United States Court of Appeals 

For the Seventh Circuit 

Chicago, Illinois 60604 

Argued January 14, 2022 

Decided June 8, 2022 

Before 

DANIEL A. MANION, Circuit Judge 

ILANA DIAMOND ROVNER, Circuit Judge 

DAVID F. HAMILTON, Circuit Judge

No. 21-2448 

MELCORP, INC., doing business as GREAT 

STEAK & POTATO COMPANY, and all 

others similarly situated, 

Plaintiff-Appellant, 

v. 

WEST AMERICAN INSURANCE 

COMPANY, 

 Defendant-Appellee.

 Appeal from the United States District Court 

for the Northern District of Illinois, Eastern 

Division. 

No. 1:20-cv-04839 

Gary Feinerman, 

Judge. 

O R D E R 

Melcorp, Inc. brought a diversity action against West American Insurance 

Company, alleging that West American wrongly denied coverage for losses incurred as 

a result of the government ordered shutdown as a response to the COVID-19 pandemic. 

Melcorp sought a declaratory judgment of coverage pursuant to 28 U.S.C. § 2201 and 

alleged breach of contract. The district court granted the motion by West American for 

judgment on the pleadings under Federal Rule of Civil Procedure 12(c), and Melcorp 

now appeals that decision to this court. As with a Rule 12(b)(6) motion to dismiss for 

failure to state a claim, we review a Rule 12(c) judgment on the pleadings under a de 

novo standard. Scottsdale Insurance Co. v. Columbia Ins. Group, Inc., 972 F.3d 915, 917 (7th 

Cir. 2020). 

NONPRECEDENTIAL DISPOSITION 

To be cited only in accordance with Fed. R. App. P. 32.1 
No. 21-2448 Page 2 

Melcorp operates a restaurant, Great Steak & Potato Company (“Great Steak”), in 

Fox Valley Mall in Aurora, Illinois. In March and April of 2020, the governor of the state 

issued orders prohibiting on-premises dining and ordering the closure of all nonessential businesses. As a result, Fox Valley Mall notified its tenants that it would 

temporarily close from March 19, 2020 through March 31, 2020, and Great Steak 

suspended its operations. The owners of Melcorp were able to access the premises 

during the closure, and to use the refrigeration and freezers on the premises but 

discontinued in-person and takeout dining. On or about April 17, 2020, Melcorp filed a 

claim with West American for the business income it lost as a result of the closure order. 

Melcorp argues on appeal that the losses suffered by the mandatory pandemic 

restrictions were covered losses under the insurance policy, and that West American 

wrongly denied coverage. The issue in this case concerns the interpretation of the 

insurance policy, which is governed by Illinois law. Under Illinois law, we construe 

insurance policies “’as a whole, giving effect to every provision if possible.’” Paradigm 

Care & Enrichment Center, LLC v. West Bend Mutual Insurance Company, 33 F.4th 417, 420 

(7th Cir. 2022) quoting Sandy Point Dental v. Cincinnati Insurance Co., 20 F.4th 327, 331 

(7th Cir. 2021). Clear and unambiguous words are given their plain and ordinary 

meaning, but genuine ambiguity is resolved in the insured’s favor. Id. “But policy 

language must be ‘subject to more than one reasonable interpretation’ before it is 

deemed ambiguous.” Id., quoting Sandy Point, 20 F.4th at 331. “Ambiguity does not 

arise ‘simply because the parties disagree as to its meaning.’” Id., quoting Sandy Point, 

20 F.4th at 331. 

Melcorp points to language in the insurance contract under which West 

American agreed to “pay for direct physical loss of or damage to Covered Property at 

the premises described in the Declarations caused by or resulting from any Covered 

Cause of Loss.” “Covered Cause of Loss” is defined as “direct physical loss unless the 

loss is excluded or limited in this policy,” but did not further define the term “direct 

physical loss.” The insurance policy also contained an Exclusion of Loss due to Virus or 

Bacteria endorsement, applicable to “all coverage under all forms and endorsements 

that comprise ... [the] Policy,” which provides that West American “will not pay for 

loss or damage caused by or resulting from any virus, bacterium or other 

microorganism that induces or is capable of inducing physical distress, illness or 

disease.” 

Melcorp argues that the “direct physical loss of ... [an insured’s] covered 

Building or Business Personal Property” includes the inability to use a building or 

personal property that was previously usable. It also argues that “Business Personal 
No. 21-2448 Page 3 

Property” is defined to include intangible property such as an insured’s interest as a 

tenant in improvements or labor, materials or services furnished or arranged by the 

insured on personal property of others. It therefore reasons that because the term 

“direct physical loss” includes intangible property like a use interest in labor or 

services, the term must encompass loss of use and not merely physical alterations. 

