EXHIBIT F
FILED

CLERK OF THE

18TH JUDICIAL CIRCUIT

DUPAGE COUNTY, ILLINOIS

20 Sep 29 PM 01: 07

UNITED STATES OF AMERICA

STATE OF ILLINOIS COUNTY OF DU PAGE

IN THE CIRCUIT COURT OF THE EIGHTEENTH JUDICIAL CIRCUIT

ITS NICE INC

-VS2020L000547

CASE NUMBER

STATE FARM FIRE AND CASUALTY CO

ORDER

For the reasons stated on the record, Defendant State Farm's 2-615 motion to dismiss is granted, with prejudice, with respect to both

Count I and Count II of Plaintiff's complaint. 

Submitted by: JUDGE BRYAN CHAPMAN

DuPage Attorney Number:

Attorney for:

Address:

City/State/Zip:

Phone number:

Entered: 

JUDGE BRYAN CHAPMAN

Validation ID : DP-09292020-0107-11175

Date: 09/29/2020

Page 1 of 1

ORDER 2020L000547-187

CHRIS KACHIROUBAS, CLERK OF THE 18TH JUDICIAL CIRCUIT COURT ©

WHEATON, ILLINOIS 60187-0707

Visit http://www.i2file.net/dv to validate this document. Validation ID: DP-09292020-0107-11175
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Cheryl Ann Barone, CSR#84-001503

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IN THE CIRCUIT COURT OF THE 18TH JUDICIAL CIRCUIT

DU PAGE COUNTY, ILLINOIS

IT'S NICE, INC., d/b/a

HAROLD'S CHICKEN SHACK #83, an

Illinois Corporation,

Plaintiff,

-vsSTATE FARM FIRE AND CASUALTY

CO.,

Defendant.

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No. 20 L 547

2-615 Motion

REPORT OF VIDEOCONFERENCE PROCEEDINGS

had at the hearing of the above-entitled cause, before

the Honorable BRYAN S. CHAPMAN, DuPage County,

Illinois, recorded via Zoom and transcribed by

Kristin M. Barnes, Certified Shorthand Official Court

Reporter, commencing on the 29th day of September,

2020.

Kristin M. Barnes, CSR

Official Court Reporter

CSR No. 084-004026
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Cheryl Ann Barone, CSR#84-001503

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PRESENT:

FRANKLIN LAW GROUP, by

MR. RYAN ENDSLEY,

appeared on behalf of the Plaintiff;

SUDEKUM, CASSIDY & SHULRUFF, CHTD., by

MS. FLORENCE M. SCHUMACHER and

MR. FREDERICK J. SUDEKUM, III,

appeared on behalf of the Defendant.
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THE COURT: All right. Good morning, Counsel.

MR. ENDSLEY: Good morning, your Honor.

THE COURT: All right. This is 20 L 547, It's

Nice, Inc. versus State Farm Fire and Casualty.

We come on for a 2-615 motion in connection

with It's Nice's claim for coverage under the policy.

I've had a chance to read the motion, the

corresponding briefing, and I know there had been some

motions for leave to file supplemental authority. I

have had a chance to look at those motions.

I assume both parties are okay with each side

submitting their respective -- their respective briefs

in support of their -- their respective authority in

support of their positions.

Is that a fair characterization?

MR. ENDSLEY: Yes, your Honor. For It's Nice, at

least.

THE COURT: Sure.

MS. SCHUMACHER: State Farm as well, your Honor,

there's no objection.

THE COURT: All right. Why don't we go ahead and

have the parties state their names for the record.

MS. SCHUMACHER: Sure.

Florence Schumacher and Rick Sudekum here on
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behalf of State Farm.

THE COURT: Uh-huh.

MR. ENDSLEY: Ryan Endsley on behalf of It's Nice,

Inc.

THE COURT: Okay. What I'd like to do here, guys,

I have spent considerable time with the -- with the

courtesy copies. I've got my tabs. Like I said, I've

read the authority. I've read the additional authority

submitted.

I don't necessarily need a regurgitation of

the positions already taken in the briefs. I feel like

I have adequately familiarized myself with the parties'

positions.

I do want to give the parties a chance to

make their record here. I appreciate the issue and

that it's kind of a fastly moving issue through the

courts right now, and, as a result, I want to give the

parties a chance a make their record.

That said, I don't necessarily need, you

know, sort of, your Honor, this is how insurance

policies work. I mean, tell me whatever you want to

tell me. I may have a question or two for the parties,

but I'll let you make your record first.

State Farm, it's your motion. I'll let you
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go ahead if there's anything you want to add.

