Harford Gets Out Of Hotels' Pandemic Coverage Suit

By Shawn Rice
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Law360 (April 9, 2021, 6:28 PM EDT) -- A Pennsylvania federal judge ruled that nearly two dozen hotel operators can't force Harford Mutual Insurance Co. to cover losses from pandemic-driven business closures, saying there wasn't a physical loss from shutting down due to the coronavirus and government orders.

U.S. District Judge Chad F. Kenney also refused to give another chance to amend the suit to the hotels, which are located throughout Delaware, New Jersey, Pennsylvania and Virginia. Even if there was a physical loss, a virus exclusion precluded any possible coverage for the hotel operators' losses, the judge ruled on Thursday.

"The policy makes clear that there must be some sort of physical damage to the property that is the subject of a repair, rebuilding or replacing," the judge said. "The effects of the COVID-19 pandemic on plaintiffs do not fall within that definition, as the presence or threatened presence of the coronavirus on the property can be largely remediated by mask wearing, social distancing and disinfecting surfaces."

The hotel operators, which are all affiliated with SSN Hotel Management LLC, filed suit in December, claiming they were forced to modify their operations. Shutdown orders by governors in Delaware, New Jersey, Pennsylvania and Virginia are exactly the type of "civil authority" action covered, the hotels said.

In March, Harford asked Judge Kenney to toss the amended suit, saying there wasn't any physical loss to the hotels' properties caused by the government shutdown orders triggering coverage.

In Thursday's ruling, Judge Kenney sided with the insurer, finding the hotel operators couldn't show their business income losses were caused by a physical loss under Harford's all-risk policy. The inability to use the hotels to their full capacity was caused by the government orders, not a physical loss, the judge said.

"Plaintiffs' premises were not required to close by any shutdown order in Pennsylvania, New Jersey, Delaware or Virginia. Second, the shutdown did not require plaintiffs to limit their operations because of damage to a nearby property or because there was some dangerous physical condition at another nearby property. The shutdown orders were issued to address the health crisis, not some 'direct physical loss,'" he said.

Finally, Judge Kenney held the virus exclusion doomed the hotel operators from being able to recover under the policy for their business interruption losses. That policy exclusion applies to COVID-19, "which is caused by a coronavirus that causes physical illness and distress," the judge said.

This past month, businesses have not fared well with their COVID-19 coverage suits in Pennsylvania federal court. Cincinnati Insurance Co. successfully had tossed a bar, a catering service company, a roller-skating park and a gym's consolidated class actions seeking COVID-19-related loss coverages.

The owners of Tria wine bars also couldn't convince a Pennsylvania federal judge that its pandemic-related losses were caused by a physical loss triggering coverage. Finally, Travelers Property Casualty Co. escaped coverage for a medical center's COVID-19 coverage suit under the virus exclusion.

However, a Pennsylvania state judge went against these federal judges and granted summary judgment to a Pittsburgh-area dental practice in its suit. The judge found a direct physical loss, saying the spread of the coronavirus had a "causal [and] consequential relationship" to the limited use of the dentist office.

Representatives for the parties didn't respond to requests for comment on Friday.

The hotels are represented by Sol H. Weiss, James R. Ronca, Paola Pearson, Stanford B. Ponson and Michael R. Manara of Anapol Weiss.

Harford is represented by Kevin C. McNamara of Thomas Thomas & Hafer LLP.

The case is SSN Hotel Management LLC et al. v. The Harford Mutual Insurance Co., case number 2:20-cv-06228, in the U.S. District Court for the Eastern District of Pennsylvania.

--Additional reporting by Matt Fair, Daphne Zhang and Melissa Angell. Editing by Leah Bennett.

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

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