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Hotel’s insurance transfers with loan default: Court


A hotel firm that transferred its insurance policies to a real estate fund after it defaulted on a loan cannot then sue the insurer for insurance proceeds, a federal appeals court said Monday, in affirming a lower court ruling.

Shreveport, Louisiana-based CRU Shreveport, LLC received a loan from South Pasadena, California-based GreenLake Real Estate Fund LLC to finance its purchase of a Wyndham Grand hotel in Shreveport, according to Monday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in CRU Shreveport LLC v. United National Insurance Co.

The loan was secured by a promissory note, which was secured in turn by a mortgage that granted GreenLake security rights in, among other things, all insurance proceeds, according to the ruling. Bala Cynwyd, Pennsylvania-based United insured CRU’s hotel property.

In 2016, a boiler in the hotel’s HVAC system burst causing water damage to a number of hotel rooms. CRU filed a claim with United National, which paid the initial claim.

CRU then claimed the damage was much more extensive than it originally thought, which led to a dispute as to whether the policy covered the extent of the damage described in the expanded claim, the ruling said.

Meanwhile, the damage caused by the burst boiler resulted in a number of rooms being unavailable to guests for an extended period of time, which caused CRU’s room-related income to drop significantly and for it to default on its GreenLake mortgage payments, the ruling said.

In June 2018, CRU filed suit against United National in U.S. District Court in Monroe, Louisiana, charging it with breaching its insurance contract by not fully reimbursing it for the water-related damage to rooms at the hotel and breach of its duty of good faith and fair dealing.

About four months later, the property was transferred to GreenLake because of CRU’s default on its mortgage payments. United National moved for summary judgment, arguing CRU no longer had right of action against United National.

A district court magistrate judge agreed, and ruled CRU had transferred all rights held in the hotel, including the insurance policy to GreenLake, and had no rights under the insurance contract.

A three-judge appeals court panel unanimously upheld the ruling. The property belonging to CRU was “unambiguously conveyed” to GreenLake, the ruling said. The “Magistrate Judge correctly held that United was entitled to summary judgment.”

United National attorney Kathryn M. Caraway, of Caraway LeBlanc LLC in New Orleans, said in a statement her client “is pleased the trial and appellate courts properly appreciated the facts and fairly applied the law to dismiss the case against it."

CRU’s attorney did not respond to a request for comment.  







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