MS. SCHUMACHER: Sure, your Honor.

I am going to briefly run through our

argument again, trying to sort of work in some of those

cases that have come in more recently.

I understand that the court is familiar with

insurance policies in general, so we won't -- hopefully

won't belabor you with too much elementary insurance

law here.

Obviously, the plaintiffs know -- or the

court knows that the plaintiff is seeking to recover

for a business interruption loss resulting from the

COVID-19 pandemic and the executive orders.

In our view, there are basically two main

barriers to plaintiffs being able to state a cause of

action. The first is the lack of accidental direct

physical loss and the second is the virus exclusion.

The way I look at these, your Honor, it's

sort of like -- the lack of accidental direct physical

loss is like a 10-foot hurdle and the virus exclusion

is like a brick wall. So even if the plaintiffs could

plead accidental direct physical loss, which they

can't, they're going to run right into the virus

exclusion and there's not going to be any coverage for
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that reason either.

THE COURT: That was my -- that was the one thing

I wondered a little bit about in reading your briefing,

more the structure of your brief.

MS. SCHUMACHER: Right.

THE COURT: You led with the virus exclusion, and,

to my mind, there's an insuring agreement here as a

preliminary matter and we only get to the virus

exclusion if the court finds that there is, in fact,

accidental direct physical loss to the property in the

first instance.

You would agree with that?

MS. SCHUMACHER: I would, your Honor.

THE COURT: Okay.

MS. SCHUMACHER: You know, the court is

familiar -- it's the trigger of coverage. I mean, just

like in a life insurance policy, until you have the

death of the insured, there's no coverage to begin

with.

It's the same for these policies. They're

property policies, so their triggering coverage is

accidental direct physical loss. You know, you can't

just skip this part. It's the trigger of coverage.

It's something that the plaintiff has the burden of
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proof on.

So, in this case, the covered property is the

restaurant property, so the first question is, where is

the accidental direct physical loss pleaded, and our

response, obviously, is that it isn't.

So, you know, just looking briefly at the

complaint, you know, they allege that there was no

virus on the property and their accidental direct

physical loss argument is based on loss and use.

But, you know, my first point is, it has to

be accidental direct physical loss, and I think it's

undisputed that there was no difference to this

property physically on the day before these executive

orders were issued than there was on the day after, so

physically the property was exactly the same.

So where's the loss? Where's the loss

they're arguing? They're saying that loss of use is

sufficient, that they couldn't use the property in the

same way, and that somehow that constitutes accidental

direct physical loss to the property, and we disagree

with that position.

So we believe that the Illinois law and all

these cases that have recently come out correctly hold

that loss of use of property without any physical
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change to that property cannot constitute accidental

direct physical loss.

THE COURT: Mr. Endsley, at the risk of stealing

your thunder, I'm going to ask Ms. Schumacher

why don't you go ahead and respond to the western

district of Missouri cases that were cited by It's Nice

where it looks like some district courts in the western

district have found, you know, sort of a lack of

definition in the policy for physical damage or loss

of -- you know, what are the factual distinctions in

those cases, if any --

MS. SCHUMACHER: Right, right.

THE COURT: -- as to why the court should not find

those cases persuasive here as opposed to some of the

cases you've cited?

MS. SCHUMACHER: Sure.

So the first thing I would say, the court

says there are courts in the western district of

Missouri. What we actually have is one court -- it's

the same judge in the two cases -- who has gone

essentially the other way on this accidental direct

physical loss question.

Those cases are factually distinguishable on

two main grounds. The first is that the plaintiffs in
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those cases argue that they had virus on the premises.

So the plaintiff in this case has not even alleged that

there was any virus present.

The second distinction is in the policy

language. So the trigger of coverage in those

policies, in the Studio 417 and the other case, were --

I think I've got the exact language here -- accidental

direct -- or accidental physical loss or accidental

physical damage.

And so the court in Studio 417 felt that it

had to somehow -- you know, focusing on that

disjunctive or, the court found that it had to give

separate meaning to physical loss and physical damage.

That's not the case in our policy. There's

one trigger of coverage, which is accidental direct

physical loss to property.

We also have a virus exclusion, which wasn't

present in those cases, but I know the court is asking

me about physical loss.

So I would say the first and the most

important distinguishing factor is, obviously, the

pleading in this case -- I think it's in paragraphs, I

think, 25 and 36 of the complaint where the plaintiffs

specifically deny that they had any virus present on
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premises.

And, again, I would disagree with Studio 417.

I'm not sure even in their presence a virus is enough.

