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NYC Hotel's COVID Coverage Suit Can't Avoid Virus Exclusion

By Shawn Rice · June 9, 2021, 4:54 PM EDT

The owner of New York City's Blue Moon Hotel can't tap into coverage with Travelers for losses from the presence of the coronavirus, a federal judge ruled Tuesday, citing the policy's virus exclusion.

U.S. District Judge Jesse M. Furman also said it was doubtful the presence of the coronavirus at the hotel caused "direct physical loss of or damage to property." While the coronavirus may cause property to be harmful to people, the judge noted most courts have held that the virus doesn't cause physical loss or damage.

"However, the court need not and does not decide that question," Judge Furman said, referencing the physical loss or damage issue, "because the policy contains a virus exclusion clause that independently and unambiguously bars coverage of [100 Orchard Street LLC's] business losses at issue."

The Blue Moon's business was damaged when the coronavirus, which the court documents say was present at the hotel, made the premises unsafe. The Blue Moon's owner alleged the losses were also caused by government restrictions imposed on travel and nonessential business to slow the spread of the virus.

In Tuesday's ruling, Judge Furman tossed the business interruption suit against The Travelers Indemnity Insurance Co. of America, saying the hotel can't escape the policy's virus exclusion.

The owner has acknowledged in its pleadings that COVID-19 is a viral disease, according to the judge, and alleged its losses were due to the pandemic and the resulting presence of the virus at its hotel.

The hotel's owner can't save coverage by blaming the losses in part on the government shutdown orders, Judge Furman ruled, saying the coronavirus was the primary cause of the losses. The spread of the coronavirus set in motion the government restrictions resulting in the losses, the judge said.

The judge also rejected Orchard Street's position that the virus exclusion doesn't address or apply to losses caused by nationwide disasters like the COVID-19 pandemic.

Rather, Judge Furman found persuasive a California federal judge's rejection of the same argument in W. Coast Hotel Mgmt. LLC v. Berkshire Hathaway Guard Ins. Cos. by likening it to an argument that a coverage exclusion for damage caused by a fire doesn't apply to damage "caused by a very large fire."

Representatives for the parties didn't immediately respond to requests for comment Wednesday.

The hotel owner is represented by Randolph D. Janis of Douglas & London PC.

Travelers is represented by Gregory P. Varga and Stephen O. Clancy of Robinson & Cole LLP.

The case is 100 Orchard Street LLC v. The Travelers Indemnity Insurance Company of America, case number 1:20-cv-08452, in the U.S. District Court for the Southern District of New York.

--Editing by Haylee Pearl.

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