IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

JDL INC. (d/b/a VEGAS IMAGE), LV

CANDY LLC, and WORLD POWER 

CORPORATION (d/b/a GLOBAL AIR 

SERVICE), individually and on behalf 

of all others similarly situated,

Plaintiffs,

v.

VALLEY FORGE INSURANCE 

COMPANY,

Defendant.

No. 20-cv-02681

Judge Franklin U. Valderrama

MEMORANDUM OPINION AND ORDER

COVID-19, a novel coronavirus, has wreaked havoc on the lives of many and 

caused untold financial losses. This case is but another in a long line of cases in which 

businesses seek coverage for their financial losses. 

Plaintiff JDL Inc. (JDL) owns and operates Vegas Image, a Las Vegas

distributor of gambling-themed candy and toys to casinos. R. 26, FAC ¶ 1.1 Plaintiff 

LV Candy LLC (LV Candy) is JDL’s landlord (collectively, Nevada Plaintiffs). Id. ¶ 2. 

Plaintiff World Power Corporation owns Global Air Service, a New York company 

that provides travel arrangement, accounting, and tax services (New York Plaintiff, 

together with Nevada Plaintiffs, Plaintiffs). Id. ¶ 3. Plaintiffs purchased property 

insurance from Valley Forge Insurance Company (Defendant). Id. ¶¶ 25–26. After 

1Citations to the docket are indicated by “R.” followed by the docket number or filing name, 

and where necessary, a page or paragraph citation.

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Plaintiffs were forced to suspend or reduce business at their locations due to the 

COVID-19 pandemic and the resultant closure orders issued by authorities in Nevada 

and New York, they filed claims with Defendant, who denied coverage. Id. ¶¶ 69–70. 

Plaintiffs filed this class action suit2 against Defendant for breach of contract

and declaratory relief. FAC. Plaintiffs seek damages for their loss of business income

suffered due to the closure orders. Id. ¶¶ 6, 82–116. Plaintiffs also seek a declaratory 

judgment that the losses they incurred are insured losses under their respective

policies. Id. ¶ 117–144. Before the Court is Defendant’s motion to dismiss pursuant 

to Federal Rule of Civil Procedure 12(b)(6). R. 31, Mot. Dismiss. For the reasons 

discussed below, the Court grants Defendant’s Motion to Dismiss. The Court finds 

that the insurance policies do not provide coverage for Plaintiffs’ losses.

Background

JDL is a Nevada corporation that owns and operates Vegas Image. FAC. ¶¶ 1, 

21. Vegas Image sells its products to casinos and to the public via its website, 

VegasImage.com. Id. LV Candy, also a Nevada corporation, is JDL’s landlord for a 

building located in Las Vegas, Nevada. Id. ¶¶ 2, 22. Nevada Plaintiffs’ principal 

places of business are in Las Vegas. Id. ¶¶ 21–22. New York Plaintiff is a New York 

corporation with a principal place of business in New York. Id. ¶ 23. Defendant is a 

Pennsylvania insurance company, with its principal place of business in Chicago, 

Illinois. Id. ¶ 24.

2The Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332.

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Defendant issued Policy No. 4012445241 (the Nevada Policy) to Nevada 

Plaintiffs for the period of November 14, 2019 to November 14, 2020. FAC ¶ 25. It 

also issued Policy No. 6011621821 (the New York Policy, together with the Nevada 

Policy, the Policies) for the period of August 1, 2019 to August 1, 2020. Id. ¶ 26.

I. Policy Language

The Policies contain a Businessowners Special Property Coverage, which 

provides that Defendant “will pay for direct physical loss of or damage to Covered 

Property at the premises described in the Declarations caused by or resulting from a 

Covered Cause of Loss.” R. 26-1, Nevada Policy at CM/ECF 17; R. 26-2, New York 

Policy at CM/ECF 16. “Covered Causes of Loss” include “risks of direct physical loss” 

unless an enumerated limitation or exclusion applies. Nevada Policy at CM/ECF 18–

19; New York Policy at CM/ECF 17–18.