Other courts have disagreed with that opinion as well,

but I think for our purposes in our compliant we have a

complaint that alleges the absence of the virus. And

then, obviously, we have a policy that doesn't have

that or in there that the Studio 417 court seemed to

think was determinative.

THE COURT: All right. Anything else you want to

add?

MS. SCHUMACHER: Just jumping briefly into the

virus exclusion, your Honor, in case we get there, we

have that anti-concurrent causation language which

broadly excludes coverage when a loss would not have

occurred in the absence of a virus.

That language, that anti-concurrent causation

language, has been upheld in Illinois. The virus

exclusion clearly applies in this case. There is no

requirement in that policy language that the virus be

physically present on the property, like plaintiff

alleges. They're just adding language to the exclusion

which isn't present. The exclusion needs to be applied

as written. It unambiguously excludes a broad range of
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losses. Virus is one of them.

Oh, the argument about, you know, the

proliferation issue, that somehow those two

subparagraphs of the virus exclusion need to be read

together, that's just not correct. The virus portion

of that exclusion is separate. It says that loss is

excluded, current virus, bacteria, or other

microorganism.

So, again, I think it's -- I don't see how it

could possibly be ambiguous: I mean, this -- clearly

we have a too late chain of causation here. The virus

caused the executive orders which caused the loss and

it's excluded under the virus exclusion.

THE COURT: Okay. Mr. Endsley, do you want to

respond to anything that's -- do you want to respond

with anything that's not in your brief? Or if there's

a point or two you want to emphasize, I'm happy to give

you a chance to do so.

MR. ENDSLEY: Thank you, your Honor.

So I just wanted to highlight a couple of

things. In particular, we -- you know, the Studio 417

case, we have the same situation where State Farm

elected not to define physical loss or damage. And, in

this case, while counsel has pointed out that this
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policy only says physical loss, that's really the

broader of the two. Physical damage is what's probably

more in line with what State Farm's position is, which

is that a physical loss or damage must be a structural

alteration.

And the fact is that I think the Illinois

courts have not limited themselves quite so much to

structural physical alteration as State Farm would like

the court to believe. In particular, it's sort of an

all squares are rectangles argument. They cite cases

which are saying, you know, a change in color or shape

or appearance to the property is a physical loss or

damage, which is true, but that's not the only type of

physical loss.

And I think sort of looking at the asbestos

cases really sort of points that out, and State Farm's

position really throughout the briefs has been that

Illinois law requires a physical alteration to the

structure, and that's just not really what Illinois

case law actually says.

The other thing I'd sort of like to

highlight -- and this impinges a little bit on both the

virus exclusion and the physical loss or damage -- and

that's sort of the nature of an exclusion. And I know
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that this is, you know, kind of a basic insurance

issue, but the fact is that an exclusion exists to

exclude coverage which would otherwise be present.

A virus cannot cause physical alteration to

the building, as far as I'm aware. If there's a way

that it can be done, State Farm certainly hasn't

articulated it. So at least this policy, as written,

clearly seems to contemplate nonphysical alterations

which would otherwise be covered causes of loss.

And that's a problem for the policy in a

couple -- for State Farm in a couple of ways in that

State Farm wants to apply the virus exclusion where it

was not present. Even in the absence of a virus

exclusion, if the governor had never closed the

building, It's Nice could never have made a claim

for -- under this policy because the coronavirus

existed somewhere. You know, even if there is

absolutely no virus exclusion in a different policy

like that, there just wasn't anything affecting It's

Nice's property.

And separately, with the physical loss or

use, when you're reading the policy, a number of these

exclusions, including, you know, both the virus

exclusion itself as well as the government closure
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exclusion, really does contemplate under the policy

exclusions for nonphysical, nonstructural altering

causes of loss.

And that, to me, reads -- particularly when

State Farm has elected not to define loss or -- you

know, physical loss, that's a problem for them because

the policies seem to exclude things which wouldn't be

covered anyway under State Farm's interpretation, and

yet there they are.

Reading the policy as a whole and

constructing the ambiguities in favor of coverage,

certainly at this point dismissal seems premature.

THE COURT: Counsel, do you have a response to the

virus exclusion argument that the -- as I understand

counsel's argument, it's that the virus -- if we were

to take State Farm's proffered definition of physical

as understood in insurance contracts, the virus

exclusion would never fit that definition because it's

never going to alter a physical structure.

I'm going to go to paragraph 23 of your

motion, page 10, where State Farm says, In cases

interpreting the word physical in insurance contracts,

physical is widely held to exclude alleged losses that

are intangible or incorporeal, such as detrimental
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economic impact, unaccompanied by distinct demonstrable

physical alteration of property.

