A federal district court in California has for the second time refused to dismiss covid-19-related litigation filed by a hotel group against a Sompo International Holdings Ltd. which claims coverage under an environmental policy.
Irvine, California-based Sunstone Hotel Investors Inc., an investment fund with 20 hotel properties, including Marriott Boston Long Wharf, had an “on-site environmental damage” policy from Sompo Endurance America Specialty Insurance Co., according to a U.S. district court ruling Wednesday. in Santa Ana i Sunstone Hotel Investors Inc. v. Endurance American Specialty Insurance Co.
Sunstone sought business break coverage for the hotel closure under its environmental policy, but Endurance denied the claim. The trust sued Endurance and the district court ruled in Sunstone̵7;s favor.
In its first judgment in the case, issued on February 26, 2021, the court focused on a reorganization provision in the insurance and held that nowhere “is it said that an insured must incur $ 100,000 in reorganization costs to trigger” business interruption coverage.
In Wednesday’s ruling, by rejecting Endurance’s claim for a partial summary judgment, the court separated Sunstone’s policy from the majority of other covid-19 cases.
“The policy did not apply to your coverage of” physical loss of or damage to property “, but to an expansive coverage of liability for environmental damage to the facility, it is stated in the judgment.
“With almost foresight, Sunstone paid a significant premium for a total maximum value of $ 40,000,000 in insurance to protect against all types of events, including $ 25,000,000 in coverage for business interruption losses due to a virus.”
“Unlike the policies presented to other courts that have found that there is no coverage for pandemic – related losses, this court finds that Sunstone’s policy must be interpreted to encapsulate exactly what Sunstone is seeking coverage for,” it said.
The ruling said much of the dispute focuses on the issue of how “interruption period” is defined in the policy, with coverage saying that Endurance will pay during this time.
Endurance claimed that this period ended when the state issued an order on March 23, 2020 to close unnecessary businesses, while Sunstone claimed that it lasted until March 2021, but ended no earlier than July 7, 2020.
“Endurance’s argument is not convincing,” the court said. “Due to the ambiguity of the policy and Sunstone’s objectively reasonable expectations, the court concludes that as long as the virus was a source of Marriott Boston Long Wharf’s business interruption losses, the interruption period continued and ended no later than March 2021,” the court said.
The decision concludes that “the discovery in this case has not yet been completed” and the case “requires a more developed factual journal guided by the guidance given in this order.”
Lawyers in the case did not respond to a request for comment.
The policyholder’s attorney Scott D. Greenspan, chief legal officer at Pillsbury Winthrop Shaw Pittman LLP in New York, who is not involved in the case, said the verdict is significant.
It is “directly applicable” to the disputed question of whether state orders are the “effective immediate cause” of all losses from business interruptions and reflects the view that operations would still have deteriorated even without the government’s decision to close.
It says that the facts in each case must be investigated about the cause of the loss, and that this is a matter for the jury to decide, he said.