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COVID does not cause physical loss or damage



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Plaintiff MTDB Corporation d/b/a Striker Lanes (MTDB) sued for declaratory judgment against defendant, American Auto Insurance Company (AAIC), seeking a declaration that AAIC owed it coverage for alleged business losses and property damage due to covid -19 pandemic.

IN MTDB Corporation D/B/A Striker Lanes v. American Auto Insurance Company2022 IL App (1st) 210979-U, No. 1-21-0979, Court of Appeals of Illinois, First District, Sixth Division (December 30, 2022) The Illinois Court of Appeals followed the Illinois Supreme Court and required actual physical injury to property and denied coverage to the plaintiff.

BACKGROUND

MTDB sought coverage under the property protection and civil authority approval provisions of the policy.

The policy in question provided property, general liability and motor insurance for the policy period August 19, 2019 to August 19, 20202. The relevant sections of the policy and section A of the business income coverage form state that: “[w]e will pay for the actual loss of business income you suffer due to the necessary suspension of your business during the recovery period. The suspension must be caused by direct physical loss of or damage to property on the premises described in the declarations, including personal property in the open (or in a vehicle) within 100 feet, caused by or resulting from any covered cause of loss.”

In response to MTDB’s declaratory judgment complaint, the AAIC moved to dismiss MTDB’s complaint with prejudice. In support of its motion, AAIC stated that it denied coverage under the policy because MTDB did not suffer direct physical loss or damage to its property as a result of the COVID-19 virus, and further that the government’s shutdown of MTDB’s operations did not trigger coverage under the civil the authority’s approval.

The circuit court granted AAIC’s motion to dismiss the complaint based on the allegations in the complaint, MTDB was forced to suspend or substantially reduce its business operations due to executive orders, and that the losses suffered by MTDB were financial and not due to permanent loss of or physical alteration of property.

The District Court referred to the Supreme Court’s decision in Travelers Insurance Co. v. Eljer Manufacturing, Inc.197 Ill.2d 278 (2001) by holding that the plain and ordinary meaning of “physical damage” is damage to tangible property that causes a change in appearance, shape, color, or other material dimension, and that MTDB had not alleged that the the probable presence of covid-19 in, on or around their property caused any change in the appearance or any other material dimension of their property.

ANALYSIS

Because a motion to dismiss admits all well-pleaded facts and attacks the legal sufficiency of the complaint to determine a motion to dismiss, only the facts appearing in the pleadings, issues upon which the court may decide, and questions of law. admissions in the journal may be considered.

When an insured sues his insurer for a denial of coverage, the existence of coverage is an essential part of the insured’s case, and the insured has the burden of proving that his loss falls within the terms of his policy. Just because a term is undefined by the policy does not make it ambiguous. If a term in an insurance policy is not defined, the court gives that term its plain, ordinary and popular meaning.

As the Court of Appeals concluded in earlier cases, under the Illinois Supreme defining “physical” for purposes of construing direct physical loss or damage for insurance coverage, there must be an actual change in the appearance, shape, color, or other physical aspect of the property for it to is covered according to the insurance. The Supreme Court was quite clear that under its plain and ordinary meaning “physical” meant precisely that which pertained to natural or material things. Accordingly, the district court did not err in reaching this conclusion.

The COVID-19 virus does not change the appearance, shape, color or other physical aspects of the property to trigger coverage under the applicable policies. Contamination by the covid-19 virus can be remedied by routine cleaning or disinfection of surfaces and air, all without changing the appearance, shape, color or other material aspect of the property. Therefore, covid-19 cannot constitute a physical change to the property to trigger coverage under the policy.

Lawyers are persistent people who believe they have better arguments than other lawyers. They continue to argue that Covid-19 caused actual physical damage to the plaintiff’s property and they continue to fail to convince courts, even after the state Supreme Court has set the standard. It just doesn’t work and soon the handling of these lawsuits will annoy the trial and appellate courts who will either refuse to hear the cases or sanction those who bring these lawsuits. This is the last Covid property damage claim I will report on.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud for insurers and policyholders alike. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and zalma@zalma.com

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