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Law360 (May 4, 2021, 5:25 PM EDT ) An Illinois bar and a jewelry store have urged the Seventh Circuit to reverse a lower court's finding that their insurance policies' virus exclusion bars coverage for pandemic-related losses, arguing that the district court wrongly held that it was COVID-19 instead of government orders that caused their losses.
Mashallah Inc, which operated a brick-and-mortar jewelry store in Chicago, and Ranalli's Park Ridge, which owns a bar and restaurant called Holt's in Park Ridge, Illinois, said Monday that the lower court misapplied the law in tossing their suit in February.
"Regardless of whether the virus was actually present at plaintiffs' premises, it was the closure orders that caused plaintiffs' losses," the two businesses said. "Plaintiffs would have otherwise continued fully to operate their businesses but for a government order constraining operations."
The jewelry store and the restaurant said they were forced to close because the government determined that they were not essential businesses that were allowed to remain open. "What ultimately determined whether a business was shut down was not the existence of a virus on the insured premises but rather the nature of the business itself," they said.
The handcrafted jewelry store and the bar both hold all-risk policies from West Bend Mutual Insurance Co. The businesses have maintained that their revenue was significantly harmed by government shutdown orders during the pandemic.
The state-mandated orders caused direct physical loss or damage by directly and physically impairing the functionality of their properties, and the businesses lost access to use their premises, the jewelry store and the restaurant said in the brief.
After the businesses made insurance claims, West Bend denied coverage by asserting the policies' virus exclusion. The businesses then sued the carrier in Illinois district court last September, alleging breach of contract, bad faith and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The lower court ruled in the insurer's favor in February.
On Monday, the jewelry store and the restaurant said West Bend failed to show that the virus exclusion is "clear and free from doubt" as required by Illinois law.
The businesses said the lower court erred by holding that the virus exclusion was unambiguous and not requiring the carrier to demonstrate how the virus exclusion would bar coverage to their losses caused by government shutdown orders. The court should narrowly interpret exclusion in the policyholders' favor, they said.
Upholding the district court's decision will "rewrite well-established Illinois law and relieve insurers of their high burden to enforce exclusions, with devastating consequences for Illinois policyholders," the businesses told the appellate court.
"The district court's indifferent application of the insurer's highest burden ignored long-standing Illinois precedent that an exclusion must apply clearly and undoubtedly," they added.
Counsel for the parties could not be immediately reached for comment on Tuesday.
The businesses are represented by William Edward Meyer Jr. of Fuksa Khorshid LLC.
The insurer is represented by Jason R. Fathallah of Husch Blackwell LLP.
The case is Mashallah Inc. et al. v. West Bend Mutual Insurance Co., case number 21-1507, in the U.S. Court of Appeals for the Seventh Circuit.
--Editing by Bruce Goldman.
For a reprint of this article, please contact reprints@law360.com.