So how is the virus exclusion consistent with

that proffered definition of physical?

MS. SCHUMACHER: Well, my first response, your

Honor, is I'm not sure we should assume that a virus

could never alter a structure. We're not familiar with

every --

THE COURT: Fair enough.

MS. SCHUMACHER: -- virus in the world, so I think

that the exclusion -- you know, I look at it as sort of

a belt and suspenders approach. I mean, surely I think

this virus is not causing physical damage, but that

certainly doesn't mean that there's no virus that could

ever develop that doesn't cause physical damage and

bodily injury. We don't know that. So I think, in a

sense, that the insurer clearly wanted to exclude this

kind of loss.

I think in the event that there is some

unexpected virus that comes up in the future that could

cause physical damage, I think the insurer is well

within its right to, you know, exclude that in the

event that that might happen some day.

It's clearly in the policy. The insured was
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aware of it. It's a broad exclusion. And, again, I

think their whole question is just based on the

assumption that all viruses are going to be like this

virus, and I just don't think that that's the case.

THE COURT: Counsel, Mr. Endsley, let me ask you a

question.

One of the things, as I've thought about this

case a little bit, I'm worried a little bit or I'm

concerned at least about, were the court to accept your

argument as to loss of use, I'm concerned about a

limiting principle or lack thereof in terms of what is

the underwritten risk here.

And there appears to be, to my mind,

different types of coverage available for loss of use,

whether it is, in fact, civil authority when you think

about the cases right after 9/11 around the World Trade

Center. There's a lot of case law coming down in the

southern district of New York in the second circuit

involving business interruption where civil authority

has retail shops shut down but you've got physical

damage to other property, ingress/egress sorts of

issues.

Without the loss of use, sort of, well,

there's physical accidental physical loss to property
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if I can't access it, that strikes me, when I look at

the policy in its entirety, to be potentially a very

different risk than what may have been contemplated

here.

Is that a fair concern?

MR. ENDSLEY: So I think that is something of a

concern. But to alleviate that a little bit, we're

dealing with a fairly unique set of circumstances and I

think there sort of still is a principle here.

If the governor's orders hadn't actually

required closure, if they, you know, had limited how

many patrons you could have in the restaurant or if

the -- you know, the effect of the general governor's

orders to shelter at home had been to reduce income,

you know, if we were talking about loss of income,

that's not a covered cause of loss.

And, in fact, I think some of the cases cited

by State Farm sort of indicate what the -- what the

difference is -- and those would be the Anchor

[phonetic] and Keach [phonetic] cases. And,

particularly, those focused on the difference between

when something is actually completely closed down and

when it's merely suffered, you know, a loss of business

income, and there really is a significant difference
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here.

And the other thing I would sort of add, as

far as a policy situation, is I think the tremendous

number of lawsuits we've seen from this is sort of an

indication that a lot of these insureds thought that

this would have been covered, something like this, and

learned only late in the game that it wasn't or at

least the insurance company thought it wasn't.

And I'd just sort of articulate again, you

know, the basic principle that ambiguities in the

policy are construed against the drafter. State Farm

was the one who got to say what this policy looked

like, State Farm was the one who got to draft the

language of the policy, and, frankly, had put a lot

more thought into it than any of their insureds.

So I think to say that, you know, this wasn't

in the contemplation of the parties, it was at least a

little bit. State Farm has a number of exclusions

which nearly but do not quite apply. They were able to

draft around this.

And, frankly, exclusions exist in certain

policies which do address this specific concern. We've

reviewed a couple of them from client -- from potential

clients who wanted coverage and actually saying that if
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there's a government closure order because of a

pandemic, no coverage.

So there are ways for the insurer to protect

themselves from this, but in this case it's the insured

who really had this dropped on them unexpectedly and is

now having to litigate.

THE COURT: Well, certainly, obviously, companies

and businesses around the world and certainly the

country and certainly Illinois are faced with a

remarkable predicament through largely no cause of

their own, if at all, as a result of the pandemic.

Let me be very clear. I am not -- when I ask

the question about the limiting principle, I am not

suggesting that the court is trying to ascertain the

intent of the parties at this point. I'm simply trying

to ascertain whether or not there's a reasonable

interpretation on the other side.

But wouldn't your argument, Mr. Endsley, be a

bit stronger if the definition or if the insuring

agreement language said insure for all accidental

direct physical loss of covered property as opposed to

to?

