By Eli Flesch

Law360 (February 9, 2021, 6:12 PM EST ) Federal Insurance Co. has sued a major New York luxury hotel operator, arguing that it does not have to cover business losses the company suffered because of government-mandated restrictions during the coronavirus pandemic.

The insurer told the New York Supreme Court on Friday that BD Hotels LLC's policy did not cover pandemic-related losses because its properties did not suffer direct physical loss or damage. The suit is the second coverage case involving BD Hotels and is one of the latest where a policyholder and its insurer are at odds over coverage for pandemic losses.

In a five-page complaint, Federal Insurance said that more than a dozen luxury accommodations BD Hotels operates are not covered by its $151 million insurance policy, including the Bowery Hotel in the East Village and the Jane in Greenwich Village. The operator also runs several capsule, or "pod" hotels, which offer smaller rooms at more affordable rates.

Federal Insurance denied coverage to BD Hotels because access to its properties was not prohibited or restricted by public officials, according to the complaint. BD Hotels had argued that pandemic restrictions in New York severely curtailed its business.

John Houghtaling, an attorney for BD Hotels, told Law360 that neither Federal Insurance nor its parent company Chubb put any exclusion in their policies that would allow them to deny virus coverage. He also slammed Federal Insurance for suing BD Hotels in New York.

In January, BD Hotels sued Federal Insurance and Chubb for coverage in the Superior Court of New Jersey. Federal Insurance's principal place of business is in New Jersey.

That suit claimed that government-ordered shutdowns caused BD Hotels to suffer losses that fell within Chubb and Federal Insurance's coverage policies. BD Hotels said that the coronavirus could damage property onto which it falls or comes into close contact.

"I find it outrageous they would file a second lawsuit on the exact same thing," Houghtaling said. "We shouldn't be increasing the cost of litigation, which they have done in this instance, and they should be honoring the policies."

He said BD Hotels would seek penalties and attorney fees for the New York case.

Houghtaling, who is currently litigating a first-of-its-kind pandemic coverage lawsuit on behalf of a New Orleans restaurant, said it was wrong to deny coverage on the premise that there was no evidence of physical loss or damage on BD Hotels' properties.

"In what universe is contaminated property not damaged property?" he said.

Policyholders in the hospitality industry have had a difficult time in recent months convincing courts that insurers should cover their pandemic losses. Last week, a California federal judge dismissed a San Diego-area cafe's lawsuit seeking coverage from the Hanover Insurance Group for lost business because of pandemic restrictions.

In a case similar to BD Hotels', operator Procaccianti in December said that the presence of the novel coronavirus at its hotels caused physical damage to the properties by transforming surfaces and air into potentially dangerous vectors of illness.

But one policyholder scored a win last month, when an Ohio federal judge said Zurich American Insurance Co. must cover losses suffered by more than a dozen steak and seafood restaurants, finding that the eateries' policy could reasonably be interpreted to cover the loss of use of property.

Representatives for Federal Insurance did not immediately respond to requests for comment.

Federal Insurance is represented by Daren S. McNally, Barbara M. Almeida and Meghan C. Goodwin of Clyde & Co LLP.

BD Hotels is represented by John Houghtaling of Gauthier Murphy and Houghtaling LLC.

The case is Federal Insurance Co. v. BD Hotels LLC, case number unavailable, in the Supreme Court of the State of New York, County of New York.

--Additional reporting by Jeff Sistrunk, Cara Salvatore, Dave Simpson and Theresa Schliep. Editing by Adam LoBelia.

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