A federal judge in Chicago on Monday refused to dismiss multidistrict COVID-19 business interruption litigation filed against a Wisconsin insurer by dozens of restaurants and other businesses, stating plaintiffs had suffered direct physical losses that were covered under its policies.

The decision by the U.S. District Court in Chicago in In re: Society Insurance Co. COVID-19 Business Interruption Protection Insurance Litigation stems from an October ruling by the U.S. Judicial Panel on Multidistrict Litigation, which held that centralizing the litigation filed against Fond du Lac, Wisconsin-based Society Insurance Co. “will serve the convenience of the parties and witnesses and further the just and efficient conduct of this litigation.” Society has had 34 lawsuits filed against it, with 22 of them pending in U.S. District Court in Chicago.

“The fundamental questions at stake in this litigation are how properly to classify the interruption that has happened here, and whether this particular interruption is covered under the policy,” said the 31-page ruling by Judge Edmond E. Chang.

Plaintiffs have contended the virus’ presence on their premises renders them unsafe and unfit for their intended use, and therefore has caused physical property damage or loss under the policies, the ruling said.

Society says the losses “simply do not fall within the plain language of the policy,” the ruling said. The policy does not contain a virus exclusion, according to the ruling.

A reasonable jury “could find (at least on the factual record so far) that the novel coronavirus and the resulting pandemic proximately caused the business interruption,” the ruling said.

This “leaves the question of whether the plaintiffs’ loss is ‘physical’ in nature - whether it is caused by the coronavirus itself, the coronavirus pandemic, or government shutdown orders,” the ruling said.

A “reasonable jury could find that the plaintiffs did suffer a direct ‘physical’ loss of property on their premises,” the ruling concludes. “First, viewed in the light most favorable to the Plaintiffs, the pandemic-caused shutdown orders do impose a physical limit; the restaurants are limited from using much of their physical space,” the decision said.

The ruling offered the example of a restaurant operating at 25% capacity. “If the restaurant could expand its physical space, then the restaurant could serve more guests and the loss would be mitigated (at least in part). The loss is physical – or at the very least, a reasonable jury can make that finding.”

The court issued mixed findings on other claims in the cases, stating two plaintiffs’ bad faith claims survive, but granting summary judgment motions on other claims, including those involving civil authority and contamination provisions, and on the “sue and labor clause,” which  imposes a duty on the insured to take reasonable steps to protect insured property.

A Society Insurance spokeswoman said in a comment, “The court correctly found no coverage under the civil authority, contamination and sue & labor provisions of Society’s policy. But Society is disappointed that the court allowed the claims for business-interruption coverage to survive early motions to dismiss and for summary judgment. The company is exploring its options. 

“This is an early, preliminary ruling, and does not resolve the merits.  Society will continue to vigorously defend its interests in the litigation,” the statement said.

More insurance and risk management news on the coronavirus crisis here.