A hotel operator defeated an insurance company to dismiss its claim alleging that the insurer had incorrectly denied coverage and acted in bad faith by denying the hotel $ 1.9 million claim due to an employee's fraudulent system that diverted fictitious travel agents. The court found that the hotel operator had suffered an "insurable loss" and rejected the insurer's argument that the claim was excluded under the policy provisions on limitation of suit.
Millennium operates hotels throughout the United States and pays commissions to travel agents in exchange for customer bookings. A Millennium employee at a New York location engaged in a fraudulent scheme to divert commissions from legitimate authorities and to collect commissions on behalf of fictitious agencies. Millennium lost more than $ 1
Great American claimed that Millennium did not suffer "loss" under the policy because the majority of the claim was "accounting loss" that was not insured by the policy. Millennium objected to the loss of a diversion of its funds and to the loss occurring immediately after payment of commissions passed on by the worker. The court agreed with the Millennium and ruled that Ohio law applied direct loss to actual disbursement of hotel funds caused by employee fraud. As the Millennium adequately argued that the payment of commissions covering its insurance claims was due to a fraudulent scheme, the court found the insurer's proposal "not well received".
Great American also claimed that Millennium's lawsuit was excluded because it did not comply with the insurance's limitation clause, which prohibits legal action against the insurer unless it is brought within two years of the loss being discovered. Millennium stated in its evidence of loss that it discovered the loss in June 2017 but filed a lawsuit more than two years later in February 2020. However, Millennium argued that it could not reasonably be expected to sue before the decision was upheld by Great American and at the same time fulfilled its duty to cooperate with the insurer's investigation. The hotel also claimed that Great American waived its ability to enforce the restriction clause because the insurer stated during its investigation that the loss would be covered under the insurance. The court again agreed with Millennium and denied the insurer's action because Millennium's allegations sufficiently raised a question of whether Great American took action to cover the claim, which delayed Millennium's application.
The Millennium suit shows that insurance companies face heavy burdens when trying to reject coverage measures in the filing, where all well-preserved facts must be accepted as true and all conclusions must be interpreted in favor of policyholders. Here, Millennium's complaints sufficiently asserted both the existence of an insurable loss and allegations that the policy limitation clause could not be enforced in the circumstances. Although the court acknowledged that the insurer may ultimately advise on issues raised in the proposal, its attempt to do so by a decision to refuse was not well received in the light of the allegations of the complaint. Policyholders should prepare submissions carefully with an eye to both the legal standards to be applied under the insurance contract and the insurer's probable affirmative defense, both of which are highly dependent on government legislation.