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Exceptions for belts and braces are sufficient to avoid Covid claims



The Covid-19 pandemic forced many companies to close their doors or temporarily reduce their operations. Many suffered serious financial losses as a result and have sought money under their commercial property insurance policies. In this case, under our diversity jurisdiction, we address two insurance coverage issues that arise as a result of the partial closure of the Ritz-Carlton Hotel in Dallas, Texas. In Crescent Plaza Hotel Owner, LP v. Zurich American Insurance Company No. 21-1316, United States Court of Appeals, Seventh Circuit (December 9, 2021), Seventh Circuit dealt with three Covid cases and no coverage was found and rejected creative arguments raised by the plaintiffs' lawyers.

FACTS AND PROCEDURE HISTORY

Covid-19 pandemic and closure order

When the covid-19 pandemic spread in the United States in March 2020, the Dallas County Government issued several orders restricting the activities of local businesses. [19659007] Complaining Crescent Plaza Hotel Owner, LP owns the Ritz-Carlton in Dallas. The hotel offers rooms and suites, a restaurant and bar, public event space and other amenities, including a lounge, spa and fitness center. Crescent claims that covid-19 made the air in the hotel unsafe and reduced the functional space available on the premises, which caused significant loss of revenue. Crescent also claims that it took costs to install plexiglass partitions and hand alcohol stations, to display signs throughout the hotel and to move furniture to enable social distancing. a general commercial property insurance to Marriott International – the operator of the hotel – for the period April 1, 2019 to April 1, 2020. Crescent claimed that its losses are covered by several different provisions, almost all of which require "direct physical loss or damage" to covered property. another one-year insurance for Marriott – again including Crescent as an additional insured – which took effect on April 1, 2020. That insurance was largely identical to the 2019 version, but it added an exemption for losses attributable to any communicable disease including On appeal, Crescent has offered no reason to doubt that this exclusion will block coverage under the 2020 policy. , fungi, spores or other microorganism of any type, nature or description , including but not limited to any substance whose presence poses a real or potential threat to human health. " 2020 policy coverage. Crescent sued for breach of contract and a declaratory judgment that its losses were covered by the insurance. Zurich decided to dismiss and the district court held that the phrase "direct physical loss or damage" requires either "a permanent [dispossession] of the property due to a physical change .. or physical ] damage on the property that requires repair. ” Since Crescent could not claim either, the court granted the application for inadmissibility.

DISCUSSION

Coverage

The first question presented is whether Crescent has alleged direct physical loss or damage to its property. The Seventh Circuit concluded that it did not.

Exclusions

The exclusion of microorganisms in Crescent's policy provides a second, independent basis for denying coverage. Even if the district court did not take up the exclusion, a court of appeal can confirm on any basis supported by the protocol, as long as the other party had the opportunity to be heard in the matter.

Role of Exclusions

In an insurance case, the burden is initially the insured to show that its damages are covered. Once that showing has been made, the burden shifts to the insurer to establish that an exemption applies. Exclusions are read closely and only apply if their application is clear and free from doubt.

Exclusion of microorganisms

The exclusion of microorganisms occurs in both the 2019 and 2020 policies issued by Zurich for Crescent's hotels. Crescent does not deny that its alleged losses arose from and were related to the coronavirus. The question is whether the virus qualifies as a "micro-organism" under the terms of the exemption.

The existence of several dictionary definitions does not force the conclusion that a term is ambiguous. Nor does Crescent's assertion that viruses – unlike mold, fungi and the other categories specifically mentioned in the exemption – are not living and do not have cells. The question is how an ordinary reader or policyholder, not a scientist, would understand the term as it is used in insurance. An ordinary reader, unfamiliar with the nuances of microbiology classification debates, would probably not be able to deal with the virus' lack of cell structure to determine if the losses they cause fall under the exemption. The average policyholder would be puzzled by Crescent's theory that the exemption excludes losses caused by bacteria but not those caused by viruses.

The context in which the term "micro-organism" is used in this insurance confirms that the exemption unequivocally applies to viruses. The context and language clearly signal that the exemption applies to losses caused by viruses. The relevant language is deliberately broad, covers microorganisms of any type, nature or description, and applies broadly to all substances whose presence poses a real or potential threat to human health, which the coronavirus undeniably does.

The Surplusage Argument [19659006]] Crescent's surplus argument ignores the fact that insurances often use overlapping provisions to provide greater certainty about the scope of insurances and exemptions. It is not surprising that a document, especially one prepared by an insurance company, would use a "belt and braces approach". In fact, insurance is notorious for its simultaneous use of both belts and braces, and some overlap is to be expected. The overlap between two exceptions to Zurich policies does not make any of them superfluous.

Fundamental changes to the policy language with belts and braces simply do not force the conclusion that previous policy languages ​​did not require the same results.

To achieve this. decision the Seventh Circuit adopted the analysis of today's decision in Sandy Point Dental, PC v. Cincinnati Insurance Co. No. 21-1186 (7th District 9 Dec. 2021), and considered that the term "direct physical loss or damage" to property does not apply to a company's loss of use of the property without any physical change. It concluded that the exclusion of micro-organisms in the policy on its own prevents coverage for the hotel's alleged losses.

microorganisms such as In this case, the courts of the United States continue to correctly refuse to rewrite a policy entered into by two sentient beings. It is important to read the words of a policy and interpret it as the parties expected before there was a loss. The Seventh Circuit did so and decided in the only possible way on the facts and the policy formulation.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to the position of insurance consultant specializing in insurance coverage, management of insurance claims, bad faith and insurance fraud almost equally for insurers and policyholders.

He also acts as an arbitrator or media

for insurance-related disputes. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award. For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claimants to become professionals in insurance claims.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com, the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr Zalma on Twitter at https://twitter.com/bzalma ; Go to Barry Zalma videos at https://www.rumble.com/zalma; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ T the last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud- letter -2 / podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4


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