By James Boyle

Law360 (December 14, 2020, 9:13 PM EST) -- A Pennsylvania hotel has filed a complaint in federal court saying its insurance company should pay for damages from the business it lost through the state's COVID-19 restrictions and that the carrier improperly applied a virus exclusion clause to deny its claim.

The owners of the Comfort Suites Hummelstown, outside Harrisburg, Pa., asked the court to declare losses from pandemic measures ordered by Gov. Tom Wolf to be covered by the contract signed with Westfield Insurance Co. and its parent, American Select Insurance Co., as well as allow compensatory damages from a breach of contract.

"The virus is physically impacting the [hotel]," the hotel said in the suit, which was filed Thursday in the Middle District of Pennsylvania. "Any effort by the defendants to deny the reality that the virus has caused physical loss and damage would constitute a false and potentially fraudulent misrepresentation that could endanger the plaintiff and the public."

The hotel said its insurance claim was denied via a virus exclusion clause that has been standard for commercial property insurance policies since about 2006. It was first introduced by Insurance Services Offices, an industry standard bearer that provides statistical data and guidelines for policy development.

The virus exclusion clause operates as a carve-out of the all-risk policies that typically cover losses from commercial property damage, such as fire or flood. ISO's proposed clause singles out viral and bacterial contaminations, including Severe Acute Respiratory Syndrome (SARS), a strain of coronavirus that caused an outbreak between 2002 and 2004.

The hotel argued the virus exclusion clause applies to damages when a property is subject to an actual contamination or outbreak. Damages suffered by the Comfort Suites Hummelstown occurred from social distancing and capacity guidelines enacted by Governor Wolf in the spring, it said.

The owners of the hotel had been paying premiums to Westfield since 2019 on a policy that pays for direct physical loss or damage from a covered cause, unless the loss is excluded. It also covers loss of business income during a suspension of operations to repair a loss or damage, or to recover from a civil authority prohibiting access to the property, it said.

The pandemic and Wolf's subsequent orders triggered coverage under the policy, the hotel argued in the complaint. Comfort Suites Hummelstown suffered loss through the mere risk of Covid-19 entering the property, which made the hotel unsafe and unfit for its intended use, it said.

"Social anxiety over public health and society's change in perception that indoor establishments are unsafe due to COVID-19 creates 'physical loss and damage' for purposes of commercial property coverage," the complaint said.

In mid-March, Wolf began ordering non-life-sustaining businesses to temporarily shut down. The hotel was considered a life-sustaining business and stayed open, but the closure of surrounding businesses cut into its client base. The hotel also had to enforce strict capacity restrictions that further hampered the owners' ability to make money, the complaint says.

The complaint also argued the ISO and the American Association of Insurance Services misrepresented the virus exclusion clause when it lobbied state insurance regulators for approval. ISO and AAIS said in their 2006 filings that the clause is intended to clarify an already existing practice, and that disease-causing agents were never intended to be covered by property policies.

The complaint said that before 2006, courts found that policies covered claims involving "disease-causing agents" and any condition making it impossible to use the property for its intended use was a "physical loss or damage to such property" but provided no examples.

Attorneys for the hotel did not return a request for comment, and attorney information for the insurers were not yet listed on the trial docket as of Monday.

The hotel is represented by Sol H. Weiss, James R. Ronca, Gregory S. Spizer and Paola Pearson of Anapol Weiss.

The case is 44 Hummelstown Associates LLC v. Westfield Insurance Company and American Select Insurance Company, case number is 1:20-cv-02319, in the U.S. District Court for the Middle District of Pennsylvania.

--Editing by Gemma Horowitz.

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