In The Bend Hotel Development Co. LLC v. Cincinnati Insurance Co., Case No. 1:20-cv-04636 (USDC, ND IL, January 27, 2021), the District Court determined that Cincinnati Insurance Co. did not have to cover the plaintiff hotel company’s pandemic-related losses, finding the hotel failed to allege that either COVID-19 or ensuing government shutdown orders caused ?physical damage” to its property.
U.S. District Judge Elaine E. Bucklo said that although the policy does not have a virus exclusion, the plain language of the policy’s terms is very clear that a direct physical loss or damage is a precondition to coverage. In her order, the Judge said that The Bend Hotel Development Co. LLC of East Moline, Illinois, failed to show the virus physically intruded on its property and that the hotel only alleged financial losses resulting from government closure orders.
To allege a direct physical loss, the hotel needs to show that COVID-19 physically attached to its insured property and made it dangerous and unusable, the judge said. However, even if the hotel was able to prove the physical existence of the virus, “every court in this district … has concluded that the virus does not cause direct physical loss or damage to property,” she added. “While I am sympathetic to the plaintiff’s difficult situation, I am constrained by the unambiguous terms of the policy to conclude that the losses it claims as a result of the closure orders are not covered,” Judge Bucklo said.
The hotel company sued Cincinnati alleging ? like many other hotels, eateries and businesses have ? that the insurer unreasonably denied coverage for its losses stemming from the COVID-19 pandemic. In the complaint, the hotel argued that Illinois courts have consistently held that the presence of a dangerous substance in a property constitutes “physical loss or damage.” And unlike many commercial property insurance policies on the market, the one at issue contained no exclusion for loss caused by a virus, the complaint alleged.