The Policies also include a Business Income and Extra Expense Endorsement

whereby Defendant will “pay for the actual loss of Business Income [Plaintiffs] 

sustain due to the necessary ‘suspension’ of [Plaintiffs’] ‘operations’ during the ‘period 

of restoration.’” Nevada Policy at CM/ECF 39; New York Policy at CM/ECF 38. The 

“suspension” under the Policies must be caused by “direct physical loss of or damage 

to property at the described premises.” Id. “The loss or damage must be caused by or 

result from a Covered Cause of Loss.” Id. “Suspension” is defined as the “partial or 

complete cessation of [Plaintiffs’] business activities.” Nevada Policy at CM/ECF 36; 

New York Policy at CM/ECF 35. The “[p]eriod of restoration”

[b]egins with the date of direct physical loss or damage caused by or resulting 

from any Covered Cause of Loss at the described premises; and [e]nds on the 

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earlier of: (1) The date when the property at the described premises should be 

repaired, rebuilt or replaced with reasonable speed and similar quality; or (2) 

The date when the business is resumed at a new permanent location. 

Nevada Policy at CM/ECF 34; New York Policy at CM/ECF 33.

The Policies also include Civil Authority Endorsements, which extend 

Plaintiffs’ Business Income and Extra Expense coverages “to the actual loss of 

Business Income . . . caused by action of civil authority that prohibits access to the 

described premises.” Nevada Policy at CM/ECF 65; New York Policy at CM/ECF 62.

“The civil authority action must be due to direct physical loss of or damage to property 

at locations, other than described premises, caused by or resulting from a Covered 

Cause of Loss.” Id. 

Finally, the Policies also contain a “Sue and Labor” provision. This provision 

requires, in the event of loss of or damage to the Covered Property, Plaintiffs to “[t]ake 

all reasonable steps to protect the Covered Property from further damage, and keep 

a record of [their] expenses necessary to protect the Covered Property, for 

consideration on the settlement of the claim.” Nevada Policy at CM/ECF 25; New 

York Policy at CM/ECF 24.

II. New York’s Closure Orders

In March 2020, New York’s Governor, in response to COVID-19, issued a series 

of Executive Orders which required businesses at first to operate at reduced capacity 

and later banned all non-essential gatherings of any size (the State Orders). FAC

¶¶ 53–55, 57. On March 25, 2020, the New York City Mayor issued an executive order 

in response to COVID-19, declaring a state of emergency in New York City and 

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ordering the closure of all non-essential businesses (the City Order) (together with 

the State Orders, the NY Closure Orders). Id. ¶ 58. On March 20, 2020, New York 

Plaintiff 3 closed as a result of the NY Closure Orders and resumed operations with 

limited capacity in early August 2020. Id. ¶ 62. New York Plaintiff submitted a claim 

to Defendant for its losses due to the NY Closure Orders, which Defendant denied. 

Id. ¶ 70. 

III. Nevada’s Closure Orders

On March 20, 2020, the State of Nevada issued a civil authority order and 

regulations which “closed Non-Essential Businesses, closed Essential Licensed 

Businesses that could not adopt the required COVID-19 risk mitigation measures, 

and closed all other businesses that could not adopt the required COVID-19 risk 

mitigation measures” (the Nevada Closure Order) (together, with the NY Closure 

Orders, the Closure Orders). FAC ¶ 45. Vegas Image could not adopt the COVID-19 

risk mitigation measures required by the Nevada Closure Order, causing it to close. 

Id. ¶ 46. LV Candy lost rental income due to its tenant, JDL, being unable to operate 

as a result of the Nevada Closure Order. Id. ¶ 47. Nevada Plaintiffs submitted a claim 

to Defendant for lost business income due to the Nevada Closure Order, which 

Defendant denied. Id. ¶ 70. 

