No Direct Physical Loss or Damage / Contamination Exclusion

Wolverine World Wide v. Zurich American Insurance Company, docket No.: 21 CH 4457 (Circuit Court of Cook County, Illinois, Chancery Division July 21, 2022) 

On July 21, 2022, Judge Pamela McLean Meyerson of the Circuit Court of Cook County, Chancery Division, in Chicago, Illinois, granted a market of insurers’ Motion to Dismiss a COVID business income claim, finding no sufficient allegation of “direct physical loss or damage” and that coverage was barred under the policies’ Contamination Exclusion.

Wolverine manufactures and sells several brands of footwear, including Merrill, Keds, and Sperry, both through shopping-mall storefronts and standalone retailers like Dick’s Sporting Goods. It alleged that it lost unspecified “millions” of dollars of profit beginning in March 2020 when those stores ceased operations during the COVID-19 pandemic. In part, it attributed the closures to government shut-down orders. In part, it attributed the closures to “orders” by the owners of the shopping malls and standalone stores that the stores be closed or curtailed.

Wolverine alleged that its losses were caused by “direct physical loss or damage” to its own property or to nearby property. Based on the amount of retail traffic through its stores and the claimed high communicability of the Coronavirus, Wolverine alleged that it was “statistically certain, or near-certain,” that the virus was present on surfaces and in the air at its stores. It asserted that the Coronavirus “caused a tangible change of the property into a transmission vehicle for disease” by “becoming part of their surface” and rendering that property “unsafe and unfit for its normal usage.”

Wolverine separately claimed coverage under the policies’ “Tenants Prohibited Access Coverage,” which insured if access to its locations was “physically obstructed due to the owner, landlord, or legal representative of the building owner or landlord prohibiting access to the Insured Location.”

The Court dismissed all of these claims.

Citing the five Illinois intermediate appellate court opinions issued recently on these issues, Judge Meyerson ruled that neither the claimed presence of the Coronavirus, nor the government shutdown orders, nor the need for social distancing or prevention and mitigation activities constituted “direct physical loss or damage.” It held that this deficiency in the pleadings could not be cured, so repleading would not be permitted.

The court held further that the policies exclusion for Contamination, defined as “any condition of property due to the actual presence of any…virus [or] disease causing or illness causing agent,” barred coverage for Wolverine’s claims.

Judge Meyerson ruled that the Tenants Prohibited Access Coverage did not require direct physical loss or damage but that any recovery under that coverage would be excluded by the Contamination Exclusion.

The Complaint was therefore dismissed with prejudice, and Wolverine’s request to amend its Complaint was denied.

Partner Wayne Glaubinger and of counsel Scott Sheldon represented defendant Starr Surplus Lines Insurance Company.

The Order can be read here.

This decision was also reported in Law360 on July 22, 2022.

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