Oak Park Prosthodontics, Ltd. v. Twin City Fire Ins. Co.

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2023 IL App (1st) 220563-U

OAK PARK PROSTHODONTICS, LTD and COLORADO PROSTHODONTICS, PLLC, Plaintiffs-Appellants, v. TWIN CITY FIRE INSURANCE COMPANY and CHERRY CREEK INSURANCE AGENCY, Defendants-Appellees.

Nos. 1-22-0563, 1-22-0731

Court of Appeals of Illinois, First District, Third Division

March 22, 2023

This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the Circuit Court of Cook County 2020-L-009752 Honorable Jerry A. Esrig, Judge Presiding.

PRESIDING JUSTICE McBRIDE delivered the judgment of the court. Justices Reyes and Burke concurred in the judgment.

ORDER

McBRIDE PRESIDING JUSTICE.

¶ 1 Held: Insurer was entitled to judgment on the pleadings and insurance agent was entitled to dismissal of claims where prosthodontic offices which incurred business losses by complying with Illinois and Colorado executive orders to suspend elective dental procedures during initial outbreak of COVID-19 pandemic did not experience "direct physical loss of or damage to" property within the meaning of their commercial insurance policies.

¶ 2 Oak Park Prosthodontics, Ltd., of Oak Park, Illinois (Oak Park), and Colorado Prosthodontics, PLLC, of Lakewood Colorado (Lakewood), appeal the resolution of claims they filed against their commercial property insurer, Twin City Fire Insurance Company (Twin City), and insurance agent Cherry Creek Insurance Agency (Cherry Creek) after the insurer refused to reimburse business interruption losses incurred in 2020 during the initial weeks of the COVID-19 pandemic. The two dental practices sought damages from their insurer for breach of contract and violation of Illinois and Colorado statutes regarding bad-faith handling of claims; and, alternatively, if no coverage existed, then damages from their insurance agent due to its negligence and negligent misrepresentation in procuring a policy with a virus exclusion that was not in their previous insurer's contract. The circuit court granted the insurer's section 2-615(e) motion for judgment on the pleadings and the insurance agent's section 2-615(a) motion to dismiss for failure to state a claim. 735 ILCS 5/2-615(a), (e) (West 2020) (Code). The dental practices argue primarily that the circuit court should not have followed intermediate appellate court opinions such as Sweet Berry Cafe, Inc. v. Society Insurance, Inc., 2022 IL App (2d) 210088, that have rejected business interruption claims on grounds that COVID-19 does not cause a direct physical loss to property. They contend the courts have been misinterpreting Traveler's Insurance Company v. Eljer Manufacturing, Inc., 197 Ill.2d 278, 301 (2001), in which the Illinois supreme court found that "tangible property suffers a 'physical' injury when the property is altered in appearance, shape, color or in other material dimension." They contend they satisfied Eljer's definition by alleging prevalent COVID-19 cases within the immediate vicinity of their insured premises-similar to asbestos contamination of a building-that made it unsafe and impossible to conduct business as usual at their offices. With respect to the claims that are governed by Colorado law, the dentists argue that their loss comes within the Colorado supreme court's determination in Western Fire Insurance Co. v. First Presbyterian Church, 165 Colo. 34, 39 (1968), that a building that was saturated with gasoline to the extent that it was uninhabitable suffered a covered "direct physical loss."

¶ 3 The dentists filed two appeals which we have consolidated. The first, 1-22-0563, was filed after the circuit court dismissed with prejudice all claims that COVID-19 related losses were covered by the Twin City insurance policies, but indicated that the dentists could seek leave to amend their complaint. The second, 1-22-0731, was filed after the dentists declined to amend and the circuit court entered an order dismissing the pleading with prejudice, further specifying that final judgment had been rendered.

¶ 4 The amended complaint indicates the following. The plaintiffs are specialized dental practices which restore injured or missing teeth. Plaintiff Oak Park is an Illinois corporation. Plaintiff Lakewood is a Colorado corporation. Defendant Cherry Creek is an insurance broker licensed as an insurance producer with the Illinois Department of Insurance. Cherry Creek was the insurance producer for the two insurance policies at issue. Defendant Twin City is a property and insurance casualty company which is licensed to write insurance in Colorado and Illinois.