Plaintiffs filed a complaint for breach of contract and related claims for 

declaratory relief, individually and on behalf of a class consisting of Valley Forge 

Insurance Company policy holders who made claims to Defendant for COVID-19 

3While the Complaint alleges that World Power Corporation closed, based on context, the 

Court presumes that Plaintiffs meant Global Air Service.

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related losses and whose claims were denied by Defendant. See Fac. Defendant now 

moves to dismiss the complaint pursuant to Rule 12(b)(6).

Standard of Review

A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the 

complaint. Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 

820 (7th Cir. 2009). Under Rule 8(a)(2), a complaint must include only “a short and 

plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. 

Civ. P. 8(a)(2). To survive a motion to dismiss, a complaint need only contain factual 

allegations, accepted as true, sufficient to “state a claim to relief that is plausible on 

its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 

550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads 

factual content that allows the court to draw the reasonable inference that the 

defendant is liable for the misconduct alleged.” Id. The allegations “must be enough 

to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. The 

allegations that are entitled to the assumption of truth are those that are factual, 

rather than mere legal conclusions. Iqbal, 556 U.S. at 678–79.

Analysis

I. Choice of Law

At the outset, the Court must address a choice-of-law issue. Apparently, the 

Policies do not contain a choice-of-law provision, as no party directs the Court to any 

such clause. Defendant “assumes for purposes of [its dismissal] motion that Nevada 

substantive law applies to the Nevada Plaintiffs’ individual claims and New York 

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substantive law applies to the New York Plaintiff’s individual claims.” R. 32, Memo. 

Dismiss at 7. Plaintiffs, for their part, contend that “[a]ny differences in common law 

contractual rules between Illinois, Nevada and New York law do not impact the rule 

of decision here.” R. 35, Response at 5.

“Federal courts hearing state law claims under diversity or supplemental 

jurisdiction apply the forum state’s choice of law rules to select the applicable state 

substantive law.” McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 684 (7th Cir. 

2014) (internal citations omitted). As the Court sits in Illinois, it looks to Illinois’ 

choice of law rules. Under Illinois law, in the absence of an express choice of law 

provision in an insurance policy, courts apply the “most significant contacts” test. 

Jupiter Aluminum Corp. v. Home Ins. Co., 225 F.3d 868, 873 (7th Cir. 2000). The 

factors considered under the “most significant contacts” test are: “the location of the 

subject matter, the place of delivery of the contract, the domicile of the insured or of

the insurer, the place of the last act to give rise to a valid contract, the place of 

performance, or other place bearing a rational relationship to the general contract.” 

Id. (international citation omitted). Courts give special emphasis to the location of 

the insured risk. Id. 

Courts, however, “forego [a] choice of law analysis when the parties agree on 

the law that governs a dispute and there is a reasonable relation between the dispute 

and the forum whose law has been selected.” Home Valu, Inc., v. Pep Boys-Manny, 

Moe & Jack of Del., Inc., 213 F.3d 960, 963 (7th Cir. 2000) (internal citation omitted). 

Here, clearly New York and Nevada are the jurisdictions with the most significant 

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contacts in this dispute. And no party contests the application of New York or Nevada 

law. Therefore, the Court finds that New York substantive law governs the coverage 

dispute between New York Plaintiff and Defendant and Nevada substantive law 

governs the coverage dispute between Nevada Plaintiffs and Defendant.

II. Contract Interpretation

The standard rules of contract interpretation in both New York and Nevada 

are familiar. In construing an insurance policy, the court’s primary function is to

ascertain and give effect to the intent of the parties as expressed in the policy 

language. Universal Am. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 37 N.E.3d 

78, 80 (N.Y. 2015); United Nat’l Ins. Co. v. Frontier Ins. Co., 99 P.3d 1153, 1156–57

(Nev. 2004) (internal citations omitted). “[U]nambiguous provisions of an insurance 

contract must be given their plain and ordinary meaning, and the interpretation of 

such provisions is a question of a law for the court.” Vigilant Ins. Co. v. Bear Stearns 

Cos., Inc., 884 N.E.2d 1044, 1047 (N.Y. 2008) (internal quotation and citation 

omitted); Powell v. Liberty Mut. Fire Ins. Co., 252 P.3d 668, 672 (Nev. 2011).

