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Recent Insurance Coverage Decisions

Mashallah, Inc. v. West Bend Mutual Ins. Co., No. 21-1507 (7th Cir. 2021)

In December 2021, the Seventh Circuit issued a series of decisions holding that commercial property insurance policies do not provide coverage for business-related losses related to the COVID-19 pandemic. In one such case, Mashallah, Inc. and Ranalli’s Park Ridge, LLC filed claims under the property insurance policies they had with West Bend Mutual Insurance Company. Both purchased West Bend commercial property insurance policies, but the policies excluded losses and expenses caused by viruses. West Bend denied their claims, and Mashallah and Ranalli’s sued alleging breach of contract or, in the alternative, entitlement to a rebate of their premiums. The district court granted West Bend’s Motion to Dismiss and Mashallah and Ranalli’s appealed.

Mashallah sells handcrafted jewelry at its Chicago store, while Ranalli’s operates a bar and restaurant. In response to the COVID-19 pandemic, all individuals were ordered to stay at home except to perform specified “essential activities” and ordered “non-essential” businesses to cease all but minimum operations. Restaurants were considered essential businesses and permitted to sell food solely for off-premises consumption. Ranalli’s was restricted to filling takeout and delivery orders. Mashallah was not classified as an essential business and had to cease its retail activities. Both businesses sustained heavy financial losses. Their West Bend policies were materially identical. West Bend agreed to pay for actual business income lost and necessary extra expenses incurred if they were caused by “direct physical loss of or damage to” the businesses’ properties. Both policies contain virus exclusions. West Bend denied their claims. The Seventh Circuit affirmed the dismissal of contract and bad faith claims and a claim that West Bend’s retention of full premiums—despite decreased risks occasioned by the reduction in insureds’ business operations—constituted unjust enrichment, requiring rebates. The virus exclusions barred coverage for the purported losses and expenses and the businesses failed to allege viable legal bases for rebate of premiums.

Katherine Baumel v. Society Insurance, 2020AP001610 (Wis. Ct. App, Dist. 3, Dec 21, 2021)

Plaintiff Baumel attended a music festival and rented a campsite from The Lodge for the weekend. The festival was hosted by The Lodge, which owned the property upon which the campsite was located. While Plaintiff was walking from her camper back to the area where the bands were playing, but while still within the campground portion of the property, she tripped on a clump of dirt and fell, injuring her arm. Suit was filed against the property owners and its insurer, and Defendants moved for summary judgment arguing that Plaintiff’s claims were barred by the recreational immunity statute found in Wis. Stat. §895.52 because she was engaged in camping, which is one of the recreational activities specifically listed in the statute.

The recreational immunity statute provides that subject to certain exceptions, no property owner “is liable for the death of, any injury to, or any death or injury caused by, a person engaging in recreational activity on the owner’s property.” Wis. Stat. §895.52(2)(b). “Recreational activity” is broadly described as “any outdoor activity undertaken for the purpose of exercise, relaxation or pleasure, including practice or instruction in any such activity.” §895.52(1)(g). “Camping” is one of the specifically enumerated “recreational activit[ies].” Id.

Plaintiff opposed the motion arguing, among other reasons, that walking in the dark during a music festival was not a recreational activity under the statute. The trial court granted Defendants’ motion, and the Court of Appeals affirmed, finding that absent Plaintiff’s decision to camp at the property for the weekend, she would not have been walking in the campground back towards the music festival and would not have encountered the allegedly uneven ground where her fall occurred.

Sheckler v. Auto-Owners Insurance Co., 2021 IL App (3d) 190500 (October 22, 2021)

In Sheckler v. Auto-Owners Insurance Co., 2021 IL App (3d) 190500, the 3rd District Appellate Court in Illinois held that tenants of a property for which the landlord purchased insurance were not only co-insureds for purposes of property coverage, but also were entitled to defense coverage when sued on a contribution claim. The tenants, Monroe and Dorothy Sheckler, rented an apartment from Ronald McIntosh. The lease provided that McIntosh would maintain fire and other hazard insurance on the premises only, and that the Shecklers were responsible for any coverage for their possessions. McIntosh obtained property and liability coverage from Auto-Owners, with McIntosh and his wife as the only named insureds. During a visit to the apartment by a stove repairman, the repairman left temporarily to find replacement parts, and the Shecklers began smelling gas. At some point, the Shecklers turned on the stove, and the stove burst into flames, resulting in damage to the apartment.

Auto-Owners paid for the damage, and filed a subrogation claim against the repairman. The repairman then filed a contribution action against the Shecklers. The Shecklers tendered their defense to Auto-Owners, which declined to provide them a defense. The Shecklers then filed a declaratory action against Auto-Owners, the repairman, and McIntosh, and the repairman counterclaimed against Auto-Owners seeking coverage for the Shecklers.

Following cross summary judgment motions, the trial court found that Auto-Owners did not owe the Shecklers a defense obligation and entered summary judgment in its favor. The Shecklers appealed. In an opinion by only Justice Daniel L. Schmidt, the 3rd District reversed holding that, as a co-insured, a tenant is owed both a defense and indemnity with respect to a claim for negligently causing fire damage, even though the language in the liability portion of the policy did not support a duty to defend. The court reversed and remanded with directions to enter summary judgment in favor of the Shecklers on the duty to defend.

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