On Friday another action was filed by an insured seeking coverage from its insurer for Business Interruption on account of the COVID-19 pandemic.  This is the fifth such coverage action that we know of.

But the complaint filed in Big Onion Tavern Group, LLC, et al. v. Society Insurance, Inc., No. 1:20-cv-02005 (N.D. Ill. March 27, 2020) differs from the others.  In the earlier cases, the insured seemingly filed its coverage action before the carrier had even denied coverage.  The actions were filed by insureds in anticipation of being denied coverage for their COVID-19 losses. 

Big Onion is different.  Here, the coverage action was filed after the insurer disclaimed coverage.  As a result, it is the first coverage action that we have seen that discusses the insurer’s response to an actual claim made for business income losses on account of the pandemic. 

The insureds maintain that the insurer’s denial was wrongful, raising such issues as the absence of a virus exclusion in the policy and the argument that, “if a virus could never result in a ‘physical loss’ to property, there would be no need for such an exclusion.” 

But, in addition to addressing the substantive coverage issues, the insureds also allege that, upon receipt of the claims, the insurer “immediately denied the claims (either verbally or through cursory emails) without conducting any investigation, let alone a ‘reasonable investigation based on all available information’ as required under Illinois law.”  The insureds seek damages for statutory bad faith under Illinois law. 

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The plaintiffs in Big Onion include over a dozen Chicago-based “owners and operators of restaurants and movie theaters” which, the complaint alleges, “have been forced, by recent orders issued by the State of Illinois, to cease their operations — through no fault of their own — as part of the State’s efforts to slow the spread of the COVID-19 global pandemic.” ¶ 1.

The plaintiffs assert that their insurance company and the sole defendant in the action, Society Insurance, Inc., “fail[ed] to honor its obligations under commercial businessowners insurance policies,” which included certain business interruption coverage “for losses incurred due to a ‘necessary suspension’ of their operations, including when their businesses are forced to close due to a government order.” ¶ 2.

According to the plaintiffs, Society “issued blanket denials [of coverage] to Plaintiffs for any losses related to the closure orders — often within hours of receiving Plaintiffs’ claims — without first conducting any meaningful investigation,” let alone an investigation of the plaintiffs’ claim they were entitled to under Illinois law. ¶ 5. The plaintiffs further claim that Society “circulated a memorandum to its ‘agency partners,” before the plaintiffs even submitted their claims to Society, which “prospectively conclude[ed] that [Society’s] policies would likely not provide coverage for losses due to a ‘governmental imposed shutdown due to COVID-19 (coronavirus).’” ¶ 6.

To the extent Society did provide an explanation for its coverage determination, the plaintiffs describe Society’s explanation as merely “conclusory” and at odds with prior Illinois case law. ¶ 8. Citing to Board of Educ. v. International Ins. Co., 720 N.E.2d 622 (Ill. App. Ct. 1999), the plaintiffs claim that Illinois courts “have consistently held that the presence of a dangerous substance in a property constitutes ‘physical loss or damage.’” Id. [Note: The Appellate Court in Board of Education concluded, in part, that “asbestos fiber contamination” inside three high schools constituted the type of “physical loss or damage” to real property insured by two all risk policies. 720 N.E.2d at 624-26.]

Finally, the plaintiffs assert that Society’s coverage disclaimers were all the more “arbitrary and unreasonable,” where the Society policies did “not include an exclusion for loss caused by a virus.” ¶ 9. This allegedly led the plaintiffs to “expect[ ] that the insurance they purchased from Society . . . included coverage for property damage and business interruption losses caused by viruses like the COVID-19 coronavirus.” Id. Alleging that Society could have issued policies with a virus exclusion, but chose not to do so, the plaintiffs claim that Society is now “try[ing] to limit its exposure on the back-end through its erroneous assertion that the presence of the coronavirus is not ‘physical loss’ and therefore is not a covered cause of loss under its policies.” ¶ 10.