Ambiguity arises when the contract, read as a whole, “fails to disclose its purpose and 

the parties’ intent, or where its terms are subject to more than one reasonable 

interpretation.” Universal Am. Corp., 37 N.E.3d at 80 (internal quotation and 

citations omitted); see also United Nat’l Ins. Co., 99 P.3d at 1157 (“The question of 

whether an insurance policy is ambiguous turns on whether it creates reasonable 

expectations of coverage as drafted.”). That said, contract provisions are not 

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ambiguous “merely because the parties interpret them differently.” Universal Am. 

Corp., 37 N.E.3d at 80 (internal quotation and citation omitted).

Under both New York and Nevada law, the insured bears the initial burden of 

demonstrating the existence of a claim that falls within the coverage provided by an 

insurance policy. Roundabout Theatre Co v. Cont’l Cas. Co., 751 N.Y.S.2d 4, 7 (N.Y. 

App. Div. 2002); Zurich Am. Ins. Co. v. Ironshore Specialty Ins. Co., 964 F.E.3d 804, 

810 (9th Cir. 2020) (applying Nevada law). If the insured establishes that its claim is 

covered by the policy, then the burden shifts to the insurer to show that an exclusion 

applies. Id.

III. Business Income and Extra Expense Coverage

Plaintiffs assert in Count I (breach of contract), Count III (breach of contract), 

Count V (declaratory judgment), and Count VII (declaratory judgment) that they are 

entitled to business income and extra expense coverage under the Policies due to 

losses incurred as a result of the Closure Orders. See FAC.

Defendant argues that Plaintiffs’ claims based on business income coverage

fail because the Policies do not cover Plaintiffs’ alleged losses. Memo. Dismiss at 8–

12. Defendant contends that Plaintiffs have failed to allege the required “direct 

physical loss or damage” to their property, and insists that “physical loss” and 

“physical damage” require a tangible alteration in the property’s material state, 

which Plaintiffs fail to allege. Id. Instead, asserts Defendant, Plaintiffs allege that 

they “were forced to suspend or reduce their business” pursuant to the Closure

Orders. Id. at 10 (citing FAC ¶ 17). Even though Plaintiffs further allege that their 

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insured property was rendered “unusable in a way that it had been used before 

COVID-19” and was “unsafe for its intended purpose” due to risk of transmission, 

Defendant argues that the absence of any allegation of an actual and physical damage 

is fatal to Plaintiffs’ claims. Id. (citing FAC ¶¶ 4, 32). Defendant’s position is 

supported by the decisions of numerous courts who have considered similar insurance 

policies involving claims for COVID-19 related losses and rejected the claims in the 

absence of an allegation of “actual physical damage” to the insureds’ property. See 

Sandy Point Dental, PC v. The Cincinnati Ins. Co., 2020 WL 5630465, at *2 (N.D. Ill. 

Sept. 21, 2020); Pappy’s Barber Shops, Inc. v. Farmers Grp., Inc., 2020 WL 5500221, 

at *4 (S.D. Cal. Sept. 11, 2020); Turek Enters., Inc. v. State Farm Mut. Auto Ins. Co., 

2020 WL 5258484, at *8 (E.D. Mich. Sept. 3, 2020).

Not surprisingly, Plaintiffs disagree with Defendant’s interpretation of the 

Policies. Plaintiffs maintain that “direct physical loss or damage” does not require 

structural alteration. Resp. at 6. Alternatively, Plaintiffs posit that even if the 

Policies require structural alteration, they have pled such alteration in the form of 

infestation by a harmful agent (namely, COVID-19 particles dangerous to human 

health), diminishment of functional space, and loss of functionality of covered 

property. Id. at 9.

