A state judge in Connecticut has refused to dismiss a COVID-19 business interruption suit stating that a hotel chain seeking coverage for a property in Louisiana had adequately alleged physical loss or damage. The case is New Castle Hotels LLC v. Zurich American Insurance Co.
New Castle Hotels LLC filed suit against Zurich in Connecticut state court in March. The suit sought coverage for several hotels in Maine, South Carolina, New York, Georgia, Canada, and Louisiana. The court dismissed litigation for all but a hotel in Louisiana, citing the virus exclusion in the policies. Louisiana law prohibits the virus exclusion contained in the policy.
Zurich argued that there was "nothing 'physical' about the loss or damage flowing from the COVID-19 virus," according to the ruling. The court asked if this merely needs to be asserted in order to be true?
According to Connecticut law, a party is only required to plead a "plain and concise statement of the material factors on which the pleader relies." The ruling stated that New Castle Hotels had accomplished this.
The pleading alleged that the virus "is a cause of real physical loss or damage to property" and cites government and private sources to allege that the virus is "extremely damaging to humans" and can linger on surfaces for up to three days.
Zurich asked the court to take judicial notice that the virus does not physically alter objects. The ruling stated, though, that "[t]he court simply can't take notice at this state that the virus does not degrade physical objects on at least a microscopic level." The ruling also said that this question will have to wait another day. This suit survives, though, because physical damage was specifically alleged in this case.
Judge Moukawsher noted that there has been an ill-advised rush to judgment on the question of physical damage in some courts, without reasoning and without evidence. "For now, in this court, and for this policy, it would be wrong to rush," he noted in his ruling.
Editor's Note: Although most courts have sided with insurers in business interruption cases, a few have sided in favor of policyholders. We will keep an eye on this case to see where the court lands with this decision.