EAST ST. LOUIS – Edwardsville beauty shop Treo Salon stated a plausible claim that an insurance policy applying to communicable disease should cover lockdown losses, U.S. District Judge Stephen McGlynn ruled on May 10.
McGlynn denied a motion to dismiss the salon’s complaint against West Bend Mutual, finding he couldn’t determine the issue without developing a record.
He noted that many judges have found no business interruption coverage for losses resulting from civil authority closure orders.
“This case deals with a specific and finite policy endorsement, not a traditional business interruption provision,” he wrote.
Treo Salon operates at 2117 South State Road 157.
Its policy with West Bend at the start of the lockdown included special coverage for communicable disease income and extra expense.
“You may extend this insurance to apply to the actual loss of business income or extra expense that you sustain as a result of your operations being temporarily shut down or suspended as ordered by a local, state, or federal board of health or similar governmental board that has jurisdiction over your operations,” the policy states.
“The shutdown or suspension must be due to an outbreak of communicable disease or a water borne pathogen at the insured premises as described in the declarations.”
Ted Gianaris of John Simmons’s firm in Alton sued West Bend last October, in Madison County circuit court.
He proposes to certify a class of all Illinois businesses with West Bend coverage for communicable disease business income and extra expense.
He proposes to certify a second class of Illinois businesses that made claims under such coverage and were denied.
West Bend counsel Scott Helfand of Chicago removed the complaint to district court on the basis of diverse citizenship as a Wisconsin business.
He also claimed the amount in controversy exceeds $5 million, the limit on a class action in a state court.
In December, he moved to dismiss the complaint for failure to allege an outbreak of disease at the salon.
He claimed general closure orders didn’t fall within the plain policy language.
“Plaintiff did not pay for or obtain a guarantee of income,” Helfand wrote.
He claimed the policy excluded damage caused by or resulting from any virus, bacterium, or other microorganism capable of inducing disease.
McGlynn held a hearing in February and decided he needed to know more.
“At first blush, one presumes coverage exists based only upon the endorsement title,” he wrote.
“Upon reading, it is clear that analysis is required.”
He found Treo argued that because its premises were included geographically in shutdown orders, coverage was triggered.
“Moreover, they contend the endorsement is meant to protect small businesses such as theirs against government infringement,” he wrote.
“The government did not create any process through which Treo could prove it was virus free, was not a possible vector or was employing safety measures sufficient to justify continuous operation of its services.”
“How can West Bend or anyone else be so certain that Covid-19 was not on Treo’s premises?”
He found any disputes might be better suited for disposition on summary judgment after the case has been more fully developed.