BIPA/ Class Action/ Personal or Advertising Injury
The Supreme Court of Illinois ruled that a business liability insurer had a duty to defend its insured, a tanning salon, against a salon customer’s class action lawsuit alleging violations of the Biometric Information Privacy Act, unjust enrichment, and negligence arising from disclosure of fingerprint information to third-party vendor. West Bend Mutual Insurance Co. v. Krishna Schaumburg Tan, Inc., 2021 IL 125978, --- N.E.3d ---- (Ill. May 20, 2021). The court affirmed the grant of summary judgment to the insured, holding that the underlying complaint alleged a personal or advertising injury as the claim arose from “oral or written publication of material that violates a person's right of privacy.” In so holding, the court concluded that the term “publication” as used in the policy is ambiguous in that it “has at least two definitions,” as it could mean communication of information to the public at large or to a single party.
Gordon Rees Scully Mansukhani LLP
Direct Physical Loss or Damage – U.S. District Court for the Northern District of Illinois (Illinois Law)
3 Squares, LLC v. The Cincinnati Ins. Co.
No. 20-CV-2690, 2021 WL 4437817 (N.D. Ill. Sept. 23, 2021)
E. Coast Ent. of Durham, LLC v. Houston Cas. Co.
No. 20-CV-6551, 2021 WL 4437818 (N.D. Ill. Sept. 23, 2021)
In two separate actions, the U.S. District Court for the Northern District of Illinois found in favor of the insurers, ruling that the insureds did not show that they were entitled to coverage for their COVID-19 pandemic losses as they could not show they incurred a direct physical loss that would trigger coverage under the respective policies.
The insureds each submitted their claims with their respective insurers that sought coverage for business income losses and other related losses stemming from the pandemic and shut down orders. After each claim was denied, the businesses filed suit seeking coverage under their insurance policies. The insurers in both lawsuits filed dispositive motions, claiming that the insureds failed to demonstrate that they incurred a direct physical loss.
The district court agreed with the insurers, holding that the insureds were required to show a direct physical loss to trigger coverage. In its decision, the district court referenced the U.S. Court of Appeals for the Eighth Circuit opinion of Oral Surgeons, P.C. v. The Cincinnati Ins. Co., 2 F.4th 1141 (8th Cir. 2021) (Oral Surgeons). In Oral Surgeons, the appellate court held that an Iowa dental clinic could not recover from its insurer for losses due to government imposed COVID-related restrictions. Applying this decision, the district court found in favor of the insurers, observing that the businesses similarly brought general allegations of economic losses that resulted from the pandemic, and that such losses are not covered by the policies.
The district court reasoned that “[t]he vast majority of courts in Illinois and around the country to have considered the question have concluded that under a plain and ordinary meaning analysis the phrase ‘physical loss or damage to property’ does not extend coverage to purely economic losses caused by COVID-19 related business shutdown orders.” The district court further held that the businesses failed to allege “physical alteration of plaintiffs’ properties,” or that the “virus particles have physically altered their properties.” Thus, the district court granted the insurers’ motion to dismiss in each case.
Bloomfield Hills, MI
Notice: Evanston Ins. Co. v. OnPoint Cas Solutions, LLC
2021 IL App (1st) 200899-U, 2021 WL 4032874 (Ct. App. Sept. 3, 2021)
The Appellate Court of Illinois, First District, upheld a lower court’s grant of summary judgment to the insureds, finding that the insurer had a duty to defend the insureds in an underlying personal injury case and that the insureds did not breach the policy’s notice provision.
Evanston Insurance Company (Evanston) issued a specified medical professions insurance policy to OnPoint Cas Solutions, LLC (OnPoint) for the policy period beginning Dec. 27, 2017, with a retroactive period dating to Dec. 27, 2012. The policy required Evanston to cover claims made within the policy’s effective period for activities occurring after the retroactive date. The policy did not apply if the insured, prior to the policy’s effective date, had “knowledge of such act, error or omission or any fact, circumstance, situation or incident which may lead a reasonable person in the Insured's position to conclude that a Claim was likely.”