In other words, it's talking about -- I'm

concerned that we're reading direct physical to
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property. We're kind of just pretending that it

doesn't say what it -- what it clearly says and we're

kind of saying, well, loss of property or loss to

property, same thing, whatever.

Wouldn't you have a stronger argument if it

said loss of property?

MR. ENDSLEY: In this case, I'm actually not sure

that we would, your Honor.

It's Nice still has the property, but the

property suffered a loss of use and that was a loss to

the property. It's Nice hasn't -- you know, the

property isn't gone. It's Nice has, in fact, recently

resumed business operations --

THE COURT: So let me ask you a question.

If I said, when I think loss to the property,

I think the roof is blown off; okay? That's what I

think of just -- at the very least, at a superficial

level.

If you're telling me a closing of the doors

by executive order is a loss to the property, help me

understand why that's the same thing.

MR. ENDSLEY: Well, I think you're certainly

correct that, you know, when we think of -- that is

classic losses.
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THE COURT: That is, to my mind, closer to a loss

of property. It's a functional loss of property, not

to property.

MR. ENDSLEY: I guess the best argument I can sort

of think of, just off the spur of the moment, relates

to the fact that the type of property it is is what

affected the loss and that's -- because it's a

restaurant, this was a different type of loss. If this

was just being used as residential housing, there is no

loss to the property.

So State Farm insured a particular type of

business and a particular -- that particular type was a

restaurant which was affected, and that impacted this

property. That was a loss to this specific property

rather than a removal.

So to some extent, you know, if it said loss

of property, that, to me, almost suggests that

something -- a little more of the structural alteration

argument State Farm prefers, which is almost that

something was removed from the property or just ceased

to exist on the property -- because it was burned up or

something -- whereas I think to property sort of

suggests that it's anything that affects, you know,

that business property. It wasn't just the -- you
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know, this wasn't just a title policy or something like

that. This was a business coverage policy.

THE COURT: It doesn't say anything is physical;

right?

MR. ENDSLEY: It does say physical.

THE COURT: I mean, it's not any conceivable way

you're unable to use the property in the way you see

fit. It's got to be direct physical loss. And, I

guess, your view is loss of use, there's a physical

displacement; right? That's --

MR. ENDSLEY: Yes.

THE COURT: -- your position?

Okay. Ms. Schumacher, if there's anything

you want to respond to, I'll give you the last word.

MS. SCHUMACHER: Sure. There are many things.

I'm going to try to stick to a couple.

I think the Turek court actually discussed

that physical loss to concept and I think it held that

to implies contact and physical implies physical

contact, direct physical loss to property.

And I looked in the dictionary. They gave

examples like a right uppercut to the jaw or applying

varnish to a surface. Whatever theory they have about

their loss not being able to use the property, that
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simply is not physical loss to that property.

And I just want to briefly touch on -- the

court is concerned about the breadth of their

interpretation. So the first thing they said is, well,

this is a different situation because the restaurant

was required to be closed.

I would point out that in the executive

orders they did not close restaurants. Restaurants

were permitted to stay open for takeout or delivery.

So regardless of whether they chose to close the

restaurant, even under their complaint, they weren't

required to. So this is not a situation where

restaurants were closed.

The second and more broad point I would make,

your Honor, is that under their theory of accidental

direct physical loss, let's just say after COVID is

over the restaurant is open until 1:00 a.m. There's an

ordinance that says restaurants have to close at

midnight now. According to their theory, they now have

a loss of income claim because the restaurant has to

close an hour early because, according to them, there

doesn't have to be any physical impact; it just has to

affect the use of their property.

So, again, I agree with the court's concern
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that their interpretation is way too broad and it

brings many more things into coverage than are intended

under a property policy which covers accidental direct

physical loss and then loss of income once that's

happened. But you just can't skip that step.

And I think that's all I have. I know the

court is familiar with all of this and there was a lot

that was said, but I'd like to keep it as brief as I

can. So I think unless the court has any additional

questions, I think we've made our point.

THE COURT: I think we -- I just want to make sure

all the parties agree that regardless of the coverage

form under the all risk policy, everyone agrees that

direct physical loss is required; right?

MR. ENDSLEY: Yes.

THE COURT: That phrase, that is an insuring

agreement that attaches to all. You know, sometimes

these all risk policies, there's all these amendments,

you know, there's the general exclusions and then

there's the exclusions within the broad form coverage

and there's exclusions within that and those don't

apply to the general -- you know, so that was my review

of the policy, that there was no separate insuring

agreement, everything goes back to Section 1 property
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insuring agreements, direct physical loss requirement.

MS. SCHUMACHER: Yes.