The Court begins its analysis, as it must, with the Policies. The Policies provide 

coverage for a loss caused by “direct physical loss or damage” to the property. Nevada 

Policy at CM/ECF 17, 39; New York Policy at CM/ECF 16, 38. The Policies do not 

define “direct physical loss or damage.” No matter, as the Court may resort to 

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dictionary definitions to ascertain the plain and ordinary meaning of words. See 

Century Sur. Co. v. Casino West, Inc., 329 P.3d 614, 617 (Nev. 2014); Ragins v. Hosps. 

Ins. Co., Inc., 22 N.Y.3d 1019, 1022 (N.Y. 2013). Moreover, an insurance policy, like 

any contract, is to be construed as a whole, giving effect to every provision, if possible, 

because it must be assumed that every provision was intended to serve a purpose. 

Mendenhall v. Tassinari, 403 P.3d 364, 373 (Nev. 2017); Nomura Home Equity Loan, 

Inc., Series 2006-FM2, by HSBC Bank USA, Nat’l Ass’n v. Nomura Credit & Cap., 

Inc., 92 N.E.3d 743, 748 (N.Y. 2017). With these basic principles in mind, the Court 

notes that in the Policies, the terms “loss” and “damage” are modified by the words

“direct” and “physical.” Nevada Policy at CM/ECF 17, 39; New York Policy at CM/ECF 

16, 38. “Direct” is self-explanatory. “Physical” means “of, relating to, or involving 

material things; pertaining to real, tangible objects.” Physical, Black’s Law 

Dictionary (11th ed. 2019). Accordingly, any “loss” or “damage” must be both direct 

and physical. 

Furthermore, “loss” seemingly cannot mean the same thing as “damage.” See 

Mendenhall, 403 P.3d at 373; Nomura Home Equity Loan, Inc., Series 2006-FM2, by 

HSBC Bank USA, Nat’l Ass’n, 92 N.E.3d at 748. “Loss” means “the failure to maintain 

possession of a thing.” Loss, Black’s Law Dictionary (11th ed. 2019). But “damage” 

means “[l]oss or injury to person or property; esp., physical harm that is done to 

something or to part of someone’s body.” Id. at Damage. It is clear that any “direct 

physical damage” must be a physical harm. And, applying the plain and ordinary 

meaning of the phrase “direct physical loss”, the Court finds that the Policies require 

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some form of actual physical damage to the insured property to trigger coverage. See 

also Michael Cetta Inc. v. Admiral Indem. Co., 506 F. Supp. 3d 168, 180 (S.D.N.Y. 

2020) (“[T]he term ‘loss’ would seem to include ‘theft or misplacement,’ which would 

not constitute damage to the property. Further ‘loss’ would extend to the complete

destruction of property, whereas ‘damage’ contemplates a lesser injury. . . As an 

illustrative example, a tornado that destroys the entirety of the restaurant results in 

a ‘loss of’ the restaurant, while a tree falling on part of the kitchen would represent 

‘damage to’ the restaurant.”) (emphasis in original) (internal quotations and citations 

omitted). To conclude otherwise is to ignore the plain meaning of the Policies.

The remaining language in the Policies supports this position. Under the 

Policies, an insured must sustain an actual loss of income due to a necessary 

suspension of their property during the period of restoration. The period of 

restoration ends on the earlier of:

(1) The date when the property at the described premises should be repaired, 

rebuilt or replaced with reasonable speed and similar quality; or (2) The date 

when business is resumed at a new permanent location. 

Nevada Policy at CM/ECF 34; New York Policy at CM/ECF 33. Clearly, the Policies 

contemplate that the insured’s property would need to be repaired, rebuilt, or 

replaced due to the “direct physical loss.” This suggests “the occurrence of material 

harm that then requires a physical fix.” Michael Cetta Inc., 506 F. Supp. 3d at 177 

(emphasis added).

