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Restaurants See Hope After Judge Rules Lawsuit Asking For Insurance Payouts Due To Pandemic Can Proceed

Restaurants face an uphill battle in trying to get insurance payouts due to the pandemic — but the judge's ruling is keeping their hopes alive.

Enrique Reyes Martinez
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CHICAGO — A federal judge in Chicago gave a small victory to restaurants fighting to have their business insurance cover losses from the pandemic, but the battle is far from over.

Judge Edmond Chang rejected a request by Society Insurance to toss lawsuits filed by several restaurants and restaurant groups, among them the Billy Goat Tavern, Purple Pig and the Lettuce Entertain You. Many restaurants — which have, over the past year, been closed or working with reduced capacity under restrictions to stop coronavirus’s spread — are struggling financially due to the pandemic, with some arguing their business interruption insurance should be paid out.

Chang’s ruling keeps alive — for now — the hopes of the restaurants, considered the underdogs by legal experts. Sam Toia, president of the Illinois Restaurant Association, welcomed Tuesday’s ruling while acknowledging it’s too soon to claim victory.

“The Illinois Restaurant Association is pleased with the federal court’s recent decision denying the motion to dismiss in the Society case,” Toia said. “These restaurant operators purchased business interruption insurance, and they should receive the benefits they paid for.”

Since the start of the pandemic, dozens of businesses have filed suit against Society Insurance, a popular insurer for the hospitality industry that is based in Fond du Lac, Wisconsin. In August, all the cases against Society Insurance were consolidated in a multi-district litigation before Chang.

Typically, business interruption coverage clients need to prove a direct physical loss, such as from a fire or natural disaster.

In April, Evanston attorney Scott Clair, who often represents small businesses, told Block Club Chicago making a solid case the pandemic caused the same type of loss will likely be an uphill battle for the restaurants.

“The insurer will probably bank on the fact that the plaintiffs can’t point to any direct physical loss. The other thing that really kind of hurts them is that it’s takeout now or carryout,” Clair said. “It’s hard to say you have direct physical loss when you’re still open but you just can’t have dine-in. There has to be some damage to their property, either to the premises or to the meat or the buns, for example; things like that.”

But attorney Robert Duncan, of the Duncan Law Group, who is representing Billy Goat Tavern, said one of the main points of contention in the Billy Goat lawsuit is Society Insurance did not have an exclusion for communicable diseases or viruses like COVID-19 — something common with most business insurance.

“The policy form included in Society’s policy that covers Billy Goat and, we believe, most if not all other Society Insurance in Illinois, does not contain that exclusion, and that’s unusual when comparing Society’s policy to all of the other carriers that write this type of coverage in the state of Illinois. It’s a fairly glaring omission on Society’s part,” Duncan said.

That omission seems to be the crux of the current legal battle, which Chang acknowledged in his ruling Tuesday.

“It is worth pausing here to note that the policy does not contain a specific exclusion of coverage for losses due to a virus or pandemic; which is now — the plaintiffs allege — a standard exclusion in the insurance industry,” the ruling stated.

Chang also said a reasonable jury could interpret restaurant capacity caps and the inability of businesses to fully use their properties as a direct physical loss covered by the language of Society’s policies.

Whether the pandemic and government restrictions amount to the kind of direct physical damage or loss to property that triggers business interruption claims is yet to be determined.

The insurance industry has said policies are not meant to cover pandemics, and the enormity of business losses across the country would bankrupt the industry.

A trade organization, the American Property Casualty Insurance Association, issued a statement emphasizing its position that most business insurance policies exclude coverage for “communicable diseases or viruses.”

Society’s policies do not have such exclusions.

On Tuesday, Clair said the ruling by Chang is significant but agreed the case may be far from over.

“It’s nice for the plaintiffs to have a motion [from the defendant] denied in a contract case. That’s pretty good,” Clair said.

The next hearing on the case is set for March 9.

Block Club Chicago’s coronavirus coverage is free for all readers. Block Club is an independent, 501(c)(3), journalist-run newsroom.

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