By Daphne Zhang

Law360 (March 1, 2021, 4:38 PM EST ) An Illinois federal judge allowed a dental practice's proposed class action seeking COVID-19-related coverage to proceed, rejecting Cincinnati Insurance Co.'s stance that an insured needs to show a "physical alteration" of property to allege physical loss, a precondition for coverage.

U.S. District Judge Matthew F. Kennelly on Sunday refused to toss Derek Scott Williams PLLC's suit, saying that Cincinnati's reading of the policy conflicts with general principles of insurance policy construction and holding that the term "direct physical loss" also means a "loss of use" of an insured property.

"The court is persuaded that a reasonable factfinder could find that the term 'physical loss' is broad enough to cover, as Williams argues, a deprivation of the use of its business premises," the judge said.

The judge denied Cincinnati's argument that the practice is not entitled to business interruption coverage but sided with the insurer that the policy's "civil authority" coverage is not triggered, finding the clinic failed to allege that government closure orders prohibited access to its surroundings.

Betsy Ertel, a spokesperson for Cincinnati, told Law360 that Cincinnati is "disappointed" the court allowed the clinic's business interruption coverage claims to survive its dismissal motion.

"This ruling does not speak to the merits of the complaint. As this case continues past this preliminary ruling, we will continue to vigorously defend the language of our policy contract," she said.

The Lufkin, Texas, dental practice held a commercial property insurance policy from Cincinnati and was forced to suspend operations last year from late March to May. The office subsequently sued its insurer after the carrier denied coverage for its lost income.

Cincinnati has contended that the practice cannot get business interruption coverage because its property was not physically changed. The fact that the policy requires a "period of restoration" for a property to be "repaired" means an insured needs to show a physical alteration of a covered property to allege loss, the insurer said.

But Judge Kennelly disagreed, saying loss cannot simply mean damage. Although the phrase "loss" is defined as either physical loss or physical damage, Cincinnati tried to construe the term as purely requiring physical damage, the judge said.

The insurer's interpretation "writes the term 'loss' out of the definition, which contradicts the basic principle that 'each word [in a contract] has some significance and meaning,'" he added.

Additionally, the term "repair" does not always refer to something physical, Judge Kennelly said, explaining that "one need only consider common references to repairing a relationship or repairing one's health."

In the dental clinic's case, the insured's "loss" would be "repaired" when the government allows it to reopen and make full use of its property, the judge said.

"Cincinnati cites nothing authoritative or persuasive that would indicate that 'loss to' an insured's property includes only physical damage that deprives the insured of the use of the property," Judge Kennelly added.

Counsel for the parties did not immediately respond to requests for comment. 

The dental practice is represented by Christopher B. Sanchez of Nussbaum Law Group PC and Lindsey Caryn Grossman and Michael Elliot Criden of Criden & Love PA.

Cincinnati is represented by Brian M. Reid, Michael Paul Baniak and Daniel G. Litchfield of Litchfield Cavo LLP.

The case is Derek Scott Williams PLLC et al. v. Cincinnati Insurance Co., case number 1:20-cv-02806, in the U.S. District Court for the Northern District of Illinois 

--Editing by Daniel King.

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