THE COURT: Okay.

MR. ENDSLEY: Yeah, I believe there was a little

bit of confusion that we were maybe trying to get

coverage under the civil -- civil authority provision,

but that was --

THE COURT: Well, as I understand your argument,

you'll take coverage wherever you can find it; right?

MR. ENDSLEY: Yes, that's correct.

And that all relates back to the all risk

direct physical loss.

THE COURT: Right. Okay. Very good. Thank you.

Okay. The court is in a position to rule on

this today. The question presented by a 2-615 motion

to dismiss is whether sufficient facts are contained in

the pleadings that, if proved, would entitle the

plaintiff to relief. That's Evers versus Edwards

Hospital, 247 Ill. App. 3d 717.

A motion to dismiss under Section 615 admits

all well-pleaded facts but does not admit conclusions

of law or conclusions of fact not supported by

allegations of specific fact.

Exhibits -- I assume the policy was, in fact,
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attached to the complaint?

MS. SCHUMACHER: It was -- your Honor, it was

either attached or filed by agreement.

I have two different cases. One they

attached a partial policy and then --

MR. ENDSLEY: Yeah, I --

MS. SCHUMACHER: Was yours the partial policy?

MR. ENDSLEY: Yeah, I believe it was attached by

agreement.

MS. SCHUMACHER: Okay.

THE COURT: The court is --

MR. ENDSLEY: There was --

THE COURT: The parties are asking the court to

consider the policy, right --

MR. ENDSLEY: Yes.

MS. SCHUMACHER: Yes, your Honor.

THE COURT: -- for purposes of this motion?

All right. So the policy is an exhibit to

the complaint for purposes of this motion.

Exhibits are part of the complaint to which

they are attached and the factual allegations contained

within an exhibit attached to a complaint serve to

negate inconsistent allegations of fact contained

within the body of the complaint.
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I say that because, in some ways, this

operates almost more like a 12(b)(6) than -- most 615's

are sort of, if you haven't pled this element, you

haven't pled that element, and this operates more sort

of a -- whether or not there is a claim upon which

relief can be granted based on the complaint itself.

And, for that reason, I point out simply that

the exhibits to the complaint, which, in this case,

includes the policy, the parties have asked the court

to consider that as well.

Okay. Having said all of that, the critical

language here, first, is the direct physical loss

language, and the court finds that direct physical loss

unambiguously requires some form of actual physical

damage to the insured premises to trigger coverage.

The words direct and physical, which modify

the word loss, ordinarily connote actual demonstrable

harm of some form to the premises itself rather than

force the closure of the premises for reasons

extraneous to the premises itself or adverse business

consequences that flow from such closure.

Defense counsel -- I'm sorry, the insurance

counsel points out here that Illinois courts have not

squarely addressed direct physical loss in this
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context, but I do want to note in cases interpreting

the word physical in insurance contracts, physical is

widely held to exclude alleged losses that are

intangible or incorporeal in Illinois, such as

detrimental economic impact unaccompanied by a distinct

demonstrable physical alteration of the property.

That's One Place Condo, LLC, versus

Travelers, 2015 Westlaw, Northern District of Illinois,

applying Illinois law.

The other case here that, I think, is

particularly useful is, in fact, Judge Gettleman's

decision in the northern district of -- I want to get

this right -- Sandy Point Dental v. Cincinnati

Insurance. This is 2020 Westlaw 5360465 dealing with

very similar facts and similar policy language.

In this case, the court finds, just as in

that case, plaintiff simply cannot show any such loss

as a result of either inability to access its own

office or the presence of the virus on its physical

surface, the latter of which here plaintiff fails to

allege in its complaint.

I don't think that's in dispute. There's no

argument that the coronavirus was, in fact, on the

surface of the property. The plaintiff has not pled
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any facts showing physical alteration or structural

degradation of the property, which is required to

trigger coverage under this all risks policy.

The court wants to note that in addressing

this insuring agreement argument, this holding is

consistent with other courts that have evaluated

whether the coronavirus causes property damage

warranting insurance coverage.

Again, I want to reference 20 L -- I'm sorry,

not 20 L. 2020 Westlaw 5360465. That's Sandy Point

Dental versus Cincinnati Insurance.

I want to further note that Social Life

Magazine versus Sentinel Insurance Company, denying a

motion for preliminary injunction because the

coronavirus does not cause direct physical loss;

therefore, no coverage was required. The coronavirus,

quote, damages lungs. It doesn't damage printing

presses, close quote.