Since the time that this lawsuit was first filed, this court has issued a series of 

opinions addressing pandemic-related restrictions and the same language presented in 

this insurance policy. Those decisions reject the expansive interpretation of “direct 

physical loss” asserted by Melcorp that would apply it to all loss of use. First, in Sandy 

Point, we considered claims brought by Sandy Point Dental and Bend Hotel 

Development Corporation. 20 F.4th 327. As to insurance policies under Illinois law 

which provided coverage for “direct physical loss or damage,” we held that in order to 

state a claim the businesses needed to allege a physical alteration to their property. Id. at 

333. We left open the possibility that a claim could also be asserted upon a showing of 

an access- or use-deprivation so substantial as to constitute a complete physical 

dispossession, as where a property is rendered completely uninhabitable by gas 

infiltration. Id. at 334. We reiterated that holding in numerous cases that followed, 

applying the same reasoning to challenges by various businesses including hotels, 

movie theaters, and childcare centers. See, e.g., Crescent Plaza Hotel Owner v. Zurich 

American Insurance Company, 20 F.4th 303, 306 (7th Cir. 2021), (holding that “the term 

‘direct physical loss or damage’ to property does not apply to a business’s loss of use of 

the property without any physical alteration”); Bradley Hotel Corp. v. Aspen Specialty 

Insurance Co., 19 F.4th 1002 (7th Cir. 2021) (following the reasoning in Sandy Point to 

conclude that the Bradley Hotel Corporation failed to allege the COVID-related 

suspension of operations was a result of any physical loss or damage to the property); 

E. Coast Ent. of Durham, LLC v. Houston Cas. Co., 31 F.4th 547, 549–51 (7th Cir. 2022) (in 

case brought by movie theaters, affirming the reasoning of Sandy Point that because the 

businesses “alleged neither a physical alteration to property nor an accessor usedeprivation so substantial as to constitute a physical dispossession, they failed to state a 

claim for coverage”); Paradigm Care, 33 F.4th at 421-22 (in challenge by child care 

centers, upholding the denial of coverage because the child care centers did not assert 

that their property was physically altered by the virus and did not allege anything more 

than a temporary denial of their preferred use of the property). 

The language in Melcorp’s policy is indistinguishable from that of the policies in 

those cases. As with those cases, the coverage is limited to “physical” loss of or damage 

to covered property and provides coverage during the period of restoration which ends 

when the property should be “repaired, rebuilt or replaced” or when business resumes 
No. 21-2448 Page 4 

at a new permanent place. Although Melcorp argues that the definition of Business 

Personal Property includes intangibles in encompassing “labor, materials or services 

furnished or arranged by you on personal property of others” and “[y]our use interest 

as a tenant in improvements and betterments,” that does not alter the meaning of 

“physical” loss or damage. For instance, improvements and betterments are defined as 

“fixtures, alterations, installments or additions” and therefore address physical 

property. As the district court reasoned, the terms are not rendered superfluous by the 

limitation to “physical” losses or damages, and in fact are capable of encompassing 

such circumstances. That definition of Business Personal Property is not inconsistent 

with an interpretation of “physical loss or damage” defined as a physical alteration or a 

complete physical dispossession. In any event, our cases have properly held that the 

same physical loss or damage language and corresponding language terminating the 

coverage upon repair, rebuild or replacement is clear and unambiguous, and the 

definition applies equally here. 

Similar to the movie theaters and restaurants in the prior cases, Melcorp has 

failed to allege either a physical alteration to the property or a complete physical 

dispossession. Melcorp presented no evidence of any physical impact to the property, 

and it alleged only a temporary restriction on the use of the property but maintained 

access to the property. Melcorp did not argue in its briefs that the restrictions 

constituted a total physical dispossession of the property, alleging only a loss of 

property for its intended use. When asked about it at oral argument, Melcorp stated 

that in-person dining and carry-out were no longer options because the restaurant was 

located in the mall that was closed to public access. Melcorp did not address whether 

catering or delivery, which would not therefore depend on public access, were possible, 

and acknowledged that it retained access to the property and continued to make use of 

the refrigeration and freezers at the property. As was the case for all of the businesses in 

the cases that we have considered, Melcorp was clearly deprived of its intended use of 

the property at least temporarily, but it does not allege physical dispossession or 

physical alteration of the property sufficient to constitute “direct physical loss” under 

the language of the policy. See Paradigm Care, 33 F.4th at 421 (holding that “the COVID19 virus does not effect physical loss or damage to property” under Illinois law, because 

“the virus ultimately leaves the property physically unaltered ... [and] [a]bsent such 

alteration, direct physical loss occurs only when a risk causes ‘complete physical 

dispossession of property,’ and the COVID-19 virus does not”), quoting Sandy Point, 20 

F.4th at 334. Because Melcorp is not entitled to coverage based on the language of 

“direct physical loss” in the policy, we need not consider whether it would also be 

excluded from coverage based on the exclusion in the policy for losses caused by a virus 
No. 21-2448 Page 5 

or for losses of use, but we note that we have found identical language to exclude 

coverage in a pandemic-related challenge. See Mashallah Inc. and Tanalli’s Park Ridge, 

LLC v. West Bend Mutual Ins. Co., 20 F.4th 311 (7th Cir. 2021) (holding that the virus 

exclusion barred coverage). 

The decision of the district court is AFFIRMED.