In Re: Society Insurance Company COVID-19 Business Interruption Protection Insurance Litigation

Opinion

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

IN RE: SOCIETY INSURANCE CO. ) COVID-19 BUSINESS ) MDL No. 2964 INTERRUPTION PROTECTION ) INSURANCE LITIGATION ) Master Docket No. 20 C 5965 ) ) Judge Edmond E. Chang ) ) Magistrate Judge Jeffrey I. Cummings This Document Relates to the ) Following Cases: ) ) VALLEY LODGE CORP., ) Plaintiff, ) No. 20 C 02813 ) v. ) ) SOCIETY INSURANCE, ) a Mutual Company, ) Defendant. ) ) ) RISING DOUGH, INC. (d/b/a ) MADISON SOURDOUGH), et al. ) individually and on behalf of all ) others similarly situated, ) Plaintiffs, ) No. 20 C 05981 ) v. ) ) SOCIETY INSURANCE, ) Defendant. ) ) BIG ONION TAVERN ) GROUP, LLC, et al., ) Plaintiffs, ) No. 20 C 02005 ) v. ) ) SOCIETY INSURANCE, INC., ) Defendant. ) MEMORANDUM OPINION AND ORDER

This multi-district litigation addresses the refusal of Society Insurance to cover policyholder losses arising from the COVIDE-19 pandemic. Earlier in the case, Soci- ety’s bellwether dismissal motions and summary judgment motions were denied to the extent that they targeted the Plaintiffs’ claims for business-interruption coverage, as well as the claims of the Illinois-based plaintiffs under Section 155 of the Illinois Insurance Code, 215 ILCS 5/155. R. 131. Seeking to take an immediate appeal right now, Society has moved to certify the denial of the dismissal motions and the sum-

mary judgment motions for an interlocutory appeal under 28 U.S.C. § 1292(b). R. 142. For the reasons that follow, the Court denies the § 1292(b) motion in full. I. Background To put the interlocutory-appeal motion into context, it would help to summa- rize the procedural background and the prior opinion that denied (in part) Society’s dismissal motions and summary judgment motions. This multi-district litigation ad- dresses Society’s across-the-board denials of business-interruption coverage for a va-

riety of restaurants and other businesses in the hospitality industry whose operations deteriorated due to the COVID-19 pandemic. After appointing counsel to lead the litigation on the Plaintiffs’ behalf, and after conferring with the parties on which mo- tions to decide as bellwethers, the Court picked three cases: Big Onion Tavern Group, LLC, et al. v. Society Insurance, No. 1:20-cv-02005; Valley Lodge Corp. v. Society In- surance, No. 1:20-cv-02813; and Rising Dough, Inc. et al. v. Society Insurance, No.

1:20-cv-05981. See R. 69. Society filed a motion to dismiss for failure to state a claim 2 in the Rising Dough action, R. 20, No. 20 C 05981, and a motion to dismiss for failure to state a claim or, in the alternative, for summary judgment in the Big Onion and Valley Lodge actions. R. 113, No. 20 C 2002; R. 17, No. 20 C 02813.

The Plaintiffs have brought a number of claims alleging coverage under a va- riety of Society’s policy provisions, including coverages for the interruption of Busi- ness Income and, separately, for Civil Authority, Contamination, and Extra Expense. The Illinois-based Plaintiffs (in the Big Onion and Valley Lodge actions) also brought claims under Section 155 of the Illinois Insurance Code, 215 ILCS 5/155, for various “vexatious and unreasonable” insurance-claims practices. The substance of these al- legations is discussed in much greater detail in the prior opinion. R. 131 at 3–10.

Society communicated the denial of the Plaintiffs’ claims for coverage in several ways: preemptively, by circulating a memorandum to its insurance-agency partners on March 16, 2020, implying that its policies would not cover any pandemic-related claims; by denying individual claims filed by certain Plaintiffs; and in a March 27, 2020 memorandum to all policyholders declaring that “pandemic events” are gener- ally excluded from insurance coverage. See id. at 8–10.

This Court denied Society’s motions to dismiss or, in the alternative, for sum- mary judgment, in substantial part. R. 131. Although the Court agreed with Society that the claims under the Civil Authority, Contamination, and Extra Expense cover- ages, as well as the Sue and Labor provision of Society’s standard policy, could not proceed, see id. at 24–29, the Court determined that the claims under the policy’s