The Court’s conclusion is in line with decisions of numerous courts that have 

concluded that “physical loss or damage” requires tangible or concrete injury to the 

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insured’s property. See Benny’s Famous Pizza Plus Inc. v. Sec. Nat’l Ins. Co., 2021 

WL 3121495, at *4 (N.Y. App. Div. July 1, 2021) (collecting cases and stating that “all 

New York courts applying New York law . . . have soundly rejected the argument that 

business closures due to the presence of the COVID-19 virus or due to New York State 

Executive Orders constitute physical loss or damage to property”); Michael Cetta Inc., 

506 F. Supp. 3d at 176 (applying New York law to find that “phrase ‘direct physical 

loss of or damage to’ connotes ‘a negative alteration in the tangible condition of 

property.”) (emphasis added); Levy Ad Grp., Inc. v. Chubb Corp., 519 F. Supp. 3d 832, 

836 (D. Nev. 2021) (finding that the Nevada Supreme Court has held that “direct 

physical loss or damage” means some structural or physical change to a property 

which alters its functionality or use and that the Ninth Circuit has agreed with such 

a reading) (internal citations omitted).

 Plaintiffs lean heavily on Studio 417, Inc. v. The Cincinnati Ins. Co., 478 F.

Supp. 3d 794 (W.D. Mo. 2020) and Blue Springs Dental Care, LLC v. Owners Ins. Co., 

2020 WL 5637963 (W.D. Mo. Sept. 21, 2020), among other cases, for support that the 

coronavirus may cause a physical loss to property warranting coverage. Resp. at 15–

16. None of these cases cited by Plaintiffs, however, applied New York or Nevada law. 

Instead, those courts applied the law of other states to conclude that, as interpreted 

by those state courts, it was at least possible to construe the policy language 

regarding physical loss to allow coverage even absent a physical alteration if the 

space was unusable. While Plaintiffs invite the Court to adapt the analyses of courts 

from other jurisdictions, the Court must decline. The Court must follow the decision 

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of courts in New York and Nevada applying the laws of those respective states. See 

Deer Mountain Inn LLC v. Union Ins. Co., 2021 WL 2076218 (N.D.N.Y. May 24, 

2021); Project Lion LLC v. Badger Mut. Ins. Co., 2021 WL 2389885 (D. Nev. May 19, 

2021).

Plaintiffs contend that even if a structural alteration is required, they have 

pled such alteration in the form of: (i) infestation by a harmful agent; and (ii) 

diminishment of functional space and loss of functionality of covered property. Resp. 

at 9–12 (citing U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 578 N.E. 2d 926 (Ill. 

1991) and Gen. Mills, Inc. v. Gold Medal Ins. Co., 622 N.W.2d 147 (Minn. Ct. App. 

2001), among other cases). The Court addresses each “asserted alteration” in turn.

Starting with infestation, nowhere in the Complaint do Nevada Plaintiffs 

allege that their property was infested by the coronavirus. See FAC. At most, Nevada 

Plaintiffs allege in a conclusory fashion that “the presence of COVID-19 caused direct 

physical loss of or damage to the covered property.” FAC ¶ 49. The allegation that 

there was a general presence of COVID-19 which, as Nevada Plaintiffs allege, had 

“spread . . . throughout Nevada,” is not the same as an allegation of a particular 

coronavirus infestation at Nevada Plaintiffs’ property. Id. ¶ 48. New York Plaintiff 

fares no better, as the Complaint also fails to allege any infestation of coronavirus at 

New York Plaintiff’s property. The Court agrees with Defendant that the cases cited 

by Plaintiffs are distinguishable.

In U.S. Fid. & Guar. Co., asbestos-containing products had been installed in 

the insured’s property which required removal to render the property safe again. 578 

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N.E. 2d at 931. In Gen. Mills, Inc., the insured’s property was infested by a pesticide, 

rendering the insured unable to distribute its products produced at that property. 622 

N.W.2d at 150. Here, Plaintiffs do not allege that the coronavirus was present at their 

properties. Each of the other cases cited by Plaintiffs in support of their argument 

that infestation of property by microscopic entities that are harmful to humans 

constitutes “direct physical loss or damage” are distinguishable for the same reason: 

they all involved known contamination or the presence of some external agent or 

infestation of the insured’s property. See Neth. Ins. Co. v. Main St. Ingredients, LLC,

745 F.3d 909 (8th Cir. 2014) (Salmonella infestation at insured’s property); Stack 

Metallurgical Servs., Inc. v. Travelers Indem. Co. of Conn., 2007 WL 464715 (D. Or. 

