Bradley Hotel Corp. v. Aspen Speciality Insurance Com ( 2021 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 21-1173
BRADLEY HOTEL CORP., doing business as
Quality Inn & Suites Bradley,
Plaintiff-Appellant,
v.
ASPEN SPECIALTY INSURANCE COMPANY,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:20-cv-04249 — Charles P. Kocoras, Judge.
____________________
ARGUED SEPTEMBER 10, 2021 — DECIDED DECEMBER 9, 2021
____________________
Before MANION, WOOD, and HAMILTON, Circuit Judges.
HAMILTON, Circuit Judge. Like today’s decision in Crescent
Plaza Hotel Owner, L.P. v. Zurich American Insurance Co., No.
21-1316 (7th Cir. Dec. 9, 2021), this case presents insurance
coverage issues related to the partial closure of a hotel during
the COVID-19 pandemic. While the parties are different, the
result is the same. First, following our analysis in Sandy Point
Dental, P.C. v. Cincinnati Insurance Co., No. 21-1186 (7th Cir.
2 No. 21-1173
Dec. 9, 2021), we hold that the term “direct physical loss of or
damage to” property does not apply to a business’s loss of use
of the property without any physical alteration. Second, we
conclude that the loss of use exclusion and the ordinance or
law exclusion in this policy provide separate bars to coverage.
I. Facts and Procedural History
A. The COVID-19 Pandemic and Closure Orders
In March 2020, Illinois took several steps to curtail the
spread of COVID-19. On March 16, Governor Pritzker issued
an executive order that suspended in-person dining immedi-
ately and, effective two days later, prohibited gatherings of
fifty or more people. On March 20, another executive order
required all nonessential businesses to cease operations. Ho-
tels were classified as essential businesses for lodging and to
provide delivery and take-out food services.
Plaintiff Bradley Hotel Corporation operates the Quality
Inn & Suites in Bradley, Illinois. Along with guest rooms, the
hotel includes a restaurant, bar, and general event space. After
the Illinois closure orders were issued, Bradley suspended in-
person dining at the restaurant and bar and cancelled
previously scheduled weddings and meetings. Bradley
alleges that it suffered losses of business income as a result of
these cancellations.
B. The Insurance Policy
Bradley purchased a general business property insurance
policy from defendant Aspen Specialty Insurance Company
that went into effect on May 1, 2019. Bradley alleges that its
losses are covered under several coverage provisions, all of
which require “direct physical loss of or damage to” covered
property. The policy also includes two relevant exclusions.
No. 21-1173 3
First, the loss of use exclusion bars coverage for “loss or dam-
age caused by or resulting from … [d]elay, loss of use or loss
of market.” Second, the ordinance or law exclusion bars cov-
erage for “loss or damage caused directly or indirectly by …
[t]he enforcement of or compliance with any ordinance or
law: (1) Regulating the construction, use or repair of any
property; or (2) Requiring the tearing down of any property.”
C. District Court Proceedings
After Aspen denied Bradley’s claim for losses under the
insurance policy, Bradley sued Aspen in the Northern District
of Illinois. Bradley sought damages for breach of contract and
a declaratory judgment that its losses were covered by the pol-
icy. Aspen moved to dismiss under Federal Rule of Civil Pro-
cedure 12(b)(6) for failure to state a claim. The district court
granted the motion, holding that Bradley failed to allege that
“the suspension of operations was a result of any physical loss
of or damage to the property” or that “the physical property
was changed or altered in any way.” Bradley Hotel Corp. v. As-
pen Specialty Insurance Co., 508 F. Supp. 3d 249, 254 (N.D. Ill.
2020). We affirm. 1
II. Discussion
A. Legal Standard
Our review of a district court’s grant of a motion to dis-
miss for failure to state a claim is de novo. Ochoa v. State Farm
Life Insurance Co., 910 F.3d 992, 994 (7th Cir. 2018). We accept
1 The district court also dismissed Bradley’s claims under the policy’s
civil authority coverage, which applies where a covered cause of loss
“causes damage to property other than property at the described prem-
ises” and “action of civil authority … prohibits access to the described
premises.” Bradley does not contest that decision on appeal.
4 No. 21-1173
the allegations in the complaint as true, and we draw all rea-
sonable inferences in favor of the plaintiff. Bilek v. Federal In-
surance Co., 8 F.4th 581, 584 (7th Cir. 2021). Yet the complaint
must still include “enough facts to state a claim to relief that
is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007). A claim is facially plausible “when the plain-
tiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the mis-
conduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
This standard requires that the plaintiff show “more than a
sheer possibility” of liability, but it “is not akin to a ‘probabil-
ity requirement.’” Id., quoting Twombly, 550 U.S. at 556.
