The federal district court denied the insurer’s motion to dismiss the hotel’s claim for business interruption coverage. Sunstone Hotel Investors, Inc. v. Endurance Am. Spec. Ins. Co., No. SACV 20-02185, (C.D. Cal. Feb. 26, 2021).
From February 24 to 27, 2020, the insured hotel hosted an international meeting of leaders from biotechnology company Biogen, Inc. After the hotel was notified on March 4, 2020, that three attendees tested positive for coronavirus, the hotel closed on March 12, 2020, and remained closed for months.
The hotel submitted a claim to cover its losses, but coverage was denied. The hotel sued and the insurer moved to dismiss.
Coverage D of the policy stated the insurer would pay business interruption losses that directly resulted from Biological Agent Conditions that “result in Cleanup Costs covered under this Policy.” The parties disputed the meaning of the modifier “covered under this Policy.” The insurer argued that “Cleanup Costs covered under this Policy” included only those Cleanup Costs that exceeded the $100,000 self-insured retention (SIR). To make this argument, the insurer relied upon Coverage C, which stated that the insurer would only pay Cleanup Costs in excess of the SIR. Since the hotel had not incurred Cleanup Costs in excess of that amount, the insurer argued that the hotel’s claim should be dismissed.
The hotel, on the other hand argued that the phrase “covered under this Policy” meant only fitting within the policy’s definition of Cleanup Costs. The policy defined Cleanup Costs as “the reasonable and necessary costs incurred in performing Corrective Actions and/or Restorative Actions at a Scheduled Location,” without regard to the SIR. Therefore, Coverage C’s SIR was not a factor in determining what Cleanup Costs were covered under Coverage D and that the insured need not have incurred $100,000 in Cleanup Costs to obtain Coverage D coverage.
The court agreed with the hotel. Nowhere in Section D did it say that an insured must incur $100,,000 in Cleanup Costs to trigger Coverage D coverage. Instead, to find the limitation the insurer sought to impose, it was necessary to look in a whole other coverage section, one under which the hotel did not seek coverage.
Therefore the Motion to Dismiss was denied.