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Recently, a California federal court issued a favorable decision for policyholders seeking coverage for losses arising from COVID-19 who paid significant premiums to purchase substantial coverage limits including “coverage for business interruption losses from a virus.”  Sunstone Hotel Investors, Inc. v. Endurance Am. Spec. Ins. Co., Case No. SACV 20-02185 (C.D. Cal., June 15, 2022).

The facts

In Sunstone Hotel Investors, Inc., the Boston Marriott Long Wharf (the “Marriott”) hosted a three-day conference in February 2020.  Following the event, the Boston Public Health Department informed the hotel that three attendees tested positive for COVID-19.  Sunstone, the operator of the Marriott, timely filed an initial notice of loss with Endurance under its environmental impairment liability policy for the losses stemming from the presence of COVID-19.

In exchange for the placement of the policy, Sunstone paid a significant premium for an aggregate maximum of $40 million limit of insurance to protect itself against all kinds of events, including $25 million for “business interruption losses from a virus.”

After receiving the notice, Endurance denied the claim in full.  Following the notice but prior to denial, the Boston public health authorities informed the Marriott that the City would force it to quarantine and close immediately if the hotel failed to suspend its operations.  The Marriott thereafter suspended its operations for a period of 14 days.  Prior to the hotel’s reopening date, the State of Massachusetts issued a governmental order mandating the closure of all non-essential businesses, which included the hotel.  The Marriott thus remained closed until July 7, 2020, when the State permitted it to reopen at limited capacity. Continue Reading A policyholder win: Court finds coverage for COVID-19 related losses

It’s no secret that businesses of all shapes and sizes have suffered tremendous losses during the COVID-19 pandemic. From closures to the “Great Resignation” to ever-changing consumer demands, businesses have dealt with one problem after another. One of those problems is the denial of insurance coverage under  “all risk” commercial property policies. For the last two years, courts across the country have found in favor of insurers, ruling that SARS-CoV-2, the virus underlying the COVID-19 pandemic, does not cause physical damage to property.

Enter Marina Pacific Hotel, LLC, et al. v. Fireman’s Fund Insurance Company, 2022 Cal. App. LEXIS 608 (2nd Dist. 2022), a case in which the California Appellate Court looked beyond the preliminary question of whether SARS-CoV-2 causes damage to property and got back to legal basics in its analysis of the plaintiffs’ complaint. With Marina Pacific Hotel, policyholders landed a major victory, and the case may provide a winning framework for plaintiff-insureds facing similar legal battles in the future.

The Marina Pacific Hotel Case

The policy at issue in Marina Pacific Hotel contained much of the standard coverage language which has been heavily debated over the last two years, namely, that the insurer will pay for “direct physical loss or damage” caused by or resulting from a covered cause of loss. This language has proven problematic for policyholders dealing with COVID-19 losses as judges have been reluctant to find that a virus physically alters property when viewed through the lens of what is traditionally considered “property damage.”

However, the Marina Pacific Hotel plaintiffs set out detailed allegations of physical damage, including the fact that SARS-CoV-2 can bond with the surfaces of objects it touches altering the cells and surface proteins of that object. Like insurers around the country, Fireman’s Fund argued that SARS-CoV-2 cannot physically damage property, and that the insured’s loss of use of a piece of property does not constitute physical damage.Continue Reading Looking beyond “Physical Damage to Property”: Is Marina Pacific Hotel a winning framework for policyholders?

It has long been acknowledged that typical Employment Practices Liability Insurance (EPLI) policies exclude coverage for “wage and hour” claims.[1] [2]  However, a recent California Court of Appeal decision, Southern California Pizza Co., LLC v. Certain Underwriters at Lloyd’s, London Subscribing to Policy Number 11EPL-20208,[3] narrows the definition of what is a wage and hour claim, and improves the possibility of obtaining coverage for broad-brush wage and hour claims that tack on claims for failure to reimburse employees for business-related expenses.

In Southern California Pizza, the Court of Appeal held that claims brought under California Labor Code Sections 2800 and 2802 for failure to reimburse employee expenses did not fall within the wage and hour exclusion in a Lloyd’s of London EPLI policy that excluded coverage for claims “based upon, arising out of, directly or indirectly connected to or related to, or in any way alleging violations of any foreign, federal, state, or local, wage and hour or overtime law(s), including, without limitation, the Fair Labor Standards Act.”  In doing so, the Court reversed the lower court’s dismissal of the insured’s coverage case and rejected prior federal court decisions that had denied coverage for Labor Code Sections 2800 and 2802 claims under similar exclusionary language, stating that the California Courts of Appeal are “not bound by those federal decisions, nor do we find them persuasive.”[4]

Accordingly, policyholders who previously would not have had coverage for these types of reimbursement-related claims may now be able to trigger an insurer’s broad defense obligations and also obtain indemnification for some claims, depending on the language of their EPLI policy.Continue Reading Will your EPLI policy cover “wage and hour” claims in the wake of the California Court of Appeal’s decision in Southern California Pizza?