 206 (2004). An ambiguity exists where policy language is subject to more than one reasonable interpretation. Hobbs v. Hartford Ins. Co. of the Midwest , 214 Ill. 2d 11, 17, 291 Ill.Dec. 269, 823 N.E.2d 561 (2005). The Court will not find ambiguity simply because the parties disagree as to the meaning of a policy provision, however. Founders Ins. Co. v. Munoz , 237 Ill. 2d 424, 433, 341 Ill.Dec. 485, 930 N.E.2d 999 (2010). Where ambiguity exists, courts construe the ambiguous terms strictly against the drafter and in favor of coverage. Outboard Marine Corp. v. Liberty Mut. Ins. Co. , 154 Ill. 2d 90, 119, 180 Ill.Dec. 691, 607 N.E.2d 1204 (1992).

Here, Mid-Century contends that C.J.M.'s breach of contract and declaratory judgment claims fail because the Policy does not cover C.J.M.'s losses. Mid-Century argues that C.J.M. has failed to allege "direct physical loss of or damage to" property, or alternatively, that several of the Policy's exclusions bar coverage for C.J.M.'s losses. The Court need only address the first argument, whether C.J.M. suffered "direct physical loss of or damage to" property, which C.J.M. must have suffered to obtain either business income or civil authority coverage. Mid-Century maintains that "physical loss" and "physical damage" requires "physical alteration or structural degradation of the property."

Doc. 17 at 14 (quoting Sandy Point Dental, PC v. The Cincinnati Ins. Co. , 488 F. Supp. 3d 690, 693 (N.D. Ill. 2020) ). C.J.M., on the other hand, argues that "direct physical loss" can also apply to "work stoppage due to physical conditions that render the premises of the business unusable." Doc. 22 at 11.

While the Policy does not define "physical loss" or "physical damage," that does not automatically render these terms ambiguous. Nicor, Inc. v. Associated Elec. & Gas Ins. Servs. Ltd. , 223 Ill. 2d 407, 417, 307 Ill.Dec. 626, 860 N.E.2d 280 (2006). In addressing a similar question, the Illinois Supreme Court concluded that "physical injury," under its plain and ordinary meaning, "unambiguously connotes damage to tangible property causing an alteration in appearance, shape, color or in other material dimension." Travelers Ins. Co. v. Eljer Mfg., Inc. , 197 Ill. 2d 278, 312, 258 Ill.Dec. 792, 757 N.E.2d 481 (2001). More recently, the majority of courts considering COVID-19 insurance claims have agreed that "physical" loss or damage requires a tangible or concrete injury. See, e.g., Image Dental, LLC v. Citizens Ins. Co. of Am. , 543 F.Supp.3d 582, 588 (N.D. Ill. June 11, 2021) ("The nature of the loss must be physical , not intangible, immaterial, economic, or regulatory."); Sandy Point Dental , 488 F. Supp. 3d at 693 ("The words ‘direct’ and ‘physical,’ which modify the word ‘loss,’ ordinarily connote actual, demonstrable harm of some form to the premises itself, rather than forced closure of the premises...