Insurers have failed to win dismissal of a federal COVID-19 business interruption lawsuit against them by the luxury hotel chain Mandarin Oriental.
Judge John P. Cronan of U.S District Court in New York found that endorsement language about coverage for contagious disease in the hotel’s “special peril” policies could support breach of contract claims against the insurers for failing to consider or pay for any business interruption losses.
The judge denied a motion to dismiss the claims that was sought by HDI Global Insurance Co. and Assicurazioni Generali S.p.A. He found that the claims should not be dismissed at this stage because the language in the endorsement is not clearly in the insurers’ favor.
The policies contain a special perils endorsement providing that “this policy is extended to cover loss resulting from interruption of or interference with the business carried on by the insured in consequence of infectious or contagious disease manifested by any person while on the premises of the insured or within a radius of 5 miles.”
Mandarin claimed that its hotels in Miami, New York, Washington, and Boston were substantially impacted by COVID-19 beginning in February and March 2020. The hotel claims it notified the insurers in March 2020 of its losses but got no response, prompting it to file suit later that year.
Mandarin sought damages and declaratory relief, alleging that HDI and Generali failed to honor their “special perils” provisions by not paying for business interruption losses Mandarin sustained in consequence of COVID-19 manifestations in persons within a five-mile radius of its four hotels.
In moving to have Mandarin’s complaint dismissed, HDI and Generali based their argument largely on the purported failure of the complaint to allege a plausible connection between particular COVID-19 cases and any interruption or interference with Mandarin’s business. According the insurers, the use of the phrase “in consequence of’ in the endorsement establishes a proximity requirement for losses to be covered under the policy and, in particular, the policy requires Mandarin to allege a causal connection between its losses and “any person” with COVID-19 either on or within 5 miles of a Mandarin Oriental hotel.
Mandarin resisted what it called an attempt to read a narrow causation requirement into the endorsement. According to Mandarin, the endorsement “does not require that any specific COVID case be the specific but-for” or exclusive cause of the loss.
Mandarin maintained it was sufficient to claim as it did that the first COVID-19 manifestation in someone within a five-mile radius of those hotels occurred between February and March 2020, depending on the hotel.
Judge Cronan found that because the text of the endorsement does not unambiguously support the insurers’ narrow causation reading, dismissal of Mandarin’s claims at this pleading stage is not appropriate. While the endorsement’s “in consequence of” language certainly imposes some degree of casual relationship, the core question is how far the causal chain reaches, the judge explained.
The judge said one plausible reading of the endorsement is that it merely requires that the business interference or interruption loss be caused by an “infectious or contagious disease,” with that disease being “manifested by any person” within a five-mile radius of the hotel. The complaint plainly alleges as much and gives a specific date and losses, he found.
The judge concluded that, at least at the pleading stage, the “in consequence of” language is not so clear as to impose a demanding causation requirement that would preclude Mandarin’s breach of contract claim.
In a footnote, the court stated that Mandarin’s allegations are sufficient by themselves to survive dismissal. But they are bolstered by the city and state COVID-19 closure orders, which were submitted as public records. These public records show that, because of the pandemic, state and local governments ordered business closures and imposed gathering restrictions in the cities where Mandarin’s four hotels are located.
Mandarin’s original complaint cited business interruption losses through September 2020 of $69 million, a figure that had grown to more than $220 million by October 2023 when it amended its complaint.
Mandarin purchased “all risks” commercial lines insurance policies from a group of insurers that included HDI and Generali, under which the insurers had quota share percentages of coverage. HDI was responsible for 25% of coverage, Generali was responsible for 10% of coverage.
The remainder of coverage fell to the other insurance companies that are not party to the lawsuit. Their policies had similar endorsements but also had language clearly defining their liability that was missing from the HDI and Generali policies.
The HDI and Generali endorsements have a $10 million per occurrence sublimit, which Mandarin contended “separately applies at each of Mandarin’s four separate hotel premises.” Mandarin’s policies with the non-party insurers contained the same endorsement, but those policies expressly stated that coverage under the $10 million sublimit would be calculated in the aggregate, and thus limited recovery to a maximum loss liability of the insurers’ quota share. percentage of coverage, regardless of how many occurrences were alleged by Mandarin.”
The judge declined to consider the motion for a declaratory judgment, finding that it was duplicative of Mandarin’s breach of contract claim.
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