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Law360 (March 1, 2021, 7:40 PM EST) -- A California federal judge ruled Friday that Endurance American Specialty Insurance Co. cannot escape a $40 million suit brought by a Boston hotel's investor group seeking COVID-19 loss coverage, finding that the investors were not required to meet a $100,000 deductible for cleanup costs before tapping into business interruption coverage.
In a seven-page order, U.S. District Judge Cormac Joseph Carney ruled in favor of Sunstone Hotel Investors by preserving the suit, and he underlined that the circumstances that trigger coverage under the policy's business interruption section are "at best ambiguous."
"If defendant wished to make coverage for [business interruption] losses contingent on significant cleanup costs, it should have done so clearly and unambiguously," the order said. "It did not."
The investor group filed suit against its insurer last November, contending that it was wrongly denied coverage of losses related to COVID-19 given its policy's inclusion of virus-related claims.
The group insisted that its policy with Endurance is distinctive since it explicitly covers "biological agent conditions," which the group claims include "viruses and other pathogens."
Sunstone's Marriott Boston Long Wharf property — one of 20 nationwide — was the site of life sciences company Biogen's "superspreading" health care event last February, which reportedly accounted for thousands of COVID-19 cases worldwide.
Sunstone says it paid more than $350,000 in premiums specifically for the policy that covered losses caused by viruses and alleges that Endurance "adopted a corporate-wide and systemic position" to not pay out to parties insured under the policy.
In January, Endurance moved to ax the suit and argued that coverage is not triggered since Sunstone never satisfied the policy's $100,000 retention.
The insurer argued that the policy only covers the cleanup costs resulting from "biological agent conditions," and that since the group has not satisfied the required retention for coverage relating to cleanup costs, it has no duty to provide benefits.
But Judge Carney did not buy the insurer's argument and denied its motion to toss the suit.
The judge continued in his order that the policy seemed to give Sunstone "reasonable expectations" that business interruption losses would be covered, even if they did not have significant cleanup costs.
"It seems to the court that it would be a very rare situation where losses caused by a virus like the coronavirus resulted in cleanup costs over $100,000," the order said.
Sunstone's claims are similar to those by other companies also suing their insurers, such as a Las Vegas casino that had an "all risks" policy with the AIG Specialty Insurance Company but was denied coverage for COVID-19 losses.
Representatives for the parties did not immediately respond to Law360's requests for comment on 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 Daphne Zhang and Diamond Naga Siu. Editing by Peter Rozovsky.
For a reprint of this article, please contact reprints@law360.com.
