The insurance company urged Chief Judge John J. McConnell Jr. on Tuesday to dismiss hotel operator Procaccianti Cos.' lawsuit claiming the policy's contamination exclusion bars all coverage of "direct physical loss of or damage." Specifically, Zurich American said, the policy exclusion defines contaminated property as property that shows an actual presence of any virus or other disease-causing agent.
"Despite strategically referring to COVID-19 as a 'communicable disease,' plaintiffs do, indeed, admit that the SARS-CoV-2 virus is a 'virus,' making the exclusion application to their claim," Zurich American said. "Plaintiffs further allege that all their claimed losses are allegedly caused by the virus and the resultant stay-at-home orders."
Zurich American went on to cite a string of similar coverage cases nationwide that have already gone in insurers' favor as courts around the country dismiss COVID-19 business interruption claims, many of which concern policies that exclude losses due to viruses. And well-settled Rhode Island law suggests that Judge McConnell should reject Procaccianti's suit, the insurer said.
"For example, there is no merit to plaintiffs' contention that an endorsement specific to Louisiana should be interpreted as changing the terms of the policy for risks located outside that state because the clear language of the policy confined the endorsement to Louisiana risks. Plaintiffs' argument is the type of 'mental gymnastics' that the Rhode Island Supreme Court has expressly rejected," Zurich American said, citing a 2015 high court decision in Peerless Insurance Co. v. Luppe
.Hotel operator Procaccianti sued Zurich American on Dec. 8 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 its complaint, Procaccianti said the presence of the novel coronavirus at its hotels has caused physical damage to properties by 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 coverage under its policy with Zurich American, according to the complaint.
A slew of businesses in the hospitality industry have sued their insurers to recoup losses related to the pandemic, and courts have generally ruled that virus exclusion provisions preclude such losses.
A Florida federal judge on Monday tossed a Miami catering company's suit seeking to force its insurer to pay for COVID-19-related losses, ruling its commercial property policy's virus exclusion doesn't cover physical loss or damage.
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 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 such as 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.
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.
Representatives for Zurich American and Procaccianti did not respond to requests for comment Wednesday.
Procaccianti is represented by Stephen M. Prignano of McIntyre Tate LLP and Michael S. Levine of Hunton Andrews Kurth LLP.
Zurich American is represented by Daniel F. Sullivan and William Maxwell Daley of Robinson & Cole LLP and Michael Menapace and Susan M. Kennedy of Wiggin and Dana LLP.
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 Theresa Schliep and Daphne Zhang. Editing by Philip Shea.
For a reprint of this article, please contact reprints@law360.com.