By David DeMoss
In the developing news surrounding business interruption cases being filed in the aftermath of COVID-19, a hotel ownership company is on the winning side this time. Schleicher & Stebbins Hotels partially won a case worth over $100 million in “COVID-19-related losses.” This case goes to show that there is still a lack of precedence, as similar cases around the United States are being judged and decided differently.
Below, Hannah Smith, goes into deeper detail on how exactly the hotel group partially won the case.
Several hotels owned by Schleicher & Stebbins Hotels were granted a partial win against eight insurance companies for denied insurance claims related to damages caused by the pandemic.
The Superior Court for the State of New Hampshire handed down a decision granting a motion for partial summary judgment filed by the hotel company, which sought to recover over $100 million in COVID-19-related business interruption losses.
The case had the same fact pattern we have seen a thousand times in COVID-19 and business interruption insurance litigation. The hotels filed claims for business interruption after the New Jersey Governor issued Executive Orders in March 2020, restricting the operation of hotels in the wake of the COVID-19 global pandemic. Specifically, the order required the “brick-and-mortar premises of all non-essential retail businesses” to “close to the public as long as th[e] Order remain[ed] in effect.” Although the hotels were able to provide some service during the pandemic, their operations were cut significantly and costs to host guests increased due to strict safety protocols. Those insurance claims were unsuccessful to varying degrees, so the hotels brought suit against the insurers.
The hotels moved for partial summary judgment that the terms “loss or damage” and “direct physical loss of or damage to property,” as used in the insurance contracts, encompassed the presence of the COVID-19 virus on the premises. The insurers filed a competing motion for summary judgment.
The court granted the motion filed by the hotels and denied the cross-motion filed on behalf of all of the insurance companies; the court applied previously established New Hampshire Supreme Court precedent and held that coverage is triggered when the property suffers a “distinct and demonstrable alteration.” The court rejected the arguments of the insurance companies that such changes to the property “must be readily perceptible by one of the five senses, be incapable of remediation, or result in dispossession.”
Cat urine case supports arguments
This decision was based on a 2015 New Hampshire Supreme Court decision in Mellin v. Northern Security Insurance Company that involved the impact of cat urine odor on property. The court compared the two situations, noting that although the COVID virus, like cat urine, can be removed from surfaces with cleaning and disinfection, that does not prevent a conclusion that the property was changed in a “distinct and demonstrable” way.
While cat urine has a distinct smell and a virus does not, the presence of the COVID-19 virus is still detectible, was found by government authorities to be widespread in the areas the hotels were located and was deemed to be able to survive on certain surfaces like the ones in the hotels. So the court concluded that the policies’ uses of the terms “loss or damage” and “direct physical loss of or damage to property” encompassed the type of damage caused by the spread of COVID-19 to the hotel properties.
The insurance companies also argued that a “microorganism” exclusion applied because a virus is not unambiguously understood to be a “microorganism,” as they are not commonly thought to be alive. The court rejected this argument but granted a motion filed by one excess insurance company holding that an exclusion that the insurer added by endorsement for “pollutants or contaminants” applied where “pollutants or contaminants” specifically included “virus.
Marshall Gilinsky, a shareholder at Anderson Kill P.C. and counsel to Schleicher & Stebbins, commented: “Policyholders pay premiums for business interruption insurance so that if something happens to property that drives down the policyholder’s revenues, they will be covered. It does not matter if that something is a giant earthquake that breaks buildings in half, or an invisible virus that renders property unsafe and unusable. To the policyholder, the effect is the same. In its decision today that the coronavirus causes a distinct and demonstrable alteration to property for purposes of business interruption insurance coverage, the court got that right. It’s the right outcome under New Hampshire law, and it’s the right outcome in general.”
Schleicher & Stebbins Hotels is represented by Marshall Gilinsky, Dennis J. Artese, Carrie Maylor DiCanio and Ethan W. Middlebrooks of Anderson Kill PC, and Michael S. Lewis and Michael K. O’Neil of Rath Young and Pignatelli PC.
The case is Schleicher & Stebbins Hotels, LLC, et al. v. Starr Surplus Lines Insurance Companies, et al. No. 217-2020-CV-00309.