Feb. 7, 2007) (insured’s furnace contaminated by lead particles). 

Finally, regarding loss of functionality, Plaintiffs contend that due to COVID19, their property became unsafe for its intended purpose and, thus, they suffered 

physical loss or damage. Resp. at 12–13. The Court disagrees. Defendant correctly 

points out that “economic loss resulting from Plaintiffs’ inability to use their 

premises, untethered to direct physical loss or damage, is not covered under 

Plaintiffs’ policies.” Reply at 8 (citing Nevada Policy at CM/ECF 22; New York Policy 

at CM/ECF 21 (excluding coverage for consequential damages resulting from “loss of 

use”)). Moreover, “[l]osing the ability to use otherwise unaltered or existing property 

simply does not change the physical condition or presence of that property and 

therefore cannot be classified as a form of ‘direct physical loss’ or ‘damage.’” Michael

Cetta Inc., 506 F. Supp. 3d at 176; see also Circus Circus LV, LP v. AIG Specialty Ins. 

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Co., 2021 WL 769660, at *4 (D. Nev. Feb. 26, 2021) (finding that a temporary loss of 

use does not equate to a “direct physical loss”). The Court’s interpretation of the 

Business Income/Extra Expense coverage aligns with the majority of courts to have 

considered the issue, who have concluded that “loss of use of a premises due to a 

governmental closure order does not trigger business income coverage premised on 

physical loss to property.” Michael Cetta Inc., 506 F. Supp. 3d at 179 (collecting cases); 

see also Project Lion LLC, 2021 WL 2389885, at * 3 (noting that numerous courts 

have rejected the argument that the temporary closure of a premises because of a 

government shut-down order should be a covered loss under an insurance policy).

The Court finds, in viewing the allegations of the Complaint in the light most 

favorable to Plaintiffs, the non-movants, and drawing all reasonable inferences in 

their favor, that Plaintiffs fail to state a cause of action for breach of contract and 

declaratory relief regarding the Policies’ Business Income/Expenses provisions.

IV. Civil Authority Coverage

In Counts II and VI, Plaintiffs seek coverage under the Policies’ Civil Authority 

provision (see FAC), which applies when a public official “prohibits access to the 

described premises . . . due to direct physical loss of or damage to property” at other 

locations caused by or resulting from a Covered Loss and the act of the public official 

causes a loss of business income or extra expense. Nevada Policy at CM/ECF 65; New 

York Policy at CM/ECF 62. The plain language of the Policies thus requires Plaintiffs 

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to plead actual physical loss to claim coverage under the Civil Authority provision, 

similarly to the requirements under the Business Income/Extra Expense provision. 

Defendant argues that a civil authority order, like the Closure Orders, does not 

trigger coverage “even if it precludes access to the insured’s premises, unless it is due 

to physical loss of or damage to other properties.” Memo. Dismiss at 13. Additionally, 

Defendant contends that Plaintiffs fail to allege damage to any property near 

Plaintiffs’ property. Id. Nor do Plaintiffs allege that the Closure Orders required 

Plaintiffs to close, much less prohibit access to, their properties. Id. at 13–14.

Plaintiffs retort that they have alleged that “they were subject to civil authority 

orders issued in response to dangerous physical conditions resulting from direct 

physical loss or damage to properties other than their own premises, and that the 

orders prohibited access to their premises.” Resp. at 18 (citing FAC ¶¶ 44–66, 68, 96).

