By Joyce Hanson

Law360 (December 3, 2020, 9:33 PM EST) -- A New York City boutique hotel operator has filed a pair of briefs in state court opposing two insurance companies' bids to dismiss its suit seeking coverage for COVID-19-related losses, arguing that partial loss of the use of its properties meets a "direct physical loss" standard.

Triumph Hospitality LLC urged the court Tuesday to construe the all-risk Hartford Fire Insurance Co. and Zurich American Insurance Co. policies for its six boutique hotels, including the Hotel Edison in Times Square and the Frederick Hotel in Tribeca, in favor of coverage because "direct physical loss" of covered property is distinct from "direct physical damage."

"The COVID-19 pandemic has crushed businesses across the country, contaminating their premises, suspending their operations, or both. Plaintiffs are among those victims," Triumph said in its Hartford brief. "The insurance industry, including Hartford, has further victimized insureds by refusing to cover their losses. The court should reject Hartford's effort to do so here, as numerous courts have done in like circumstances."

Triumph said it bought Hartford's all-risk "Special Multi-Flex" policy at an annual premium of nearly $350,000 to secure income coverage for hotel operation losses. When the pandemic hit, and government closure orders brought New York's tourism industry to a halt, Triumph said it asked Hartford to cover its business interruption, civil authority, dependent properties, virus and extra expense losses. But Hartford denied its request and now asks the court to let it evade its responsibility, the hotel operator said.

As for Triumph's brief opposing Zurich American's bid to dismiss, the hotel operator said it paid an annual premium of about $500,000 but the insurer also has unfairly denied coverage under its all-risk policy's business interruption, civil authority, dependent properties, extra expense and marine coverage provisions.

The Zurich policy's property section has no definition of "direct physical loss" or "direct physical damage," and the commercial general liability section defines property damage as either "physical injury to tangible property" or "loss of use of tangible property that is not physically injured," according to Triumph.

In short, the hotel operator argued, nowhere in the policy does Zurich explicitly state that it will not cover virus-related losses.

"The policy contains no clear and unambiguous language barring plaintiffs' claims – and New York law requires that insurance policies be construed in favor of coverage," Triumph said. "Zurich argues that plaintiffs 'cannot show the required physical alteration of their property, or any other property,' but the policy contains no such requirement."

Further, Triumph said, a virus exclusion does not apply in the Zurich policy because it makes no mention of "pandemics," unlike Zurich's virus exclusions in other policies.

Hartford and Zurich both filed their motions to dismiss the suit Oct. 28. Hartford argued that its virus exclusion bars all of Triumph's claims and that the hotel operator has failed to allege "direct physical loss" with its claims that the virus attached to surfaces at its hotels.

"In the insurance context, the requirement that the loss be physical is widely held to preclude any claim against the property insurer when the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property," Hartford said.

Zurich also argued that Triumph hasn't sustained direct physical loss of or damage to any covered property, and that the policy's virus exclusion bars all coverage.

"Plaintiffs do not, and cannot, dispute that the SARS-CoV-2 virus is a 'virus,'" Zurich said. "They also cannot dispute that all claimed losses are caused by or resulting from the virus, since the complaint clearly sets forth that plaintiffs' claimed losses are based on the 'actual and threatened presence of the virus' and the resultant stay-at-home orders. Plaintiffs' allegations, therefore, bring their claim squarely within the policy's virus exclusion."

Triumph sued the two insurers Aug. 14, asserting breach of contract, breach of the implied covenant of good faith and fair dealing, bad faith and violation of general business law. The suit seeks a court order requiring Hartford and Zurich to pay Triumph's property and business income losses.

Counsel for Triumph and the insurance companies did not immediately respond Thursday to requests for comment.

Triumph is represented by Jack Atkin, Christine A. Montenegro, Jerold Oshinsky and Margaret A. Ziemianek of Kasowitz Benson Torres LLP.

The Hartford is represented by Charles Michael and Meghan Newcomer of Steptoe & Johnson LLP.

Zurich American is represented by Michael Menapace and Michael L. Kenny Jr. of Wiggin and Dana LLP.

The case is Triumph Hospitality LLC dba Triumph Hotels et al. v. The Hartford Fire Insurance Co. and Zurich American Insurance Co., index number 653853/2020, in the Supreme Court of the State of New York, County of New York.

--Editing by Breda Lund.

For a reprint of this article, please contact reprints@law360.com.