3 Business Interruption coverage and Illinois Insurance Code Section 155 could pro- ceed, id. at 12–24, 29–31. One important dispute over the Business Interruption coverage was whether

the interpretation of key policy language could properly be decided as a question of law on summary judgment. Remember that summary judgment should be granted only “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A genuine issue of material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In evaluating summary judgment motions, courts must view the facts and

draw reasonable inferences in the light most favorable to the non-moving party. Scott v. Harris, 550 U.S. 372, 378 (2007). The Court may not weigh conflicting evidence or make credibility determinations, Omnicare, Inc. v. UnitedHealth Grp., Inc., 629 F.3d 697, 704 (7th Cir. 2011), and must consider only evidence that can “be presented in a form that would be admissible in evidence.” Fed. R. Civ. P. 56(c)(2). The party seeking summary judgment has the initial burden of showing that there is no genuine dispute

and that they are entitled to judgment as a matter of law. Carmichael v. Village of Palatine, 605 F.3d 451, 460 (7th Cir. 2010); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Wheeler v. Lawson, 539 F.3d 629, 634 (7th Cir. 2008). If this burden is met, the adverse party must then “set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 256.

4 The key text setting forth the business-interruption coverage requires that the loss in business be caused by “direct physical loss” of covered property: We will pay for the actual loss of Business Income you sustain due to the nec- essary suspension of your “operations” during the “period of restoration.” The suspension must be caused by direct physical loss of or damage to covered prop- erty at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.

Businessowners Special Property Coverage Form, A.3 (emphasis added).1 In turn, the policy defines a “Covered Cause of Loss” as a “Direct Physical Loss unless the loss is excluded or limited under this coverage form.” Id. The parties disputed whether the coronavirus itself, the pandemic more generally, or the government shutdown orders (or some combination of those three things) triggered coverage under this provision. Putting the coverage text together with the definition of “Covered Cause of Loss,” the Court held that a covered business interruption must be caused by direct physical loss of covered property—and then the loss itself must be caused by or result from a direct physical loss.” R. 131 at 16. Society argued that the governmental or- ders—not the pandemic or the coronavirus itself—caused the suspensions of busi- ness, and that those orders do not qualify as a “direct physical loss” under the policy. But as discussed in the opinion, the governing law of the pertinent States does not impose such a strict causation requirement, and under the proximate-cause theories available under the relevant State law, a reasonable jury could find that the

1The contested policy language is identical to all plaintiffs, and the Court thus cites it according to the policy’s own labeling of sections and subsections. Full copies of the policies can be found, e.g., at R. 14, 20 C 5981, Exh. A; R. 1, 20 C 2813, Exh. B; R. 29, 20 C 2005, Exh. D. 5 coronavirus and the resulting pandemic proximately caused the interruptions to the Plaintiffs’ businesses. See R. 131 at 15–21. Society next argued that the Plaintiffs’ losses did not constitute “direct physical

loss of or damage to covered property” as required by the policy. The Court held, once again, that this was a question of fact—not of law—because a reasonable jury could find that the pandemic-caused shutdown orders and safety restrictions did impose physical limits on the Plaintiffs’ use of their physical spaces, thus qualifying their losses as “physical” even if the coronavirus itself did not cause tangible changes to the property (although some Plaintiffs have also argued that this is so). R. 131 at 19– 24.

Although the interpretation of contracts (including insurance policies) are of- ten questions of law suitable for summary judgment, Roman Catholic Diocese of Springfield in Ill. v. Maryland Cas. Co., 139 F.3d 561, 565 (7th Cir. 1998), the mean- ing of a contract must be decided by a finder of fact “when a contract contains ambi- guities that the parties must explain through extrinsic evidence.” Zemco Mfg., Inc. v. Navistar Inter. Transp. Corp., 270 F.3d 1117, 1127 (7th Cir. 2001). This Court held

that the key text in the Business Interruption coverage was indeed ambiguous and thus could not be resolved on a summary judgment motion—at least not yet, before discovery had even begun. See R. 131 at 15. The Court also held that the claims under Section 155 of the Illinois Insurance Code could not be dismissed as a matter of law. R. 131 at 29–30. Section 155 provides for fee-shifting and potential penalties against insurers if they are “vexatious and 6 unreasonable” in denying a claim or in delaying the settlement of a claim. 215 ILCS 5/155(1). Among other allegedly vexatious acts, the Plaintiffs alleged that the March 16 and March 27, 2020 memoranda issued by Society denied coverage across-the-

board and misrepresented the true scope of the insurance policies; that Society failed to investigate individual claims, as required, and instead issued hasty denials not based on individual claims; and that Society’s actions have caused an improper and lengthy delay in receiving payment. See R. 131 at 29. Society argued that, as a matter of law, claims under Section 155 must be dismissed if there is a bona-fide dispute over coverage. Examining the relevant Illinois law, this Court disagreed, concluding that more factual development was necessary before a determination as to the viability of

a Section 155 claim was possible. Id. at 29–30. Society now seeks to take an interlocutory appeal under 28 U.S.C. § 1292(b). R. 142. On the Court’s decision concerning the Business Interruption coverage claims, Society essentially restates the arguments it made on summary judgment, saying that the interpretation of its policy language is a matter of law suitable for a quick appellate decision. Id. at 5. On the Section 155 claims, Society again repeats the ar-

guments it made on summary judgment, arguing that the “genuine[]” dispute over the meaning of the Business Interruption coverage provision precludes the Section 155 claim, and that this is likewise a question of law suitable for interlocutory review. Id. at 6. Society has requested that the following questions be certified for interlocutory appeal: 7 (1) Whether a loss of use, or a partial loss of use, of a policyholder’s covered property constitutes a “direct physical loss of” covered property under the Society policy terms?