The Court finds that Plaintiffs fail to allege coverage under the Civil Authority 

provision. First, the Complaint fails to allege any damage to property near Plaintiffs’ 

properties. See Michael Cetta Inc., 506 F. Supp. 3d at 183 (“Without specific 

allegations that a neighboring property suffered ‘damage to property,’ the Complaint 

fails to state a claim that is plausible on its face as to [the insured’s] entitlement of 

civil authority coverage.”); see also Levy Ad Grp., Inc., 519 F. Supp. 3d at 837–38 

(dismissing claims related to civil authority coverage based on the plaintiffs’ failure 

to allege any direct physical loss or damage to their own property or their neighbor’s 

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property and failure to allege any connection between the stay-at-home orders and 

any perceived physical damage).

Second, the Complaint fails to allege that access to Plaintiffs’ properties was 

denied. True, the Complaint alleges that the effect of the Closure Orders was to 

impose limitations on Plaintiffs’ operations. See FAC ¶¶ 5, 62. However, as Defendant 

correctly points out, “imposing limitations on operations is not the same as 

‘prohibiting access’” to Plaintiffs’ properties. Reply at 13. In short, Plaintiffs fail to 

allege damage to property other than their own and even if such an allegation had 

been made, they also fail to allege that the any civil authority actions prohibited 

access to Plaintiffs’ properties.

The Court finds, in viewing the allegations of the Complaint in the light most 

favorable to Plaintiffs, the non-movants, and drawing all reasonable inferences in 

their favor, that Plaintiffs fail to state a cause of action for breach of contract and 

declaratory relief regarding coverage under the Policies’ Civil Authority provisions. 

V. Sue and Labor Provision

Plaintiffs assert breach of contract and declaratory judgment claims under the 

Policies’ Sue and Labor Provisions in Counts IV and VIII. See FAC. Defendant argues 

that the “Sue and Labor” provision is not a coverage provision, but rather imposes a 

duty on the insured. Memo. Dismiss at 14–15. Plaintiffs do not directly address this 

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argument, but instead respond that they are entitled to costs incurred in connection 

with reasonable steps to comply with the Closure Orders. Resp. at 20.

The Policies provide under a section entitled “Duties in the Event of Loss or 

Damage” that Plaintiffs must, among other things, “[t]ake all reasonable steps to 

protect the Covered Property from further damage, and keep a record of [Plaintiffs’]

expenses necessary to protect the Covered Property, for consideration in the 

settlement of the claim.” Nevada Policy at CM/ECF 25; New York Policy at CM/ECF 

24. This provision is commonly referred to as “Sue and Labor” coverage. FAC ¶ 38. 

The Court finds, in applying the plain language of the Policies, that this 

provision is not a coverage provision, but instead imposes certain mitigation

obligations on the insured when it submits a claim. Accordingly, again, the Court 

finds that Plaintiffs fail to state a cause of action for breach of contract and 

declaratory relief regarding coverage under the Policies’ Sue and Labor provisions.

Conclusion

For the reasons given above, the Court grants Defendant’s Motion to Dismiss

[31], and the Court dismisses this case with prejudice. The dismissal is with 

prejudice, as Plaintiffs neither suggest how they might cure the defects nor request 

leave to amend in the event of dismissal. See Haywood v. Massage Envy Franchising, 

LLC, 887 F.3d 329, 335 (7th Cir. 2018) (“Nothing in Rule 15, nor in any of our cases, 

suggests that a district court must give leave to amend a complaint where a party 

does not request it or suggest to the court the ways in which it might cure the defects. 

To the contrary, we have held that courts are within their discretion to dismiss with 

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prejudice where a party does not make such a request or showing.”); GonzalezKoeneke v. West, 791 F.3d 801, 808 (7th Cir. 2015) (“A district court acts within its 

discretion in . . . dismissing a complaint with prejudice . . . when the plaintiff fails to 

demonstrate how [an] amendment would cure the deficiencies in the prior 

complaint.”). This civil case is terminated.

Dated: September 30, 2021

United States District Judge

Franklin U. Valderrama

Case: 1:20-cv-02681 Document #: 50 Filed: 09/30/21 Page 20 of 20 PageID #:1781