US court refuses to dismiss Mandarin Hotel’s COVID-19 claim against insurers

The insurers failed to win a dismissal of a federal COVID-19 business interruption lawsuit against them by luxury hotel chain Mandarin Oriental.

Judge John P. Cronan of the US District Court in New York found that language endorsing contagious disease coverage in “special peril” hotel policies could support breach of contract claims against insurers for failing to account for or pay any losses business interruption.

The judge denied HDI Global Insurance Co.’s motion to dismiss. and Assicurazioni Generali SpA. He found that the claims should not be dismissed at this stage because the language in the notice is not clearly in favor of the insurers.

The policies contain a special mention of the risks which states that “this policy is extended to cover losses resulting from the interruption or interference with the business carried out by the insured as a result of an infectious or contagious disease manifested by any person at the premises of the insured or within a radius of 5 mile.”

Mandarin claimed that its hotels in Miami, New York, Washington and Boston were substantially affected by COVID-19 as of February and March 2020. The hotel claims it notified insurers in March 2020 of its losses but did not received no response, prompting him to file suit later that year.

Mandarin sought damages and declaratory relief, alleging that HDI and Generali failed to honor their “special hazards” provisions by failing to pay for the business interruption losses that Mandarin suffered as a result of the COVID-19 outbreaks in individuals on a five-mile radius of its four hotels.

For Mandarin’s complaint to be dismissed, HDI and Generali based their argument largely on the complaint’s alleged failure to allege a plausible connection between specific cases of COVID-19 and any disruption or interference with Mandarin’s business. According to the insurers, the use of the phrase “in consequence of” in the endorsement establishes a proximity requirement for losses to be covered under the policy, and in particular, the policy requires Mandarin to allege a causal connection between its losses and “any person” with COVID-19 either on or within 5 miles of a Mandarin Oriental hotel.

Mandarin resisted what it called an attempt to read a narrow causation requirement into the endorsement. According to Mandarin, the approval “does not require any specific case of COVID to be the specific cause” or sole cause of the loss.

Mandarin argued that it is sufficient to allege that the first manifestation of COVID-19 in someone within five miles of those hotels occurred between February and March 2020, depending on the hotel.

Judge Cronan found that because the text of the opinion does not unambiguously support the insurers’ narrow causation reading, dismissal of Mandarin’s claims at this stage of the pleadings is not appropriate. While the “consequent to” language of the notice certainly mandates some degree of casual relationship, the basic question is how far the chain of causation reaches, the judge explained.

The judge said a plausible reading of the notice is that it requires only that the business interference or loss of interruption be caused by an “infectious or contagious disease,” that disease being “manifested by any person” within a five-mile radius of the hotel . The complaint clearly alleges as much and provides specific date and losses, he found.

The judge concluded that, at least at the pleading stage, the “as a result of” language was not so clear as to impose an exacting causation requirement that would bar Mandarin’s breach of contract claim.

In a footnote, the court said Mandarin’s allegations were sufficient on their own to survive dismissal. But they are backed up by city and state COVID-19 closure orders, which have been released as public records. These public records show that because of the pandemic, state and local governments have ordered business closures and imposed gathering restrictions in the cities where the four Mandarin hotels are located.

Mandarin’s original complaint cited business interruption losses through September 2020 of $69 million, a figure that rose to more than $220 million by October 2023, when it amended its complaint.

Mandarin purchased “all risks” commercial lines insurance policies from a group of insurers that included HDI and Generali, under which the insurers had percentages of coverage. HDI was responsible for 25% of coverage, Generali was responsible for 10% of coverage.

The rest of the coverage went to the other insurance companies that are not parties to the lawsuit. Their policies had similar endorsements, but they also had language clearly defining their liability that was missing from the HDI and Generali policies.

HDI and Generali’s endorsements have a secondary limit of $10 million per appearance, which Mandarin said “applies separately to each of Mandarin’s four separate hotel locations.” Mandarin’s policies with the non-party insurers contained the same endorsement, but those policies expressly stated that coverage below the $10 million sublimit would be calculated in the aggregate and therefore limited recovery to a maximum loss liability from the insurers’ share. coverage percentage, regardless of how many events were claimed by Mandarin.”

The judge declined to entertain the motion for declaratory judgment, finding that it was duplicative of Mandarin’s contract claim.

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