¶ 5 Oak Park's previous insurer was Hanover Insurance Company. Oak Park asked Cherry Creek how the proposed Spectrum Business Owner's insurance policy from Twin City was different from the Hanover policy that was lapsing and told Cherry Creek that the dental practice needed business interruption coverage. Cherry Creek responded that the policy provided equivalent "property coverage" and included"' Business Income for Interruption of Practice.'" Cherry Creek failed to advise Oak Park that the Twin City policy "had an endorsement purporting to exclude *** viruses, whereas the Hanover policy contained no such exclusion or limitation." Similarly, Lakewood emphasized its need for business interruption coverage and Cherry Creek responded that the Twin City policy would give Lakewood business interruption coverage that was equivalent to or greater than what Hanover had provided to Oak Park (sic). Cherry Creek did not tell Lakewood that the "Twin City [policy] provided significantly less business interruption coverage than available from other carriers" and "did not recommend any insurance policies without a limited virus endorsement and exclusion." Oak Park and Lakewood relied on Cherry Creek's representations and purchased the proposed coverage. Twin City issued a Spectrum Business Owner's insurance policy to Oak Park effective August 26, 2019 to August 26, 2020, and issued the same or substantially the same policy to Lakewood effective September 12, 2019 to September 12, 2020.

¶ 6 COVID-19 is an infectious disease that is caused by a virus that is spread by close contact and respiratory droplets. "From March through April of 2020 and continuing thereafter, [the SARS-CoV-2 virus that causes] COVID-19 was prevalent within Lakewood and Jefferson County, Colorado, including on the surfaces of property and in respiratory droplets exhaled onto and within buildings." "During April and May of 2020, and continuing thereafter, [the virus that causes] COVID-19 was prevalent within Oak Park and Cook County, Illinois, including on the surfaces of property and in respiratory droplets exhaled onto and within buildings." We note that although the dental practices alleged that the SARS-CoV-2 virus was "prevalent" in their communities, they did not allege that it was detected on any of their own properties or that they took any steps to prevent or remediate its presence onsite.

¶ 7 The United States federal government declared on March 1, 2020 that there was a global outbreak of COVID-19 and the governors of Illinois and Colorado issued disaster proclamations throughout their states on March 9, 2020 and March 11, 2020, respectively. The governors subsequently issued various executive orders intended to slow the spread of COVID-19, including a Colorado executive order dated April 8, 2020 which recognized that "[the virus that causes] COVID-19 also physically contributes to property loss, contamination, and damage due to its propensity to attach to surfaces for prolonged periods of time."

¶ 8 Lakewood lost income when, in compliance with a Colorado order, the dental office stopped performing "elective procedures" between March 19, 2020 and April 26, 2020. Similarly, the Oak Park office lost income when, in compliance with an Illinois order, it did not perform "elective procedures" between April 1, 2020 and May 11, 2020. Oak Park and Lakewood sought coverage for their losses from Twin City. The first amended complaint does not distinguish between elective and essential procedures at the two offices, and does not disclose the magnitude of the claimed financial loss, other than to state that the amount in controversy exceeds $50,000.

¶ 9 The "Special Property Coverage Form" of the insurance policies states that Twin City "will pay for direct physical loss of or physical damage to Covered Property *** caused by or resulting from a Covered Cause of Loss." "Covered Causes of Loss" are defined as "RISKS OF DIRECT PHYSICAL LOSS" unless the loss is "Excluded" or "Limited."

¶ 10 In addition to this basic coverage for "direct physical loss of or physical damage to Covered Property," the policies include three other types of coverage that are relevant here, the first being for business income lost when a policyholder must repair or replace property that has been physically lost or physically damaged. More specifically, the policy states:

"[Twin City] 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 physical damage to property at the 'scheduled premises', including personal property in the open (or in a vehicle) within 1,000 feet of the 'scheduled premises', caused by or resulting from a Covered Cause of Loss."

¶ 11 In this paragraph and throughout the policy, the words "you" and "your" are references to the named insured. The policies define "Period of Restoration" as the period of time that:

"a. Begins with the date of direct physical loss or physical damage caused by or resulting from a Covered Cause of Loss at the 'scheduled premises,' and b. Ends

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