OnPoint and its employee, Patrick Glavin (Glavin), were named as defendants in a suit commenced by Nathan Brinn (Brinn) arising out of a surgery that took place on Oct. 14, 2016. Brinn named the hospital as an original defendant when the suit was first filed, but not OnPoint or Glavin. Nevertheless, OnPoint notified Evanston of the lawsuit on June 7, 2018. Onpoint and Glavin were added as defendants in the amended complaint filed on Oct. 15, 2018. OnPoint sought coverage for Brinn’s lawsuit, but Evanston denied coverage on the basis that OnPoint had knowledge of Brinn’s potential claim before the policy’s effective date.
In the declaratory judgment lawsuit that followed, Evanston and the insureds filed cross-motions for summary judgment. The trial court granted the insureds’ motion, finding that there was no indication prior to the policy’s effective date that OnPoint or Glavin would have any liability for Brinn’s alleged injuries.
The appellate court agreed, finding that “there is nothing to suggest that OnPoint and Mr. Glavin had any reason to conclude that Mr. Brinn was going to file a claim against them until he filed the underlying lawsuit on Oct. 15, 2018. And it is noteworthy that although the initial complaint filed by the Brinns did not name OnPoint and Mr. Glavin, OnPoint notified Evanston of the possibility that it could yet be named.” The appellate court rejected Evanston's argument that Glavin's testimony that, during the surgery, he thought something might have been done incorrectly constituted knowledge of potential liability. The appellate court upheld the finding that Evanston had a duty to defend OnPoint and Glavin in the underlying lawsuit.
Bloomfield Hills, MI
09/23/21 Sproull v. State Farm
Supreme Court of Illinois
Affirmance of Illinois Appellate Court Ruling—Homeowner’s Insurance—Policy Is Ambiguous as to ACV Calculation—State Farm May Not Depreciate Labor Costs in Determining the ACV of a Covered Loss
The insured brought a putative class action against State Farm, issuer of the insured’s homeowner’s policy, alleging State Farm improperly depreciated labor costs in determining actual cash value (ACV) of a covered loss, and concealing practice from policyholders. The certified question of “actual cash value” of a covered loss was first ruled on by an Illinois Appellate Court which held that State Farm could not include depreciation of labor in calculating “actual cash value.” The Supreme Court of Illinois held on appeal that in a matter of first impression, when calculating “actual cash value” of covered loss, property structure and materials were subject to a reasonable deduction for depreciation, but depreciation could not be applied to the intangible labor component.
A significant difference between an “ACV” policy and a “RCV” policy is that under a typical ACV policy, an insured is paid only the actual cash value of her/his/its loss. Period. And it doesn’t matter if the insured repairs/replaces the damaged property or not. However, under a typical RCV policy, the insured initially receives an ACV payment - but can also receive full replacement costs if she/he/it makes the repairs/replacement of the damaged property within a designated time.
After analyzing how other courts, both state and federal, have considered and addressed the issue at hand, the Illinois Supreme Court ultimately concluded the following. The insured offered a reasonable interpretation of “actual cash value” and “depreciation.” State Farm also offered a perfectly reasonable interpretation of the policy. Because the Supreme Court of Illinois finds that the policy is ambiguous as to how to calculate ACV, and the insured has offered a reasonable interpretation of it, it found itself constrained and required to construe the ambiguity in the policy against State Farm, and rule that the Illinois Appellate Court had correctly concluded that “[W]here Illinois's insurance regulations provide that the ‘actual cash value’ of an insured, damaged structure is determined as ‘replacement cost of property at time of loss less depreciation, if any,’ and the policy does not itself define actual cash value, only the property structure and materials are subject to a reasonable deduction for depreciation, and depreciation may not be applied to the intangible labor component.”
Notably, a footnote of the Illinois Supreme Court’s opinion indicates that “State Farm acknowledged that it had recently amended its homeowner's policy language in Illinois to explain that all components of replacement cost, including labor, are subject to depreciation in calculating actual cash value. However, State Farm argued that this revision could not be interpreted as an admission that the language in plaintiff's policy was ambiguous.”
Eric T. Boron
Hurwitz & Fine
Back to Top