Insurance Law

Dist. Ct. did not err in adopting Bankruptcy Ct.’s proposed findings in insurance coverage dispute, where plaintiff-insured alleged that defendant-insurance company had duty to defend and cover most of underlying lawsuits filed by gymnasts who were allegedly abused by Larry Nasser, who was also “insured” under relevant policy and who was employee of plaintiff, even though said policy had exclusion for criminal acts performed by insureds. Instant wrongful-conduct exclusion applied to only 10 claims for which Nasser was criminally convicted and not to hundreds of claims for which there had not been any formal adjudication on merits. Also, defendant could not rely on bodily injury exclusion to preclude coverage with respect to gymnasts’ lawsuits, where said exclusion did not apply to claims made by injured persons asserting employment practices wrongful act. However, remand was required where Bankruptcy Ct. failed to consider applicability of third-party employment practices clause that contained $250,000 sublimit for some or all of covered claims. (Partial dissent filed.)

Dist. Ct. did not err in dismissing plaintiff-insured’s claim seeking declaration that defendant-insurance company had duty to indemnify and defend plaintiff in underlying lawsuit in which plaintiff was sued for breach of contract and interference with business expectations, where plaintiff was accused of manufacturing and selling knock-off trailer by using underlying plaintiff’s designs. Relevant policy issued by defendant provided coverage against liability because of “advertising injury,” which included trade dress infringement claims. Dist. Ct. could properly find that defendant was not required to indemnify or defend plaintiff in underlying claim against plaintiff, where underlying lawsuit did not allege infringement of trade dress in plaintiff’s advertising. While plaintiff asserted that instant action could proceed because underlying complaint could be construed to plausibly allege trade dress infringement claim, Ct. of Appeals found that there were no facts in underlying lawsuit that could be construed to support assertion that relevant injury stemmed from plaintiff’s alleged advertisement. Fact that underlying lawsuit alleged that plaintiff had removed underlying plaintiff’s logo and inserted plaintiff’s logo on trailer did not require different result.

Dist. Ct. did not err in granting defendant-insurance company’s motion to dismiss plaintiffs-insureds’ actions, alleging that defendants wrongfully denied their application for insurance benefits arising out of losses and expenses sustained as result of COVID-19 pandemic and governmental orders issued in response to it. Applicable policies contained exclusion for losses caused by virus, which applied to instant COVID-19-related losses. Also, Dist. Ct. could properly deny plaintiffs alternative claims that defendant acted deceptively and unfairly when it collected full premiums from businesses affected by governmental COVID-19 orders, even though risks justifying those premiums went down when orders scaled back business operations. Dist. Ct. could properly find that no reasonable policyholder could have been deceived about scope of coverage at time of policy renewal, since defendant had already denied plaintiffs’ claims for COVID-19-related coverage. As such, plaintiff could not show that defendant made material omission under Illinois consumer protection statute.

Dist. Ct. did not err in granting defendant-insurance company’s motion to dismiss plaintiff’s lawsuit, alleging that defendant wrongfully denied plaintiff’s application for insurance benefits based on COVID-related losses arising out of closure of certain facilities and imposition of restrictions on dining. While plaintiff insisted that its costs and expenses were covered as “direct physical losses or damage” to its business property, Dist. Ct. could properly find that said claim was not covered, since plaintiff failed to allege that there was any physical alteration caused by COVID-19 virus or orders limiting use of plaintiff’s business property. Also, dismissal was warranted under policy’s microorganism exclusion, where instant COVID-19 virus qualified as “microorganism” for purposes of applying instant exclusion.

Dist. Ct. did not err in granting defendant-insurance company’s motion to dismiss plaintiff-insured’s action, alleging that defendant wrongfully denied plaintiff insurance benefits for COVID-19-related losses arising out of customer cancellations of business services based on executive orders issued by Gov. Pritzker that suspended in-person dining and gatherings of 50 or more people. While policy provided coverage for “direct physical loss” of or damage to property, said coverage did not apply to instant claim, where plaintiff did not allege that COVID-19 virus or instant executive orders physically altered plaintiff’s business properties. Policy also contained loss of use exclusion that applied to plaintiff’s claims, where: (1) policy barred coverage for “loss or damage caused by or resulting from delay, loss of use or loss of market;” and (2) policy indicated that mere loss of use cannot be cause of plaintiff’s losses. Also, policy’s ordinance or law exclusion served to bar coverage, where: (1) instant loss was caused directly or indirectly by enforcement of any ordinance or law; and (2) enforcement of Governor’s executive orders qualified as enforcement of “law.”

Dist. Ct. did not err in dismissing plaintiffs-insureds’ insurance claims for losses incurred by plaintiffs’ businesses arising from either closure or scaling back of said businesses that stemmed from series of executive orders from Gov. Pritzker in effort to curb spread of COVID-19 virus. Instant policies provided coverage for income losses sustained on account of suspension of operations caused by “direct physical loss” to covered property, and Dist. Ct. based dismissals on fact that plaintiffs did not adequately allege that either COVID-19 virus or resulting closure orders caused “direct physical loss” to their business properties. Ct. of Appeals, in affirming instant dismissals, found that loss of use of property that is unaccompanied by any physical alteration to property may not constitute “direct physical loss” for purposes of collecting under instant policies. This is so, Ct. of Appeals reasoned, where plaintiffs failed to allege that presence of virus or closure orders physically altered their properties.