Diesel Barbershop versus State Farm Lloyds,

2020 Westlaw 4724305, Western District of Texas,

August 13, 2020, granting a motion to dismiss because

the coronavirus did not cause a direct physical loss

and, quote, the loss needs to have been a distinct

demonstrable physical alteration of the property, close
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quote.

I further want to direct the parties'

attention to Gavrilides Management versus Michigan

Insurance Company. This is a state court of Michigan

handing down a decision last month that was cited by

State Farm in this case explaining that direct physical

loss to property requires tangible alteration or damage

that impacts the integrity of the property and

dismissing the case because plaintiff failed to allege

that the coronavirus had any impact to the premises.

I want to point out that these are not

controlling cases for purposes of an Illinois state

court; however, the court finds that these cases just

cited are, in fact, consistent with Illinois courts

treating of physical damage under insurance policies.

And, of course, there are meaningful

differences at times between first and third party

policies and first and third policy claims; however,

the court finds that there is a consistent line of

reasoning by Illinois courts as far as what physical

damage must mean for purposes of insurance coverage in

this case.

In essence, to quote Judge Gettleman in the

Sandy Point Dental Case, plaintiff here seeks coverage
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for financial losses as a result of closure orders.

And I don't think anybody really disagrees with that

here.

The coronavirus has not physically altered

the appearance, shape, color, structure, or other

material dimension of the property and, as a result, it

doesn't come within the insuring agreement and, as a

result, plaintiff has failed to plead a direct physical

loss, which is a prerequisite for coverage.

However, I do want to point out here that

even if, even if, plaintiff had, in fact, been able to

plead within the insuring agreement -- that this claim

comes within the insuring agreement, the court does

find that the virus exclusion applies.

Now, the virus exclusion, which is Exclusion

J under Section 1 of the policy, states as follows --

and there's important, what we'll call, lead-in

language that I want to direct the parties' attention

to. The lead-in language under Section 1 exclusions,

which applies to all coverage forms under this all

risks policy, all coverage forms incorporate Section 1,

the lead-in language states as follows: We do not

insure under any coverage for any loss which would not

have occurred in the absence of one or more of the
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following excluded events.

We do not insure for such loss regardless of,

A, the cause of the excluded event; or, B, other causes

of loss; or, C, whether other causes acted concurrently

or in any sequence with the excluded event to produce

the loss; or, D, whether the event occurred suddenly or

gradually, involves isolated or widespread damage,

arises from natural or external forces, or occurs as a

result of any combination of these, and it begins to

list the exclusions.

So the virus exclusion is Exclusion J. The

heading, which does not control, says fungi, virus, or

bacteria. Paragraph 1 states, Growth, proliferation,

spread, or presence of fungi or wet or dry rot or, new

paragraph, 2, Virus, bacteria, or other microorganism

that induces or is capable of inducing physical

distress, illness, and disease.

For our purposes, those are the relevant

provisions of the virus exclusion that needs to be

addressed here. First, the court finds that the

growth, proliferation, spread, or presence is not

required for purposes of applying the virus exclusion

because that is in a separate paragraph designed to

address fungus or fungi. There are not just one but
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two disjunctive or's in between fungus and virus

because it goes fungus -- or states fungus or wet or

dry rot or and then a new paragraph starting with the

word virus enumerated as number two.

So the court finds that it doesn't have to

establish a growth of a virus, just simply the idea of

a virus, the fact that a virus that is capable of

inducing physical distress, illness, or disease.

Even if -- if, in fact, this was some kind of

physical -- accidental physical damage, physical loss

coming within the insuring agreement, the virus

exclusion applies because Subsection C of the lead-in

language says this virus exclusion applies whether

other causes, executive orders, acted concurrently or

in any sequence with the excluded event to produce the

loss.

Here, I think everyone would agree absent the

virus, absent the virus, there would be no executive

orders, and so because C says this exclusion would

apply even where the sequence of the ordering with

other causes isn't entirely known or isn't entirely

clear or happens one two or two one, it still applies.

Furthermore, whether or not a virus could, in

fact, alter the physical structure, I think that's a
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much -- that's not entirely clear at all that a virus

could.

And that's plaintiff's -- or I'm sorry,

insured's argument is the virus exclusion doesn't make

any sense for a sort of physical alteration requirement

of physical damage -- or a loss of, I should say --

physical loss because a virus would never alter the

physical structure.

The court doesn't agree with that. Virus,

bacteria, and microorganisms can exist in, in fact, a

meaningful way, and I think there's a strain of thought

out there that at one time was dominant -- it still may

be true to a certain extent -- that this virus can

exist on surfaces.

