Hole next to hotel not covered by all-risks policy: Court

A large hole in the ground next to a hotel is not a sinkhole and therefore not covered under its all-risks policy, a federal appeals court held Tuesday in affirming a ruling in an insurer’s favor.

In January 2016, employees of Blissful Enterprises Inc., which operates a hotel in Edgewood, Maryland, discovered the hole, which it characterized as a sinkhole, according to the ruling by the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, in Blissful Enterprises Inc. v. Cincinnati Insurance Co.  A damaged underground pipe was later repaired at a cost of $335,484.

In August 2016, Cincinnati Insurance denied all coverage for the loss on the basis it was not caused by a sinkhole as defined in the policy. The hotel filed suit in U.S. District Court in Baltimore, Maryland, which ruled in the insurer’s favor.

A three-judge appeals court panel affirmed the lower court’s ruling, saying the hotel’s all-risk policy excluded losses caused by rust “or other corrosion, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself.”

“The district court correctly held that this exclusion applies here, and Blissful does not meaningfully contest that conclusion on appeal,” the panel said, holding also that other exclusions under the policy’s underground property extension precluded coverage.

Attorneys in the case did not respond to requests for comment.