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A Sompo International Holdings Ltd. unit inappropriately tied its denial of a hotel investment trust’s COVID-19 business interruption claim to a separate cleanup provision in its environmental policy, a federal district court ruled.
Irvine, California-based Sunstone Hotel Investors Inc., an investment trust with 20 hotel properties, including the Marriott Boston Long Wharf, had a “site environmental impairment liability” policy from Sompo unit Endurance America Specialty Insurance Co., according to Friday’s ruling in Sunstone Hotel Investors Inc. v. Endurance American Specialty Insurance Co.
In February 2020, the Marriott hosted an international meeting of leaders from Cambridge, Massachusetts-based Biogen Inc., a biotechnology company.
After the Centers for Disease Control and Prevention notified Sunstone in March that three attendees tested positive for coronavirus, the hotel closed for months. The conference was subsequently deemed a superspreader event that led to more than 20,000 coronavirus cases globally.
Sunstone sought business interruption coverage for the closing under its environmental policy, but Endurance denied the claim saying the policy’s business interruption coverage was subject to a $100,000 self-insured retention for cleanup costs.
The trust sued Endurance and the U.S. District Court in Santa Ana, California, ruled in Sunstone’s favor.
The policy “does not make it clear, explicit and unambiguous” that the self-insured retention for cleanup coverage applies to business interruption coverage, the ruling said. Nowhere in the policy’s section on business interruption “does it say that an insured must incur $100,000 in cleanup costs to trigger” business interruption coverage, the ruling said.
“What is more, there are express indications” that the cleanup coverage’s self-insured retention “does not apply” to the business interruption coverage, “and that only a 3-day waiting period applies instead,” the ruling said in denying the insurer’s motion to dismiss the suit.
Attorneys in the case did not respond to requests for comment.
More insurance and risk management news on the coronavirus crisis here.