Franchisee 101: McDonald’s Cooks Up COVID-19 Insurance Coverage | Lewitt Hackman
An insurance claim filed by McDonald's and two of its franchisees (collectively, "McDonald's") raised a novel question in Illinois state court. The question was whether the costs of complying with a mandatory order related to the COVID-19 pandemic are personal injuries that trigger the insurance company's duty to defend claims.
In the underground lawsuit, employees alleged that McDonald's opened its restaurants openly and negligently during the pandemic without adequate new health and safety practices. McDonald’s policy was that employees and managers could take off their masks and stand within six feet of each other, but no longer than 10 minutes. McDonald's face-covering and distancing policies contradicted the Illinois governor's executive order and CDC guidelines. Some McDonald's restaurants have not successfully enforced the policy, resulting in employees wearing their masks under their noses and mouths or not at all due to the “10 minute” rule.
Plaintiff's employees requested an injunction requesting McDonald's to provide adequate personal protective equipment, prohibit reuse of face masks, provide hand sanitiser, require customers to wear face masks, monitor employee COVID-19 infections, and provide accurate staff Provide information about COVID-19. In June 2020, the court issued an injunction obliging McDonald's to train employees in social distancing and to enforce guidelines on how to wear masks.
McDonald's claimed its general liability insurance policies covered increased compliance costs as damage from personal injury. The insurance company argued that McDonald's claims should not be equated with damage "for" bodily harm. The court disagreed. The pending restraining orders would induce McDonald's to spend money to prevent continued exposure to the COVID-19 virus, and McDonald's would not have to pay such damages, only for or because of employees who contract the virus and cause personal injury. Under Illinois law, "exposure to potentially harmful contaminants" can be bodily harm "even with no sign of illness or disease." The insurance company was therefore obliged to defend McDonald's in the underlying case.
Government-mandated closings and restrictions imposed on franchisors and franchisees to combat the pandemic resulted in economic losses for many businesses. This led to business interruption insurance claims and other policies. In most cases, losses due to the pandemic have been rejected as political exclusions. Franchisors and franchisees should be aware of the implications of this case, which may include a roadmap for obtaining insurance for certain types of pandemic-related expenses.
McDonald's Corporation, McDonald's USA, LLC, Lexi Management, LLC and DAK4 LLC, Plaintiff v Austin Mutual Insurance Company, Defendant, U.S. District Court, Illinois, ND, 16,820 (February 22, 2021)
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