Bradley’s claims arise under state law, and the parties
agree that Illinois law applies. In Illinois, “An insurance policy
is a contract, and the general rules governing the interpreta-
tion of other types of contracts also govern the interpretation
of insurance policies.” Windridge of Naperville Condominium
Ass’n v. Philadelphia Indemnity Insurance Co., 932 F.3d 1035,
1039 (7th Cir. 2019), quoting Hobbs v. Hartford Insurance Co. of
the Midwest, 823 N.E.2d 561, 564 (Ill. 2005). The court’s func-
tion is “to ascertain and give effect to the intention of the par-
ties, as expressed in the policy language.” Thounsavath v. State
Farm Mutual Automobile Insurance Co., 104 N.E.3d 1239, 1244
(Ill. 2018). If the policy is unambiguous, its terms must be ap-
plied as written. Id. Ambiguity exists if the language of the
policy is subject to more than one reasonable interpretation,
as applied to the dispute before the court. Founders Insurance
Co. v. Munoz, 930 N.E.2d 999, 1004 (Ill. 2010). But disagree-
ment between the parties as to meaning does not itself make
the policy ambiguous, and the court “will not strain to find an
ambiguity where none exists.” Id. Our inquiry focuses on
No. 21-1173 5
whether the terms are ambiguous as applied to the allegations
before us. Windridge, 932 F.3d at 1039–40.
B. Coverage
The first issue presented is whether Bradley has alleged
direct physical loss of or damage to its property. For the rea-
sons explained in today’s decision in Sandy Point Dental, No.
21-1186, slip op. at 7–14, we conclude that it has not.
C. Exclusions
The loss of use exclusion and the ordinance or law exclu-
sion also provide independent grounds for denying coverage.
Although the district court did not address the exclusions, we
may affirm on any basis supported by the record, so long as
the opposing party had a fair opportunity to be heard on the
issue in the district court. In re Airadigm Communications, Inc.,
616 F.3d 642, 652 (7th Cir. 2010). Here, Bradley addressed the
application of both exclusions in its brief opposing Aspen’s
motion to dismiss, and both parties briefed the issue fully on
appeal.
1. The Role of Exclusions
In an insurance coverage dispute, the burden is initially on
the insured party to show that its losses are covered under the
policy’s coverage terms. Addison Insurance Co. v. Fay, 905
N.E.2d 747, 752 (Ill. 2009). Once that showing has been made,
the burden shifts to the insurer to establish that an exclusion
applies. Id. Exclusions are read narrowly and apply only if
their application is “clear and free from doubt.” Scottsdale In-
surance Co. v. Columbia Insurance Group, Inc., 972 F.3d 915, 919
(7th Cir. 2020), quoting National Fire Insurance of Hartford v.
Walsh Construction Co., 909 N.E.2d 285, 288 (Ill. App. 2009).
6 No. 21-1173
2. The Loss of Use Exclusion
The loss of use exclusion in the Aspen policy here bars
coverage for “loss or damage caused by or resulting from …
[d]elay, loss of use or loss of market.” This language indicates
that a mere loss of use cannot be the cause of a policyholder’s
losses. But that is exactly what Bradley seeks. Bradley alleges
that it suffered business income losses and that the cause of
those losses was an inability to use the hotel as it normally
would. The hotel was not physically harmed or damaged in
any way. Instead, Bradley was prohibited from using it for
functions such as in-person dining, weddings, or large meet-
ings. This loss of use fell squarely within the terms of the ex-
clusion.
Bradley asserts that applying the loss of use exclusion here
would render the policy’s coverage for direct physical loss or
damage superfluous. The argument misunderstands the ex-
clusion. The problem is that Bradley alleges loss of use that is
not tethered to any direct physical loss or damage that could
serve as a covered cause of loss. By contrast, imagine that a
tornado had damaged the hotel, leaving Bradley unable to use
it until it was repaired. In that case, the loss of use would be
the result of a covered cause of loss—the tornado causing di-
rect physical damage to the property—so the exclusion would
not bar coverage. In other words, the exclusion is triggered
only when loss of use is the alleged cause of loss—not when it
is the result of a covered cause of loss.
Bradley’s causation arguments are also not persuasive.
Bradley relies on Mattis v. State Farm Fire & Casualty Co., 454
N.E.2d 1156 (Ill. App. 1983), which involved multiple contrib-
uting causes of loss. In that case, a home was damaged by
some combination of poor design, which was covered, and
No. 21-1173 7
natural causes, which were not. The court recognized that if a
policy insures loss caused by one risk but excludes loss
caused by another risk, the loss caused by the insured risk is
covered even if the excluded risk was also a contributory
cause. Id. at 1161.