(2) Whether, as a matter of law, Plaintiffs’ claims can be maintained under 215 ILCS 5/155 when the court found that the term “direct physical loss” is gen- uinely in dispute and “[a] reasonable jury could find for either side based on the arguments and factual record presented so far in the litigation”?

R. 142 at 2. For the reasons that follow, the Court holds that neither question is suit- able for certification. So Society’s motion is denied. II. Analysis A. Standard of Review The general rule is that the federal appellate courts only have jurisdiction over appeals from “final” decisions of district courts. 28 U.S.C. § 1291. But there is an ex- ception: the Courts of Appeals may also, in their discretion, take jurisdiction of oth- erwise non-appealable, non-final orders of district courts if those orders are certified for interlocutory appeal by the district court. 28 U.S.C. § 1292(b). The initial decision to certify an interlocutory appeal is also within the discretion of the district judge. The statute sets forth the criteria for authorizing an interlocutory appeal, requiring that the challenged order: involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation ….

28 U.S.C. § 1292(b). Section 1292(b) thus establishes “four statutory criteria for the grant of a sec- tion 1292(b) petition to guide the district court: there must be a question of law, it 8 must be controlling, it must be contestable, and its resolution must promise to speed up the litigation. There is also a nonstatutory requirement: the petition must be filed in the district court within a reasonable time after the order sought to be appealed.”

Ahrenholz v. Board of Trustees of the Univ. of Illinois, 219 F.3d 674, 675 (7th Cir. 2000) (emphases in original). All four statutory criteria must be met for certification: “[u]nless all these criteria are satisfied, the district court may not and should not certify its order to us for an immediate appeal under section 1292(b).” Id. at 676 (em- phasis in original). The term “question of law” in Section 1292(b) is a term of art with a contextual meaning, and is not quite the same as how the term is understood in other aspects of

litigation—including summary judgment. The Seventh Circuit instructs that Section 1292(b) “was not intended to make denials of summary judgment routinely appeala- ble,” even though “formally” questions of law are—by definition—presented at sum- mary judgment. Ahrenholz, 219 F.3d at 676. Rather, “‘question of law’ as used in sec- tion 1292(b) has reference to a question of the meaning of a statutory or constitutional provision, regulation, or common law doctrine rather than to whether the party op-

posing summary judgment had raised a genuine issue of material fact.” Id. If “ques- tion of law” had its ordinary summary-judgment-based meaning, then every denial of summary judgment would satisfy Section 1292(b)’s question-of-law requirement— and Ahrenholz refutes that proposition.

9 B. Business Interruption With those principles in mind, the Court turns to the first of Society’s proposed certified questions. To recap, the proposed question is:

Whether a loss of use, or a partial loss of use, of a policyholder’s covered prop- erty constitutes a “direct physical loss of” covered property under the Society policy terms?

Society argues that this presents a “question of law,” but that is so only if the term were to be understood in the way it is used in Federal Rule of Civil Procedure 56(a). Indeed, in arguing for certification, Society cites most of the same cases it cited in its summary judgment motion, R. 142, Society Mot. at 5, and makes the same basic ar- gument—that “Illinois law … treats the interpretation of an insurance policy and the respective rights and obligations of the insurer and the insured as questions of law that the court may resolve summarily.” Roman Catholic Diocese of Springfield, 139 F.3d at 565. But equating § 1292(b) with the summary-judgment standard simply highlight that Society is asking for a do-over of the summary judgment denial on the Business Interruption coverage claims. As Ahrenholz makes clear, that is not the purpose of § 1292(b). That statute “refer[s] to a ‘pure’ question of law rather than merely to an issue that might be free from a factual contest.” Ahrenholz, 219 F.3d at 676–77. In- deed, questions of contract interpretation presented in a denial of summary judg- ment often are particularly unsuited for interlocutory review, because “to decide whether summary judgment was properly granted requires hunting through the rec- ord compiled in the summary judgment proceeding to see whether there may be a 10 genuine issue of material fact lurking there; and to decide a question of contract in- terpretation may require immersion in what may be a long, detailed, and obscure contract.” Id. at 677. The Court’s decision to deny summary judgment on the Business

