The insurer said Wednesday that the bar and the jewelry store have not alleged a tangible injury or permanent dispossession of property and failed to show "direct physical loss of or damage to property" to trigger coverage. The virus exclusion specifically bars all losses arising from the coronavirus outbreak, West Bend said.
"Although COVID-19 is unprecedented, it does not change the terms of the policies," the carrier said. "Plaintiffs did not pay for or obtain a guarantee of income."
Last month, 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, urged the Seventh Circuit to reverse a lower court's dismissal of their suit. The businesses said the district court wrongly held that it was the coronavirus instead of government orders that caused their losses.
On Wednesday, West Bend said the businesses' contention is flawed. Courts across the country have repeatedly held that government closure orders do not constitute or cause direct physical loss of or damage to property and are not governed under property policies, the carrier said.
"As plaintiffs themselves allege, the closure orders were issued 'in an effort to slow or stop the spread of COVID-19,'" West Bend said. "There was no genuine dispute that the closure orders were issued in direct response to COVID-19 and would not have been issued but for COVID-19."
The businesses are not entitled to civil authority coverage either because they never lost access to their properties, the carrier said. "Ranalli's continued to operate and provide takeout and delivery. As for Mashallah, the closure orders permitted it to conduct minimum basic operations at its insured premises," it added.
In the brief, West Bend also urged the appellate court to toss the jewelry store and bar's claim that it engaged in deception and unfair conduct by wrongly describing the policy limits. The insurer said it has repeatedly informed the policyholders of the insurance coverage details, so it never misrepresented the policies.
The handcrafted jewelry store and the bar both hold all-risk policies from West Bend. The businesses have maintained that their revenue was significantly harmed by government shutdown orders during the pandemic.
After the businesses made insurance claims last year, West Bend denied coverage by asserting the policies' virus exclusion. The businesses then sued the carrier in Illinois district court, 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.
The businesses have argued state-mandated orders caused direct physical loss or damage by directly and physically impairing the functionality of their properties and that the lower court erred by requiring the carrier to demonstrate how the virus exclusion would bar coverage of their losses caused by government shutdown orders.
Counsel for the parties could not be immediately reached for comment Thursday.
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 Gemma Horowitz.
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