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Law360 (January 11, 2021, 2:02 PM EST) -- Endurance American Specialty Insurance Co. urged a California federal court to toss a $40 million suit seeking COVID-19 loss coverage from a Boston hotel's investor group, arguing coverage is not triggered since the insured never satisfied the policy's $100,000 retention.
Endurance said Friday that Sunstone Hotel Investors had specifically agreed to a $100,000 "self-insured retention," a coverage precondition for cleanup costs resulting from environmental risks due to fungi and viruses.
Though the investor group primarily seeks coverage for business interruption resulting from the pandemic, the policy expressly stated that business interruption coverage is only granted if the alleged situation resulted in cleanup costs covered under the policy, according to the insurer.
"Since plaintiff has not satisfied the $100,000 self-insured retention — a condition precedent to any coverage for cleanup costs under the policy — there are plainly no cleanup costs covered under this policy," the carrier said in the motion.
In November, Sunstone, investors for the Marriott Boston Long Wharf property, said its policy with Endurance is distinctive since it explicitly covers "biological agent conditions," which the group claims include "viruses and other pathogens." The policy does not require "direct physical loss or damage to property" to trigger coverage and does not contain a virus exclusion, the group argued.
According to the suit, Sunstone's Marriott Boston Long Wharf property — one of 20 properties the group has an interest in nationwide — was the site of life sciences company Biogen's "superspreading" health care event in March, which reportedly accounted for thousands of COVID-19 cases worldwide.
Sunstone has claimed it paid more than $350,000 in premiums specifically for the policy that covered losses caused by viruses, and alleged that Endurance "adopted a corporate-wide and systemic position" to not pay out to parties insured under the policy.
On Friday, Endurance maintained the policy only covers the cleanup costs resulting from "biological agent conditions," and since the group has not satisfied the required retention for coverage relating to cleanup costs, it has no duty to provide benefits.
According to the motion, the policy covers business interruption if an insured's business was suspended directly due to nearby "biological agent conditions" reported in 14 days. However, the group was not able to show that, and "courts have uniformly held" that state closure orders were not the "direct result" of damage to an insured's property but were issued to slow the spread of COVID-19, Sunstone said.
"None of the governmental shutdown orders issued to prevent the spread of COVID-19 that allegedly caused plaintiff's economic losses were the 'direct result' of the presence of SARS-CoV-2 on a property within five miles of plaintiff's property," Endurance said.
Representatives for the parties were not immediately available for comment Monday.
Sunstone Hotel Investors is represented by Kirk A. Pasich and Jeffrey L. Schulman of Pasich LLP.
Endurance is represented by Zoheb Noorani and Richard Blair Goetz of O'Melveny and Myers LLP.
The case is Sunstone Hotel Investors Inc. v. Endurance American Specialty Insurance Co., case number 8:20-cv-02185, in the U.S. District Court for the Central District of California.
--Additional reporting by Diamond Naga Siu. Editing by Marygrace Murphy.
For a reprint of this article, please contact reprints@law360.com.