Interruption claims hinged on just that: a fact-bound question of whether there was a genuine issue of material fact, and the Society policy at stake is nothing if not “long” and “detailed” and “obscure.” For those reasons, the proposed question simply does not present the sort of “question of law” contemplated by Section 1292(b). The intricacy of the policy’s provi- sions and complexity and fact-rich complaints would require the Court of Appeals to review the record in depth to determine whether it presented any genuine issues of

material fact. So it is unlikely that the Court of Appeals would be able to decide the issue so “quickly and cleanly,” Ahrenholz, 219 F.3d at 677, as to “materially advance the ultimate termination of the litigation,” 28 U.S.C. § 1292(b)—especially because this Court has ordered that the mediation and discovery tracks must proceed as quickly as practicable. See R. 139, Case Management Order No. 6. Because the pro- posed question as to Business Interruption coverage fails at least two of the criteria

for certification under § 1292(b), certification is rejected. C. Section 155 Society’s other request is to certify the decision on the viability of the claims under Illinois Insurance Code Section 155. Remember that, in the summary judgment briefing, Society had argued that the Section 155 claims must be dismissed if there is a bona-fide dispute over coverage—regardless of any other conduct that is alleged. 11 See R. 131 at 29–30. In the opinion, this Court observed that in the two Illinois cases cited by Society, Uhlich Children’s Adv. Network v. Nat’l Union Fire Ins. Co., 929 N.E.2d 531, 543 (Ill. App. Ct. 2010), and Am. Family Mut. Ins. Co. v. Fisher Dev., Inc.,

909 N.E.2d 274, 284 (Ill. App. Ct. 2009), the decisions on the Section 155 theories were made only after a definitive finding on the coverage question. The Court thus held that deciding the Section 155 issue was premature as a matter of law, given the need for more factual development on the underlying coverage dispute. R. 131 at 30– 31. Society now proposes the following question for certification: Whether, as a matter of law, Plaintiffs’ claims can be maintained under 215 ILCS 5/155 when the court found that the term “direct physical loss” is genu- inely in dispute and “[a] reasonable jury could find for either side based on the arguments and factual record presented so far in the litigation”?

R. 142 at 4. Here too the Court holds that an immediate appeal on this question would not “materially advance the termination of the litigation” as is required by Section 1292(b). Without certification of the liability question (the first proposed question), cer- tifying the Section 155 decision makes little sense. As discussed in the prior opinion, the Plaintiffs premise their Section 155 claims of bad-faith denial of coverage on the same course of conduct that underlies the coverage claims. R. 131 at 29–31. The Sec- tion 155 claim does not substantially change the scope of discovery, nor does it sub- stantially affect the factual and legal issues needed to litigate the underlying cover- age claim. So the likelihood of the case ending as a result of any appellate decision on 12 the Section 155 claim is close to zero. If the Plaintiffs ultimately secure a final judg- ment in their favor, then Society will of course have the right to appeal that judgment and can contest any Section 155 damages at that time, without real prejudice to So-

ciety by that delay. Appealing now would be premature, distract the parties from advancing the case in the district court, and would not speed this Court’s progress of the litigation toward that final judgment. It is worth noting that the Seventh Circuit recently interpreted Section 155 consistently with the prior opinion. In Creation Supply, Inc. v. Selective Insurance Company of the Southeast, 996 F.3d 576, 578 (7th Cir. Apr. 26, 2021), the Seventh Circuit confirmed that Section 155 claims remain viable “in any case in which at least

one of three issues remains undecided: (1) the insurer’s liability under the policy, (2) the amount of the loss payable under the policy, or (3) whether there was an unrea- sonable delay in settling a claim.” Id. at 578. Creation Supply relies on Neiman v. Econ. Preferred Ins. Co., 829 N.E.2d 907, 914 (Ill. App. Ct. 2005), which reads the statutory text to arrive at the same conclusion: “The statute begins by stating that it applies to those insurance cases where one of three issues remains undecided: [1] the

liability of the insurer, [2] the amount owed under the policy, or [3] whether a delay in settling a claim has been unreasonable.” Id.; see also 215 ILCS 5/155(1) (“In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable 13 costs in the action reasonable attorney fees, other costs, plus an amount not to exceed any one of the following amounts …”). In Creation Supply, the Seventh Circuit ulti- mately held that the insured could not pursue Section 155 damages, but only because

all three threshold issues had long been decided or waived. 995 F.3d at 582. In con- trast, in this MDL, all three issues are very much alive.2 III. Conclusion Society’s motion for certification of an interlocutory appeal under 28 U.S.C. § 1292(b), R. 142, is denied in full.

ENTERED:

s/Edmond E. Chang Honorable Edmond E. Chang United States District Judge

DATE: June 15, 2021

2Because the Court concludes that certification of the Section 155 question would not materially advance the termination of this litigation, the Court need not definitively address the other three requirements for certification under Section 1292(b). 14