The New Hampshire Supreme Court overturned a trial court’s finding for a group of 23 hotels that claimed they were entitled to insurance payments for business interruption losses caused by contamination. of their assets to COVID-19.
Agreeing with most other state courts that have rejected such claims, the Granite State’s high court unanimously ruled that the presence of COVID-19 in the air or on the surface of an area is not sufficient. of a requirement under a property insurance policy of “loss or damage.” or “direct physical loss or damage to property.”
In that ruling, the high court rejected the argument that the coronavirus could be compared to cat urine that a 2015 homeowner’s insurance case said could cause physical harm.
The plaintiffs – owners of 23 hotels in New Hampshire, Massachusetts and New Jersey – stated that the pandemic cost them tens of millions of dollars in lost revenue. They have $600 million in insurance coverage from seven insurers for the policy period from November 1, 2019 to November 1, 2020. Each policy states, in part, that it “insures against the risks of direct physical loss or damage to the property described herein. . . except that after this it is omitted.”
In June 2020, the hotels filed a lawsuit challenging their insurers’ denial of coverage and seeking a declaratory judgment that they are entitled to contract insurance coverage for their loss of business due to the COVID-19 pandemic. . They seek coverage under the business interruption loss provision and under the extension of the weather element coverage provisions, both of which insure against loss of business income due to loss, damage or destruction of property.
A Superior Court judge in June 2021 sided with the hotels. “The court is satisfied that any requirement under the policies for ‘loss or damage’ or ‘direct physical loss or damage to property’ has been met where the property has been contaminated” by the COVID-19 virus, Merrimack County ruled. Superior Court Judge John Kissinger.
Hotels cited a 2015 case (Mellin) in which condominium owners sought to recover under their homeowner’s policy after their condominium was affected by a cat urine odor emanating from a unit in down. The trial court in that case granted summary judgment to the insurer after finding that the smell of cat urine did not satisfy the “physical loss” requirement.
However, the high court vacated that decision, finding that an insured may suffer a “physical loss” if there is no structural damage to the property. The court believed that physical loss may include not only tangible changes to the insured property, but also changes known to the sense of smell. However, the court emphasized, the changes “must be distinct and demonstrable” and evidence that the property has become temporarily or permanently unusable or uninhabitable may support a finding that the loss is a physical loss
Relying on Mellin, the hotels argued that the presence of COVID-19 has transformed property that is safe and available into property that is dangerous and unavailable. They maintain that changing their properties is “different” because people who come into contact with a property exposed to the virus result in a risk of getting a deadly disease. Also, they argue that contaminated property is different from uncontaminated property. The change is “demonstrable” through testing and modeling used to determine where the virus is, they added.
The trial court agreed with the plaintiffs that the conversion of the property was “different” because it exposed people to a deadly disease.
The high court declined to apply that “distinct and demonstrable change” standard to the COVID business dispute that hotels want. The high court emphasized that in Mellin it did not believe that the smell of cat urine on the property was sufficient to meet that standard. Instead, it remanded the case for the application of that standard.
The high court also cautioned that “the term ‘physical loss’ should not be interpreted too broadly” and that direct physical loss or damage cannot be interpreted as “’when the property cannot be used for its intended purpose’ its purpose.’”
The Supreme Court dismissed as “irrelevant” whether the property can be a vector for the transmission of a virus that poses a risk to human health. The danger of the virus is to people, not to real property itself, it said, citing another court that said that COVID-19 “presents a mortal danger to people, but little or none of the buildings remain unoccupied and available once the occupants no longer pose a health risk to each other.”
The question is not whether the property is different from other properties, but whether the property itself has changed, according to the opinion.
The court concluded by noting that its finding that the presence of COVID-19 does not satisfy a requirement of “direct physical loss or property damage” is consistent with the conclusions of a “majority of federal and state courts which translates in the same language or similar to the language contained in the policies issued.”
The insurers in the case are Starr Surplus Lines Insurance Co., Certain Underwriters of Lloyd’s, Everest Indemnity Insurance Co., Hallmark Specialty Insurance Co., Evanston Insurance Co., AXIS Surplus Insurance Co., Scottsdale Insurance Co., and Mitsui Sumitomo Insurance Co. in America.
Hotels in the case include Schleicher and Stebbins Hotels, Renspa Place, Chelsea Gateway Property, OS Sudbury, Monsignor Hotel, SXC Alewife Hotel, Lawrenceville, Second Avenue Hotel Lessee, Second Avenue Hotel Owner, Medford Station Hotel, WDC Concord Hotel, Broadway Hotel , Fox Inn, Melnea Hotel, Natick Hotel Lessee, Superior Drive Hotel Owner, Arlington Street Quincy Hotel, Albany Street Hotel Lessee, Albany Street Hotel, Cleveland Circle Hotel Lessee, Cleveland Circle Hotel Owner, Worcester Trumbull Street Hotel, Assembly Hotel Operator, Assembly Row Hotel, Parade Residence Hotel, Portwalk HI, Route 120 Hotel, Vaughn Street Hotel, and FSG Bridgewater Hotel.