### In the 

# United States Court of Appeals
For the Seventh Circuit

____________________ No. 21-1865

AFM M ATTRESS C OMPANY , LLC Plaintiff -Appellant

,

v.

M OTORISTS C OMMERCIAL M UTUAL I NSURANCE C OMPANY , Defendant -Appellee

.

____________________
Appeal from the United States District Court for the
Northern District of Illinois

, Eastern Division.

No. 20 CV 3556 — Manish S. Shah

, Judge

.

____________________

A RGUED N OVEMBER 10, 2021

— D ECIDED J UNE 16, 2022

____________________

Before M ANION , R OVNER , and W OOD , Circuit Judges

.
M ANION , Circuit Judge

. Motorists Insurance issued a policy to AFM Mattress with a broad and unambiguous V irus E xclusion. In March 2020 and following

, AFM Mattress allegedly
suffered loss es when it had to close its stores under government orders due to the COVID

- 19 pandemic. AFM Mattress
sued Motorists Insurance for a declaration of coverage . The judge dismissed the case for failure to state a claim. We affirm.2 No. 21-1865

I. Bed bugs ?

AFM Mattress Company ran 52 mattress stores in Indiana
and Illinois. Motorists Commercial Mutual Insurance Company insured AFM with a policy covering loss of B usiness I ncome , Extra Expense, and loss due to actions of a C ivil Authority.

The Business Income provision states:
We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration”. The “suspension” must be caused by direct physical loss of or damage to property at prem ises which are described in the
Declarations and for which a Business Income
Limit Of Insurance is shown in the Declarations. The loss or damage must be caused by or result
from a Covered Cause of Loss.

The Extra Expense provision states:
We will pay Extra Expense (other than the expense to repair or replace property) to:

(1) Avoid or minimize the “suspension” of bu sness and to continue operations at the described premises or at replacement premises or temporary locations, including relocation expenses and costs to equip and operate the replacement location or temporary
location.

(2) Minimize the “suspension” of business if you cannot continue “operations”.No. 21-1865 3

The Civil Authority provision states:
In this Additional Coverage, Civil Authority, the described premises are premises to which this Coverage Form applies, as shown in the
Declarations.
When a Covered Cause of Loss causes damage to property other than property at the describedpremises, we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority thatprohibits access to the described premises, provided that both of the following apply:

(1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of th e damage, and the described premises are within that
area but are not more than one mile from the damaged property; and

(2) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of
the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.
But the policy also contained a V irus E xclusion :

A. The exclusion set forth in Paragraph B. applies to all coverage under all forms and endorsements that comprise this Coverage Part or Policy, including but not limited to4 No. 21-1865

forms or endorsements that cover property damage to buildings or personal property
and forms or endorsements that cover business income, extra expense or action of civil authority.

B. We will not pay for loss or damage caused by or resulting from any virus, bacterium orother microorganism that induces or is capable of inducing physical distre ss, illness
or disease.
AFM puts the occurrence this way: “When the COVID -19 pandemic hit in early 2020 and the governors of Illinois andIndiana ordered the closure of business throughout their respective states, AFM was forced to cease business activities at all 52 of its stores.” (Appellant’s Br. at 5.) AFM submitted a claim for coverage. Motorists denied it.
II. Procedural posture
AFM sought a declaratory judgment in Illinois state court.
Motorists removed the action to district court and then moved to dismiss based on the V irus E xclusion. The judge dismissed without prejudice. AFM amended its complaint to add the doctrine of regulatory estoppel . Motorists moved for dismissal again. The judge dismissed with prejudice, based on the
V irus E xclusio n. AFM appeals, arguing that regulatory estoppel should prevent the V irus E xclusion from barring AFM’s claims for coverage, and arguing that in any event the V irus E xclusion does not apply to AFM’s claim for Civil Authority coverage.No. 21-1865 5

III. Analysis

A. Standards

We review de novo a grant of dismissal for failure to state a claim, accepting all well

- pleaded facts as true and drawing all reasonable inferences in plaintiff’s favor. White v. United Airlines, Inc. , 987 F.3d 616, 620 (7th Cir. 2021).
The parties c orrectly agree Illinois substantive law applies. Under Illinois law, the general rules of contract interpretationcontrol interpretation of insurance policies, which are contracts. Scottsdale Ins. Co. v. Columbia Ins. Grp. , 972 F.3d 915, 919 (7th Cir. 2020 ). Our goal is to “ascertain and give effect to the intention of the parties, as expressed in the policy language.”
Id.
We read all provisions of the policy together, and allowmeaning to every part of the contract, so no part is mere surplusage. Mkt. St. Bancshares, Inc. v. Fed. Ins. Co. , 962 F.3d 947,
954– 55 (7th Cir. 2020). We give effect to the plain and ordinary meaning of unambiguous language. Liberty Mut. Fire. Ins. Co. v. Clayton , 33 F.4th 442, 447 ( 7th Cir. 2022). We do not strain to find ambiguity where none exists

. See H obbs v. Hartford Ins. Co. of the Midwest , 823 N.E.2d 561, 564 (Ill. 2005).