According to Bradley, the logic of Mattis should apply
here. Bradley’s theory is that there were two distinct causes of
loss—the closure orders and the coronavirus—and that both
contributed to the loss of use of the premises. That argument
is unconvincing. First, it defies credulity to see the closure or-
ders and the virus as two different causes of the claimed
losses. As we explain today in a similar insurance case, the
Illinois closure orders were indisputably caused by the coro-
navirus. See Mashallah, Inc. v. West Bend Mutual Insurance Co.,
No. 21-1507, slip op. at 10 (7th Cir. Dec. 9, 2021) (“[T]he novel
coronavirus causing the COVID-19 pandemic led directly to
the issuance of the government orders….”).
Even if these were two different causes, moreover, Bradley
still would not be able to establish that either one is a covered
cause. The Mattis rule is relevant where the insured can show
that the policy “expressly insures against loss caused by one
risk.” 454 N.E.2d at 1161, quoting Kraemer Bros., Inc. v. U.S.
Fire Insurance Co., 278 N.W.2d 857, 863–64 (Wis. 1979). Bradley
cannot meet that burden here because, as explained in Sandy
Point Dental, a mere loss of use of property, without any phys-
ical alteration, is not “direct physical loss or damage” and
therefore does not qualify as a covered cause of loss. See Sandy
Point Dental, No. 21-1186, slip op. at 7–14.
8 No. 21-1173
3. The Ordinance or Law Exclusion
The ordinance or law exclusion in the Aspen policy also
bars coverage here. It excludes “loss or damage caused di-
rectly or indirectly by … enforcement of or compliance with
any ordinance or law … [r]egulating the construction, use or
repair of any property.” Bradley acknowledges that the Illi-
nois closure orders regulated the “use” of property. Bradley
argues, however, that none of the governor’s executive orders
for business closures qualifies as an “ordinance or law”
within the meaning of the exclusion. We conclude that they
do. 2
The policy does not define the terms, so we interpret them
as an average reader would. Gillen v. State Farm Mutual Auto-
mobile Insurance Co., 830 N.E.2d 575, 582 (Ill. 2005). The word
“law” can have a broad meaning. E.g., Law, Black’s Law Dic-
tionary (11th ed. 2019) (“The aggregate of legislation, judicial
precedents, and accepted legal principles; the body of author-
itative grounds of judicial and administrative action; esp., the
body of rules, standards, and principles that the courts of a
particular jurisdiction apply in deciding controversies
2 At oral argument, Bradley asserted for the first time that it had “pur-
chased back” applicable coverage otherwise barred by the ordinance or
law exclusion. The endorsement Bradley cites provides coverage where
an “ordinance or law … [r]egulates the demolition, construction or repair
of buildings, or establishes zoning or land use requirements at the de-
scribed premises.” But this coverage applies only if the building sustains
“direct physical damage.” Since Bradley has not alleged that the hotel suf-
fered such damage, there is no coverage under the purchased back ordi-
nance or law endorsement. In addition, because Bradley has abandoned
its claim for civil authority coverage, we do not address whether or when
the ordinance or law exclusion would independently bar coverage under
that provision.
No. 21-1173 9
brought before them.”); Law, Webster’s Third New Interna-
tional Dictionary (unabr. ed. 1993) (“a binding custom or
practice of a community”); Law, Merriam-Webster Online,
https://www.merriam-webster.com/dictionary/law (last vis-
ited Dec. 9, 2021) (“a rule of conduct or action prescribed …
or formally recognized as binding or enforced by a controlling
authority”).
What actions qualify as “law” is one of those profound
questions at the root of the rule of law and the legal profes-
sion. For example, jurists, scholars, and practitioners of public
international law have long debated when international
agreements and standards, backed up by credible prospects
of coercive consequences in case of a violation, are legally
binding, and just what sorts of consequences are sufficient to
render an agreed norm something we call international
“law.” For a concise survey of some of those debates, see, for
example, Anthony D’Amato, Is International Law Really
“Law”?, 79 Nw. U. L. Rev. 1293 (1984–1985).
For our domestic purposes in this case, however, the ques-
tion about what counts as a law is not as difficult and esoteric.
We need not and could not decide here whether all governors’
executive orders qualify as laws. They come in many varieties
and with different prospects for enforcement or means of
compliance, particularly when they are addressed to state em-
ployees in the executive branch. See, e.g., Miriam Seifter, Gu-
bernatorial Administration, 131 Harv. L. Rev. 483, 499–515
(2017) (discussing a variety of tools governors have at their
disposal to direct state agency action); Benjamin S. Longlet,
Comment, Gubernatorial Executive Orders in Wisconsin: The
Case for Judicial Enforcement, 2000 Wis. L. Rev. 1323 (surveying
uses of executive orders in one state).
