Hospitality Investors Trust, a hotel investor bankrupted by the pandemic and taken over by Brookfield Property Group, is taking its insurers into court over Covid-related losses.
The private REIT, which owns hotels branded by Hilton, Marriott and Hyatt, on Tuesday filed a lawsuit in New York against six insurers over a “sham investigation” meant to delay and deny up to $150 million in coverage “under a broad ‘all-risk’ commercial property insurance,” according to the complaint.
The hospitality company claimed its insurance policies cover “physical loss or damage,” “business interruption losses,” and “coverage for communicable disease,” without the requirement of physical loss or damage.
The insurers dispute the claim that the pandemic caused physical damage and argue claims for loss or damage due to the pandemic are excluded by the policies, according to the lawsuit.
The complaint listed as defendants Allied World Assurance Company, Arch Specialty Insurance, Endurance American Specialty Insurance, Interstate Fire & Casualty, Starr Surplus Lines, Westport Insurance Corp. and Zurich American Insurance. The companies either declined or did not respond to a request for comment.
Hospitality Investors put its losses due to business interruption during the pandemic at $54 million —at least — across more than 12,000 hotel rooms at 98 properties nationwide. The company likens Covid to airborne asbestos fibers, carbon monoxide, wildfire smoke and pervasive odors including cat urine — “all of which [the courts have found] to cause direct physical loss or damage to property,” the lawsuit claims.
The company was, in part, a victim of timing. It refinanced its portfolio with a $1.04 billion debt deal in 2019 as occupancy rates showed steady growth, but could not service the debt after the pandemic took hold and throttled revenue across the industry.
Insurers have largely avoided paying claims made by businesses that lost money due to the pandemic. Policies rarely cover the effects of communicative disease explicitly, and courts have largely declined to interpret the pandemic as causing property damage. Insurance products that cover business interruptions not related to property loss are uncommon, according to a 2021 report from the OECD.
Federal legislation proposed last year by New York Rep. Carolyn Maloney that would require insurers to offer business interruption policies to cover some losses from infectious disease outbreaks remains in limbo. Legislation proposed in some states, including New York, requiring insurers to retroactively offer pandemic coverage were met with early federal resistance.
The hospitality industry suffered in the wake of the pandemic as waves of layoffs and deep cuts to revenue crashed over it with each new variant of the virus.
Lawsuits recently filed by three New York City hotels against insurers for pandemic-related losses are ongoing.