B. Regulatory estoppel and the specter of pandemic
The language of the Virus Exclusion is broad and clear.But AFM seeks to avoid the exclusion by invoking the doctrine of regulatory estoppel.

AFM claims that Motorists, through Insurance Services Office, Inc., misrepresented the V irus E xclusion to the Illinois Department of Insurance in 2006 or 2007 so that the regulators would approve it

. ISO made this statement to the regulators :6 No. 21-1865

While property policies have not been a source of recovery for losses involving contamination by disease

- causing agents, the specter of pandemic or hitherto unorthodox transmission of
infectious material raises the concern that insurers employing such policies may face claims in which there are efforts to expand coverage and to create sources of recovery for such losses, contrary to public intent.

A FM claims this statement is false because property policies
had historically covered losses caused by severe acute respiratory syndrome

, Escherichia coli, and other health

- threatening organisms. By mischaracterizing the V irus E xclusion

— the argument goes

— as merely a clarification of existing coverageunder property policies, as opposed to an additional exclusion, Motorists secured a reduction of coverage without a corresponding reduction in premiums.
The main problem for AFM is that Illinois does not recognize regulat ory estoppel. The New Jersey Supreme Court embraced regulatory estoppel some 30 years ago. Morton Int’l, Inc. v. Gen. Accident Ins. Co. , 134 N.J. 1 ( N.J. 1993), cert. denied

, 512 U.S. 1245 (1994). The doctrine’s basic idea is that insurers should not get away with saying one thing to an insurance regulator to gain approval of a provision but saying a different thing to an insured seeking coverage. But Illinois has not adopted the doctrine. See Travelers Ins. Co. v. Eljer Mfg., Inc.

, 757 N.E.2d 481, 496 ( Ill . 2001) (“Because the words of the policy are unambiguous, it is unnecessary for this court to consider extrinsic evidence of the policy’s purported meaning.”).
AFM points us to no Illinois case adopting the doctrine of regulatory estoppe l in this context. This is because there areNo. 21-1865 7

none. Instead, AFM directs us to American States Insurance Co. v. Koloms

, 687 N.E.2d 72 (Ill. 1997). But as AFM admits, Koloms never mentions “regulatory estoppel.” This is because Koloms is not about regulatory estoppel.

In Kolo ms , a furnace in a two

- story commercial building began emitting carbon monoxide and other noxious fumes. People inhaled the fumes, became ill, and sued the property owners. The owners tendered the complaints to their insurer. The insurer sought a declarati on from an Illinois state court that it had no duty to defend or indemnify the owners because of a pollution exclusion in the policy:
This insurance does not apply to:

...

‘ Bodily injury ’ or ‘ property damage ’ arising outof actual, alleged or threatened discharge, dispersal, release or escape of pollutants ... [a]t or from premises you own, rent or occupy ... .

Koloms , 687 N.E.2d at 74 (quoting insurance policy). Th e policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” Id.
Arguing that “pollutants” was unambiguous, the insurer
maintained that the emission of carbon monoxide fumes constituted the “release” of a gaseous “irritant or con taminant,” so the pollution exclusion applied.
The Supreme Court of Illinois expressed concern that a“purely literal interpretation” of the exclusion, “without regard to the facts alleged in the underlying complaints

, ” would fail to resolve the issue adeq uately. Id. at 79. The court said it8 No. 21-1865

was “troubled” by the “overbreadth” of the exclusion’s language and by the “manifestation of an ambiguity which results when the exclusion is applied to cases which have nothing to do with ‘pollution’ in the conventiona l, or ordinary, sense of the word.” Id. The court worried about “potentially limitless application” of the exclusion. Id. After all, the insureds argued that without some judicially imposed parameters, “irritants” and “contaminants” could include water and
air. Id. at 77 –78. The court decided to restrict the exclusion toonly hazards traditionally associated with environmental pollution. Id. at 79.
The court added extra buttresses to its conclusion by considering the exclusion’s drafting history, which, according to the court, showed the insurance industry’s intent to limit theexclusion to hazards traditionally associated with environmental pollution. In the course of presenting this drafting history, the court relied heavily on Morton

. The Koloms court concluded that the history of the pollution exclusion showed that the main motivation behind the exclusion’s drafting was avoiding enormous exposure from environmental litigation.
Id. at 81. Morton illuminated parts of this drafting history.

But Koloms did not rely on Morton for the regulatory estoppel doctrine. Koloms concluded that absurdity prevented the applicability of the exclusion’s literal language. Koloms turned

to Morton to elucidate the history of the exclusion to show what the drafters meant by it. But Koloms never hinted at relying on some difference between what the insurer said to a regulator and what the insurer said to the insured in court.

