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Law360 (September 4, 2020, 7:55 PM EDT ) A hotel chain owner said Hartford Fire Insurance Co. should cover the multimillion-dollar losses its 30 hotels suffered during the pandemic, saying that the virus extensions of its over $933 million Hartford policies cover COVID-19 and that Hartford has said publicly that it insures pandemic loss.
Graduate Hotels Real Estate Fund III LP, which owns hotels in U.S. college towns and cities, told an Illinois state judge that Hartford wrongfully denied coverage and failed to investigate its claims. The hotel owner said the virus or pollutant exclusions of its Hartford policies do not apply, since its losses met the condition to trigger the policies' virus coverage extensions.
Graduate said that it is indisputable that COVID-19 was spread to the U.S. through air travelers from China and Europe in January and February, and its policies' virus extension specifically pays for virus losses involving "air travel" and "vehicles."
The hotel owner also alleged that Hartford's parent company The Hartford Financial Services Group Inc. has stated publicly that "Hartford has broad corporate exposure to pandemic-related losses," acknowledging that it insures pandemic risks. The hotel owner holds two Hartford policies with coverage limits of $500 million and $433 million.
In the complaint, Graduate said the virus coverage extension in each policy provides $50,000 "in any one occurrence" and $250,000 in a policy year. The extensions defined losses related to "aircraft or vehicles" as "specified cause of loss," according to the suit.
The hotel company said that analysis from the Centers for Disease Control has confirmed a "causal relationship between air travel and the presence of COVID-19 in the United States." Over 12 million passengers were brought to the country from abroad in February and March, and many of these travelers carried COVID-19 and stayed at the Graduate hotels, the suit said.
Graduate said that at least one hotel employee tested positive for COVID-19 and the company recorded 47 employee sick days between February and April, so COVID-19 was present at its properties then. And since almost all of its hotels' 152,385 guests and its employees arrived through the use of a vehicle, either by personal car or public transportation, the company incurred "aircraft or vehicles" related losses covered by the virus extensions.
The company said the physical damage from the novel coronavirus also prompted universities near its hotels to shut down and caused it to suffer millions in revenue loss. The hotel owner said it was also forced to suspend business due to government orders in March.
"The presence of SARS-CoV-2, the loss or damage caused by SARS-CoV-2, as well as the loss or damage caused by the government shutdown orders and university shutdown orders, are all inextricably the result of 'aircraft or vehicles,'" it said.
The forced closures also created material alterations to its hotels' restaurants and bars, Graduate said.
"The period of restoration remains on-going as the properties cannot be fully 'repaired, rebuilt, or replaced' until the SARS-CoV-2 virus and the risks posed by COVID-19 are eradicated," the company said.
The hotel owner also claimed that Hartford's parent company has for years acknowledged in public filings and statements that pandemics like COVID-19 fall within Hartford's insurable risks along with natural disasters.
"Starting in at least 2010, The Hartford dedicated an entire subsection of certain SEC annual and quarterly filings to 'pandemic risk,'" it said, adding that Hartford's 10-Q SEC form in September 2019 "recognized 'the possibility of a pandemic'" as one of its "insurance industry and product-related risks."
Representatives for the parties could not be immediately reached for comment.
Graduate is represented by James M. Davis and Bradley H. Dlatt of Perkins Coie LLP.
Counsel for Hartford could not be determined.
The case is Graduate Hotels Real Estate Fund III LP et al. v. Hartford Fire Insurance Co., case number 2020CH05700, in the Circuit Court of Cook County in Illinois.
--Editing by Michael Watanabe.
For a reprint of this article, please contact reprints@law360.com.
