Hunton Insurance Recovery Blog

The recent Illinois federal court decision McDonald’s Corporation, et al., v. Homeland Insurance Company Of New York illustrates the perils that policyholders may face if they fail to understand the contours of key defined terms in their insurance policies. 2025 WL 2614665, at *1 (N.D. Ill. Sept. 10, 2025). In McDonald’s, the court agreed that an insurer who sold a general liability policy did not have a duty to defend its insured against claims alleging fear and emotional distress because that harm did not meet the definition of bodily injury in the insurance policy.

McDonald’s involves a dispute between an insured-employer and its insurer over coverage for an underlying lawsuit against the insured by one of its employees. The employee alleged, among other things, that she was “regularly exposed to violent and criminal behavior by customers” at work, “witnessed customers throw coffee at co-workers,” “suffered physical and psychological harm from the violence,” and feared that she too would “face violence in the future.” Id. at 4. The insured-employer sought defense coverage for the lawsuit on the premise that the bodily injuries of others caused the employee emotional distress. Following the four-corners rule, the court examined the specific allegations of the underlying complaint with the coverage of the insurance policy and determined that the employee’s bodily injury allegations did not meet the bodily injury definition of the policy. Specifically, the court held that the underlying allegations did not establish (as it must) that the employee had suffered an “actual physical injury,” as the insurance policy required. Id.

In relevant part, the policy covered bodily injury that took place during the policy period and defined bodily injury as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” Id. at 1. The court noted that the gist of the employee’s claim was that witnessing bodily injury inflicted on others resulted in psychological harm to the employee. The court, however, found that “there is ample precedent under Illinois law rejecting the contention that ‘actual physical injury’ can be construed so broadly as to encompass what are essentially emotional injuries.” Id. at 4. And, while an incident was alleged during which the employee was pepper sprayed, it was undisputed that the incident took place outside of the policy period.

Relying on that precedent, the court concluded that the employee’s complaint was “devoid of facts establishing that [the employee] sought damages for a covered bodily injury that occurred during the policy period.” Id. The court determined that, under Illinois law, second-hand injuries such as fear and emotional distress caused by viewing another person’s bodily injuries were not covered under the policy at issue. Thus, the court held that the insurer did not have a duty to defend the insured against the employee’s lawsuit. Id. at 5.

McDonald’s is an important reminder for policyholders that the breadth of the duty to defend does have its limitations. Policyholders must carefully review and understand the wording of their insurance policies, and specifically how the definition of key terms may affect the scope of coverage. The decision also highlights the need to evaluate policies not only at the initial procurement but also midterm or during renewal to identify potential gaps in coverage or ways to expand existing policy language to avoid such gaps. For example, relevant to McDonald’s, policyholders may inquire about whether there are ways to broaden the bodily injury definition in their general liability policies to include harms such as emotional distress or mental anguish as part of the bodily injury definition. Ultimately, having a complete and informed understanding of the scope of coverage under their policies and what is available in the insurance marketplace is essential to ensuring policyholders are adequately protecting their interests. Policyholders may avoid costly errors and be prepared to navigate the nuanced nature of insurance policies by contacting coverage counsel who can help them better understand their insurance policies.