So Illinois has not recognized regulatory estoppel. And AFM Mattress has shown us no compelling reason to think
Illinois would in this sort of case.No. 21-1865 9

C . Does the V irus E xclusion apply to C ivil Authority coverage?
AFM argues that even if regulatory estoppel does not bar
reliance on the V irus E xclusion, the terms of this exclusion do not apply to AFM’s claims for business losses arising under
C ivil A uthority coverage.
We quoted the C ivil A uthority coverage provision above. To paraphrase this provision without nu ance: Under the C ivil
A

uthority coverage provision, when a civil authority prohibits access to AFM’s insured property in response to certain dangerous physical conditions at different, adjacent property

, and that access

- prohibition causes AFM to lose busin ess income or sustain extra expenses, Motorists will pay for this lost business income and extra expenses.
AFM argues that under this provision, it is seeking coverage for damages it suffered from the closure orders issued by the governors and is not seeki ng coverage for damages caused by any virus itself. So, AFM argues, the V irus E xclusion does not apply to C ivil A uthority coverage because that exclusion pertains only to “loss or damage caused by or resulting from any virus, bacterium or other microorgani sm that induces or is capable of inducing physical distress, illness or disease.” In other words, AFM argues the V irus E xclusion only applies to losses caused by viruses, but AFM’s loss was caused by the closure orders, not by the virus.
But we already foreclosed this argument in Mashallah

. There, two Illinois businesses sought coverage from West Bend for damages allegedly sustained during the COVID -19 pandemic

. Mashallah, Inc. v. West Bend Mut. Ins. Co. , 20 F.4th10 No. 21-1865

311, 317 (7th Cir. 2021). The tw o policies contained similar virus exclusions.
One policy said West Bend would “‘ not pay for loss or damage caused directly or indirectly ’ ” by “‘ [a]ny virus ... that induces or is capable of inducing physical distress, illness or
disease. ’” Id. at 318 (quoti ng one policy ).
The other policy said West Bend “‘ will not pay for loss or damage caused by or resulting from any virus ... that induces or is capable of inducing physical distress, illness or disease. ’” Id. (quoting other policy). We found no relevant disti nction between the exclusions.
We rejected the argument that the coronavirus did not cause the alleged damages. Id. at 320 –21. We recognized that Illinois generally “‘favors the efficient

- or

- dominant

- proximate

- cause rule in the absence of contrary language in the policy. ’” Id. (quoting Bozek v. Erie Ins. Grp. , 46 N.E.3d 362, 368

– 69 (Ill. App. Ct. 2015) ) . “A risk is an efficient or dominant cause if it ‘sets in motion, in an unbroken causal sequence, the
events that cause the ultimate loss.’” Id. at 321 (quoting Bozek

, 46 N.E.3d at 368).
We concluded that “the novel coronavirus causing the
COVID

- 19 pandemic led directly to the issuance of the government orders, which the complaint alleges as the cause of the losses and expenses.” Id. at 321. As we put it, “the virus set in motion an unbroken causal chain via the government orders to the purported losses and expenses” and “the coronavirus was the reason these orders were promulgated .” Id.

Here, the V irus E xclusion is nearly identical to those in
Mashallah . We see no reason to distinguis h that case . Even though the coverage provisions at issue there were notNo. 21-1865 11

identical to the C ivil A uthority coverage provision here, the
V irus E xclusion controls. The virus directly caused the government or ders which directly caused the alleged losses. AFM essentially admits this when it says in its amended complaint things like: “Illinois Governor J.B. Pritzker issued an executiveorder on March 15, 2020 banning all public and private gatherings of 50 or more people, in an effort to limit infection and death resulting from the spread of the virus.” (AFM’s Am. Compl. at 3.) 1 And: “The March 20th order was again in directresponse to the continued and increasing presence of the coronavirus on property or around [AFM’s] premises.” ( Id. at 12.)
Moreover, by the policy’s plain language, Civil Authority coverage only applies when “a Covered Cause of Loss causes damage to property other than property at the described premises ... .” (Emphasis added.) The policy defines “Covered Cause of Loss” as “direct physical loss unless the loss is excluded or limited in this policy.” So Motorists agreed to
cover AFM when a Covered Ca use of Loss caused damage to a nearby property, triggering the civil authority to prohibit access to AFM’s stores. But any damage from a virus was nota Covered Cause of Loss because of the policy’s Virus Exclusion. So Civil Authority coverage does not app ly.

If all this were not clear enough, the Virus Exclusion itself says it “applies to all coverage under all forms and

1 “ It was towards the close of the fifth or sixth month of his seclusion,and while the pestilence raged most furiously abroad, that the Prince Prospero entertained his thousand friends at a masked ball of the most unusual magnificence. ... And these

— the dreams

— writhed in and about taking hue from the rooms, and causing the wild music of the orchestra to seem as the echo of their steps.” Edgar All a n Poe, The Masque of the Red Death (1842) ( https://archive.org/stream/themasqueofthere01064gut/1064

- 8.txt ).12 No. 21-1865

endorsements ... including but not limited to ... forms or endorsements that cover business income, extra expense or action of civil authorit y .” (Emphasis added.) AFM neglected to
mention this in its briefs.

IV. Conclusion
The judge did not err in dismissing the a mended c omplaint. We affirm.