Hotel Owners Lose Bid to Force Insurers to Pay for COVID-19 Business Losses

Court Settlement

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LOS ANGELES (CNS) - A judge today dismissed a lawsuit brought by the owners and managers of one luxury hotel in Santa Monica and two others in Hawaii, who alleged multiple insurance companies breached contracts to insure them for hundreds of millions of dollars in business losses during the COVID-19 pandemic.

Los Angeles Superior Court Judge Randolph M. Hammock tossed the lawsuit brought by MSD Capital LP, MSD Real Estate Partners LP and MSD Partners LP in connection with the Fairmont Miramar Hotel & Bungalows in Santa Monica, Four Seasons Resort Hualalai and the Four Seasons Resort Maui at Wailea.

The suit named about two dozen insurers as defendants, ranging from ACE American Insurance Co. and Continental Casualty Co. to National Fire & Marine Insurance Co. and Lloyd's of London. The plaintiffs sought unspecified damages as well as a judge's declaration that the plaintiffs' losses are covered under the policies.

However, in his written ruling, Hammock said California law is clear that a business interruption policy that covers physical loss and damages does not provide coverage for losses incurred by the COVID-19 pandemic.

According to the suit filed last Aug. 27, the coronavirus in 2020 curtailed travel and tourism and as a result the plaintiffs' hotel bookings and income ``dropped to zero,'' costing the MSD plaintiffs to suffer losses in the hundreds of millions of dollars in damages with millions more expected to be lost in the future.

``Overnight, hotel properties that were once bustling destinations attracting travelers from all over the world became ghost towns,'' the suit states.

The MSD plaintiffs have suffered significant property damage losses from the presence of the coronavirus in and around their hotels, including booking cancellations, refunds and rebates that have been given to hotel guests and the lack of customers who would normally visit for dining, bar, sporting and spa services had the properties not been forced to close under government orders in California and Hawaii, the suit stated.

In addition, despite taking significant precautions, guests and staff members at the hotels have been infected by the COVID-19, according to the suit.

The MSD plaintiffs purchased hundreds of millions of dollars of property insurance from the defendants to cover the hotels and the coverage includes business interruption for losses resulting from direct physical loss or damage to property, the suit stated.

But the insurers refused to pay anything, maintaining that the pandemic does not constitute direct physical loss or damage and that certain provisions within the policies bar coverage for the MSD plaintiffs' coronavirus- related losses, the suit stated.

``These arguments contravene the plain meaning of the coverage language and are inconsistent with case law across the country interpreting the same or similar policy provisions,'' the suit stated. ``Moreover, in stark contrast to other policies in the marketplace, many of the policies do not contain exclusions for communicable disease or viruses, confirming that the presence of a virus, whether on or near insured property, can cause loss or damage to property.''

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