COVID-19 Insurance Claim Denial Lawsuit Will Proceed: Judge

By John Hilton

At least one insurer will have to defend its denial virus-related business interruption insurance losses after a California federal judge ruled the high-profile case can proceed.

U.S. District Judge Cormac Joseph Carney ruled in favor of Sunstone Hotel Investors in denying a motion by Endurance American Specialty Insurance Co. to toss out the $40 million suit. The judge rejected the claim that the investors were required to meet a $100,000 deductible for cleanup costs before tapping into business interruption coverage.

So far, insurers have been mostly successful at fending off business interruption lawsuits stemming from the COVID-19 pandemic. Disputes are generally focused on whether the virus is a valid exclusion under policies.

The Boston-based Sunstone Hotel Investors is one of the higher-profile cases. The investment group's Marriott Boston Long Wharf property was the site of life sciences company Biogen's "superspreading" health care event last February, which reportedly accounted as many as 20,000 COVID-19 cases worldwide, court documents said.

Sunstone paid more than $350,000 in premiums specifically for the policy that covered losses caused by viruses, the company said in court documents. Sunstone alleged that Endurance "adopted a corporate-wide and systemic position" to not pay out claims on those policies.

'Completely Promised'

Nothing in the policy language refers to a pandemic or virus exclusion, Sunstone attorneys wrote.

"Rather than seeking to exclude such losses by, for example, using the insurance industry’s standard-form 'virus' exclusion introduced in 2006 or a common pandemic exclusion, Endurance expressly promised to insure virus-associated losses," the complaint said.

Endurance moved for summary judgment in January, claiming that coverage is not triggered since Sunstone never satisfied the policy's $100,000 retention. The policy only covers the cleanup costs resulting from "biological agent conditions," the insurer argued.

And since Sunstone has not satisfied the required retention for coverage relating to cleanup costs, Endurance claimed it has no duty to provide benefits. The judge disagreed.

Sunstone claims it has suffered "millions of dollars in damages" and is asking the court to hold Endurance liable for these losses.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.