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Law360 (June 14, 2021, 5:37 PM EDT) -- A group of California hotel companies asked the Ninth Circuit Monday to reverse Hartford Fire Insurance's summary judgment win over their COVID-19 coverage suit, arguing that the lower court misinterpreted their policy with an "improper liberal application" of a virus exclusion.
The companies, which own seven hotels and an office building, said the trial judge erred in finding that COVID-19 and its related government shutdown orders did not cause a "distinct, demonstrable, physical alteration" to the properties because that phrasing does not appear in their policies.
Rather, the policy required a "direct physical loss of or damage" to the properties, and the COVID-19 shutdown orders did cause that specific loss, the companies said.
The district court's order "is also premised on an improper liberal application of the virus exclusion," the companies said.
The companies filed the lawsuit in June 2020 in Los Angeles Superior Court after Hartford declined to cover their losses caused by the COVID-19 pandemic and subsequent government shutdown orders in California. Among other things, the companies argued their policy covers "business income you sustain due to the necessary interruption of your business operations" of up to $40 million.
The properties in question include the LAX Embassy Suites, AC Marriott Beverly Hills, Residence Inn by Marriott Beverly Hills and the Residence Inn by Marriott LAX, and the suit sought unspecified compensatory damages for a breach of insurance contract, a breach of the implied covenant of good faith and fair dealing, and declaratory relief.
Hartford removed the case to the U.S. Central District of California in July, and the trial judge granted a summary judgment win to Hartford in January, ruling among other things that the companies failed to establish a "distinct, demonstrable, physical alteration, or permanent dispossession of property."
The court also held that the companies could not establish coverage for the loss of business caused by the government shutdown under the business income, extra expense, civil authority, ingress or egress, or ordinance of law coverages under the policy.
The lower court also held that a "virus exclusion" existed in the policy that would not cover any losses caused by a virus such as COVID-19, the companies said.
The companies said the "ambiguity" in the language of the virus exclusion "alone renders the interpretation of the policy in favor of finding coverage," and that triable issues of fact remained that should be determined by a jury, including if the "predominating cause" of their losses was the COVID-19 virus itself, or the related government shutdown orders.
The trial court also erred in finding that a "direct physical loss of or damage" to the properties that the policy covered required they prove a "distinct, demonstrable, physical alteration" because that requirement is not found anywhere in the policy.
Counsel for the parties did not immediately respond to requests for comment.
The companies are represented by Edward Susolik, Richard T. Collins, Raphael Cung and Adrian L. Canzoneri of Callahan & Blaine.
Hartford is represented by David Roth of Wiggin & Dana LLP.
The case is BA LAX LLC et al. v. Hartford Fire Insurance Co., case number 21-55109, in the U.S. Court of Appeals for the Ninth Circuit.
--Editing by Ellen Johnson.
For a reprint of this article, please contact reprints@law360.com.
