Chicago Restaurant Owners Sue Insurers Over Pandemic Coverage Denial

Businesses have not done well in court when suing their insurers over the denial of pandemic business interruption claims.

But they keep trying.

A new lawsuit was filed Tuesday by a group of prominent Chicago restaurant owners. The group is suing insurers in state court, claiming that government pandemic restrictions caused the physical damage required to trigger coverage under their policies.

Judges nationwide have not viewed such claims favorably to date, with insurers winning many of the hundreds of business interruption lawsuits.

The roughly two dozen plaintiffs range from Harry Carey's 7th Inning Stretch, named after the famed Chicago Cubs' broadcaster, to the Brazilian steakhouse Fogo de Chão. They claim the "all-risk" commercial property insurance policies they purchased should cover losses they incurred after pandemic orders severely limited use of their properties.

The plaintiffs claim that Illinois restrictions put in place by Gov. J.B. Pritzker were more onerous than in other states, requiring a physical alteration of properties.

"The Executive Orders were designed and intended to require physical alterations to Plaintiffs’ properties to prevent the congregation of people in close proximity to one another—not because the coronavirus was found in Plaintiffs’ properties, or because there was any discharge, dispersal, seepage, migration, release, or escape of coronavirus in or onto Plaintiffs’ properties," the lawsuit said.

The lawsuit names 15 insurers, including several who have been sued several times for business interruption claim denials. Society Insurance, Cincinnati Insurance Co., Travelers Lloyds Insurance Co. and Harford Fire Insurance Co. are among the defendants.

Plaintiffs say the restrictions on their businesses continued "until at least March 2021."

'Direct Physical Loss'

DESTIHL operates brewpub and brewery businesses in Normal and Champaign, Illinois, and exports craft beers to 30 states, the lawsuit said. Prior to the pandemic, DESTIHL could seat about 300 people at its pubs and 600 at its beer hall.

"As a direct result of the Executive Orders, DESTIHL incurred direct physical loss, and its spaces were rendered physically non-functional as eateries and beer halls," the lawsuit reads.

To comply with the mandates, DESTIHL closed off its dining rooms, installed plexiglass barriers, switched to curbside delivery and rearranged parking lots to serve more customers, the lawsuit said. Still, the locations could only accommodate between 96 and 110 guests.

"As a result of the restrictive Executive Orders, DESTIHL’s premises remain physically impaired," the lawsuit states. "The Executive Orders required DESTIHL to make detrimental material alterations to its premises, including physically rearranging dining spaces, removing tables and chairs, rearranging furniture and equipment, and/or erecting new physical structures and signage."

More than 30 large events were cancelled or postponed at DESTIHL locations, the lawsuit said.

The company's commercial insurance policy with Cincinnati Insurance covers "all 'loss of Business Income' DESTIHL sustains due to the necessary ‘suspension’ of DESTIHL’s operations, where that suspension is 'caused by direct physical loss’ to DESTIHL’s insured property," the lawsuit reads. "Under the Policy, Cincinnati Insurance also agreed to pay for 'Extra Expense.'”

Better In State Courts

Pandemic coverage suits have fared somewhat better in state courts than in federal courts, according to data compiled by the University of Pennsylvania's Carey School of Law and reported by the legal journalism site, Law360.

About 63% of such suits have been permanently dismissed in state courts, per the data, compared to almost 85% of pandemic coverage suits brought in federal courts.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.