So even if the loss of use because of

coronavirus could constitute, the virus exclusion would

still apply -- could constitute physical -- accidental

physical loss, direct physical loss, I should say --

the virus exclusion applies.

And so for those reasons, the court is going

to grant the motion to dismiss.

I want to point out -- or I do want to

address the authority provided by Harold's Chicken --

It's Nice, Inc., d/b/a Harold's Chicken. A couple
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things, I think, are worth pointing out.

One is the State Farm language here -- not

only are those cases from the western district and, as

a result, they're not controlling, the court believes

or is of the opinion that the cases relied upon for its

ruling today are more consistent with Illinois law as

it exists with respect to this issue.

Furthermore, the policy language was

different in those western district cases. And that's

not to say that the result would be different if you

had identical language, but I do think that's different

language.

And, moreover, and perhaps importantly, the

court was evaluating a 12(b)(6) motion in which the

insureds in that case allege the presence of COVID on

the property. And, to the court's mind, that is a --

that's a meaningful distinction here.

And, again, there's no virus exclusion in

that policy that the court would have had to have

considered as well and we don't know what the court

would have done in that case.

But I do think, at least for purposes of the

insuring agreement argument, those cases are

distinguishable without regarding -- without, you know,
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advising as to what the result would be in this court.

But I do think those are different cases and they need

to be treated differently as such.

And so, for those reasons, the court is going

to go ahead and grant the motion both with respect to

the insuring agreement argument as well as with respect

to the virus exclusion.

I do want to point out, for the record, the

insured does not seem to argue -- kind of seems to have

one foot in and one foot out on civil authority.

They're happy to find civil authority coverage if it

exists, but they're not specifically asking for it.

But I want to point out, for the record,

that, as noted above, the policy's civil authority

coverage applies only if there is a covered cause of

loss, meaning direct physical loss, again, going back

to direct physical loss to property other than the

plaintiff's property.

Just as the coronavirus did not cause direct

physical loss to plaintiff's property here, the

complaint has not and likely could not allege that the

coronavirus caused direct physical loss to other

property. By the policy's own terms, the civil

authority coverage then does not apply.
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So with that having been said, I'm granting

the motion. You know, I'm kind of -- do the parties

want a dismissal with prejudice?

MS. SCHUMACHER: Your Honor, we are asking for a

dismissal with prejudice, the reason being their claim

is for the loss of income due to the executive orders

which is caused by the virus, and without alleging a

completely different kind of claim, there's no set of

facts that they're going to be able to allege that's

going to avoid that result.

The executive orders are full of references

to the virus. The chain of causation is strong. The

virus exclusion is present. And, again, the same thing

with the physical damage issue. There's no claim that

there was any structural alteration to the property.

So I think in this case, your Honor, on that

basis, I don't think there's any way they're going to

be able to plead around either of those issues, and so

we are asking for a dismissal with prejudice.

THE COURT: Mr. Endsley, any response to that or

are you in agreement that this is time for other minds

to evaluate this claim?

MR. ENDSLEY: Yeah, your Honor, that's probably

correct. I don't think we can change the pleading such
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that -- to get around the issues that you're finding

are insurmountable.

THE COURT: I don't disagree. It is a 615, and so

I do want to just at least give the parties the

opportunity to request without -- whether or not I give

that is a different issue, but it sounds like the

parties are of one mind and the court is in agreement

that this dismissal for this type of a 615 motion is

and should be with prejudice, and the court will enter

such an order.

MS. SCHUMACHER: Thank you, your Honor.

THE COURT: Okay.

MR. ENDSLEY: Thank you, your Honor.

THE COURT: Thank you, guys. Thank you very much

for your time and energy on this. I want to commend

the parties. I know this is a very interesting issue

under very -- a very unique set of facts.

MS. SCHUMACHER: Thank you, your Honor.

MR. ENDSLEY: Thank you, your Honor.

THE COURT: Thank you.

(Which were all the proceedings had at

the hearing of the above-entitled

cause, this date.)
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39

IN THE CIRCUIT COURT OF THE 18TH JUDICIAL CIRCUIT

DU PAGE COUNTY, ILLINOIS

I, KRISTIN M. BARNES, do hereby certify that

the foregoing Report of Proceedings, consisting of

Pages 1 to 39, inclusive, was reported in shorthand by

me via Zoom videoconferencing, and the said Report of

Proceedings is a true, correct and complete transcript

of my shorthand notes so taken at the time and place

hereinabove set forth.

Official Court Reporter

Eighteenth Judicial Circuit of Illinois

DuPage County

CSR License No. 084-004026