By Theresa Schliep

Law360 (December 9, 2020, 6:42 PM EST ) Hotel operator Procaccianti has sued Zurich American for failing to cover losses it incurred during statewide COVID-19 shutdown orders, arguing in Rhode Island federal court that the presence of the disease at its hotels entitles it to coverage under its $300 million policy.

In a complaint filed Tuesday, Procaccianti Cos. said that the presence of the novel coronavirus at its hotels has caused physical damage to the properties through transforming surfaces and air into dangerous potential vectors of illness. The presence of the virus, along with government-forced business closures and slowdowns intended to curb its spread, entitles Procaccianti to losses under its policy with Zurich American Insurance Co., according to the complaint.

Procaccianti said some of its employees have tested positive for the disease or exhibited symptoms, and there's a statistical likelihood that the virus has been present at Procaccianti's properties throughout the pandemic.

"The presence of COVID-19 on property, including indoor air and surfaces, causes a tangible, physical transformation of the property. It changes the property, including air and the surfaces into dangerous transmission mechanisms for the disease, rendering the affected property unsafe, unfit and uninhabitable for ordinary functional use," the complaint said.

A slew of businesses in the hospitality industry have sued their insurers to recoup losses related to the pandemic, but with a few exceptions courts have generally ruled that virus exclusion provisions preclude such losses. Similarly, a California federal judge ruled in November that the "mere threat of coronavirus" doesn't constitute physical damage, while an Arizona federal judge found that a business' pollution policy doesn't cover its virus claims.

But Procaccianti, in citing a slate of successful virus insurance coverage cases, argued in its complaint that state and federal courts have found that the presence of the virus on property can constitute damage that entitles policy holders to losses. Procaccianti also argued that positive COVID-19 cases at nearby universities and businesses resulted in losses and extra expenses for the business that further entitle it to its virus claims, according to the complaint.

Procaccianti is a holding company for TPG Hotels & Resorts, which operates and develops hotels like Hilton, Hyatt and Marriott. Its policy with Zurich American covers up to $300 million, and it has paid the insurance company nearly $1.8 million for coverage, according to the complaint.

While Procaccianti closed some of its hotels, its expenses increased because it had to buy personal protective equipment and make physical changes to its hotels in response to the pandemic. Not only did Zurich American wrongly deny coverage of Procaccianti's losses, it also failed to conduct a physical inspection of the properties or otherwise adequately look into the hotel company's claims, the complaint said.

"Zurich [American] unjustifiably refuses to pay for Procaccianti's losses and expenses in breach of the policy," the business said.

It also argued that while Zurich American has sold policies to other businesses that contain provisions barring coverage for pandemics, the insurance company's policy with Procaccianti contains no such exclusion. The insurance company also cannot use a provision that bars coverage for contamination to deny losses related to the pandemic, as that provision applies only to industrial pollution, the company said in the complaint.

This is at least the second suit accusing Zurich American of wrongly denying hotel businesses coverage during the pandemic. A New York City boutique hotel operator argued on Dec. 1 in state court that the partial use of its properties meets a "direct physical loss" standard, entitling it to losses from Zurich American and Hartford Fire Insurance Co.

Sixty-two COVID-19 insurance loss cases have been tossed by state and federal courts, while 18 have survived requests to dismiss, according to a litigation tracker from the University of Pennsylvania Law School. Of those 62 cases, most were brought by businesses whose policies contained virus exclusions.

A representative for Procaccianti declined to comment. A representative for Zurich American did not respond to requests for comment. 

Procaccianti is represented by Michael S. Levine of Hunton Andrews Kurth LLP, and Stephen M. Prignano of McIntyre Tate LLP.

Counsel information for Zurich American was not immediately available on Wednesday.

The case is Procaccianti Companies Inc. et al. v. Zurich American Insurance Co., case number 1:20-cv-00512, in the U.S. District Court for the District of Rhode Island.

--Additional reporting by Joyce Hanson, Daphne Zang and Lauraann Wood. Editing by Adam LoBelia.

Update: This story has been updated with additional counsel information. This article has also been updated to include a response from Procaccianti's counsel. 

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