10 No. 21-1173
The executive orders here had the force of law and could
be enforced with coercive sanctions against private businesses
and persons. That is because the legislature authorized the
governor to take such emergency measures to protect public
health and to impose such consequences for violations. When
Governor Pritzker issued the closure orders, he was acting un-
der statutory authority that enabled him to regulate “the use,
sale or distribution of … materials, goods, or services; and
perform and exercise any other functions, powers, and duties
as may be necessary to promote and secure the safety and pro-
tection of the civilian population.” 20 Ill. Comp. Stat. Ann.
3305/7(12). These executive orders thus had binding, coercive
power on private individuals and businesses. See, e.g., Ill.
Exec. Order No. 2020-10 ¶ 17 (Mar. 20, 2020) (“This Executive
Order may be enforced by State and local law enforcement
pursuant to, inter alia, Section 7, Section 18, and Section 19 of
the Illinois Emergency Management Agency Act, 20 ILCS
3305.”). These executive orders fell well within what we un-
derstand to be laws, just as rules and adjudications by execu-
tive agencies acting under legislative grants of authority have
binding force of law.
Bradley responds that such an expansive definition of
“law” would necessarily encompass “ordinance[s]” and
therefore render that term superfluous. To give the words dis-
tinct meanings, Bradley asserts that “law” should be under-
stood much more narrowly, to mean only a statute passed by
a federal or state legislature, while “ordinance” refers to a mu-
nicipal statute or regulation. 3
3Bradley initially defines “ordinance” as “a municipal statute” but
then seems to expand that definition to include all “municipal regula-
tions.” We are not persuaded that the policy would limit “law” to statutes
No. 21-1173 11
This argument fails for several reasons. First, as discussed
in Crescent Plaza, some overlap in insurance policies is com-
mon and does not violate the rule against superfluity. Crescent
Plaza, No. 21-1316, slip op. at 10–11 (noting frequent use of
“belt-and-suspenders” approach in drafting insurance poli-
cies); see also Great West Casualty Co. v. Robbins, 833 F.3d 711,
717 (7th Cir. 2016) (“Some redundancy in insurance contracts
is normal….”). The belt-and-suspenders approach is sensible
in this setting, and we will not fault insurers for using terms
with broad meanings.
As we also emphasize in Crescent Plaza, context is key
when interpreting an insurance policy. Crescent Plaza, No. 21-
1316, slip op. at 8–9. In some contexts, the word “law” might
refer only to a statute passed by a legislature. E.g., Law,
Black’s Law Dictionary (11th ed. 2019) (including “A statute”
as another possible definition). But we doubt that an ordinary
reader would understand the term to have so narrow a mean-
ing here. The Sixth Circuit recently expressed skepticism to-
ward such a strained interpretation in a similar insurance dis-
pute. See Santo’s Italian Café LLC v. Acuity Insurance Co., 15
F.4th 398, 406 (6th Cir. 2021). Although the court rested its
holding on other grounds, it suggested that “the ordinance or
law dichotomy seems more likely to capture the difference be-
tween local government regulations on one side of the ledger
and statewide and nationwide regulations on the other.” Id.Without suggesting that “ordinance” is limited to exercises of
local governmental power with the force of law, we conclude
that, in this policy, the words “law” and “ordinance” together
passed by a state or national legislature, while at the same time defining
“ordinance” to mean both statutes and executive regulations at the mu-
nicipal level.
12 No. 21-1173
encompass any regulation with binding, coercive force at the
local, state, or national level. (We leave international questions
for another day.)
By contrast, Bradley’s interpretation of the exclusion
would lead to strange results. If “law” meant only a statute
passed by a federal or state legislature, then a regulation is-
sued by the federal Occupational Safety and Health Admin-
istration to establish construction or maintenance require-
ments for buildings would not be included. Nor would a state
or local fire marshal’s order imposing an occupancy limit on
a hotel’s space for public events. Those results would be im-
probable. The exclusion applies to “any ordinance or law”
that regulates “the construction [or] use … of any property.”
Or suppose a governor issued an executive order requiring
demolition of a building. That too would not be covered by
Bradley’s interpretation, even though the exclusion specifi-
cally refers to “any ordinance or law” that requires “the tear-
ing down of any property.” We decline to read this seemingly
random limitation into the exclusion simply because it uses
broad language.
The judgment of the district court is AFFIRMED.