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The New Hampshire Supreme Court overturned a trial court ruling for a group of 23 hotels that claimed they were entitled to insurance payments for business interruption losses caused by their properties being infected by COVID-19.

Agreeing with most other state courts that have rejected similar claims, the Granite State Supreme Court unanimously ruled that the presence of COVID-19 in the air or on indoor surfaces does not satisfy a claim under a property insurance policy for “loss or damage” or “direct physical loss or damage to property”.

In that ruling, the Supreme Court rejected an argument that the coronavirus could be likened to cat urine, which it said in a 2015 homeowner’s insurance case could possibly cause physical harm.

The plaintiffs — owners of 23 hotels in New Hampshire, Massachusetts and New Jersey — say the pandemic has cost them tens of millions of dollars in lost revenue. They had $600 million in insurance coverage from seven insurers for the policy period from November 1, 2019 to November 1, 2020. Each policy stated in part that it “insured against risks of direct physical loss or damage to property described herein. . . except as excluded below.’

In June 2020, the hotels filed suit challenging their insurers’ denials of coverage and seeking a declaratory judgment that they were contractually entitled to insurance coverage for their business interruption losses resulting from the COVID-19 pandemic. They sought coverage under the business interruption loss provision and under the time element extension provisions, both of which insured against loss of business income caused by loss, damage or destruction of property.

A Supreme Court judge in June 2021 sided with the hotels. “The court is satisfied that any requirement under the “loss or damage” or “direct physical loss or damage to property” rules is met when the property is infected” with the COVID-19 virus, Merrimack County Superior Court Judge John Kissinger ruled .

Hotels cited a 2015 case (Melin) where condominium owners sought to recover under the homeowner’s policy after their condominium was affected by a cat urine odor emanating from a room below. The trial court in that case granted summary judgment to the insurer after finding that the smell of cat urine did not meet the “physical loss” requirement.

However, the Supreme Court overturned that decision, finding that an insured can suffer a “physical loss” in the absence of structural property damage. The court ruled that physical loss can include not only tangible changes in the insured property, but also changes perceived by the sense of smell. However, the court emphasized, the changes “must be clear and demonstrable,” and evidence that the property has become temporarily or permanently unusable or uninhabitable can support a finding that the loss was a physical loss.

Relying on Melin, the hotels argued that the presence of COVID-19 changes property that is safe and usable into property that is unsafe and unusable. They argued that the change to their properties was “different” because people coming into contact with a property exposed to the virus put them at risk of contracting the deadly disease. They further argue that contaminated property is different from uncontaminated property. The change is “demonstrable” through testing and modeling used to identify where the virus is present, they added.

The trial court agreed with the plaintiffs that the alteration to the property was “different” because it exposed people to a deadly disease.

The Supreme Court declined to apply that “distinct and visible change” standard to the business’s COVID dispute, as the hotels wanted. The Supreme Court emphasized that it was not held in Mellin that the smell of cat urine on the property was necessarily sufficient to meet this standard. Rather, it remanded the case to apply that standard.

The Supreme Court also cautioned that “the term ‘physical loss’ should not be interpreted too broadly” and that direct physical loss or damage cannot be construed to apply “whenever the property cannot be used for its intended purpose.”

The Supreme Court dismissed as “irrelevant” whether the property could become a vector for the transmission of a virus posing a risk to human health. The danger of the virus is to people, not real property itself, he noted, citing another court that said COVID-19 “poses a mortal danger to people but little or none to buildings that remain intact and available for use after with the occupants no longer posing a health risk to each other.”

The question is not whether the property is different from the other property, but whether the property itself has changed according to the opinion.

The court concluded, noting that its finding that the presence of COVID-19 would not satisfy the “direct physical loss or damage to property” requirement was consistent with the conclusions of “an overwhelming majority of federal and state courts interpreting language similar or identical to the language contained in the policies at issue.’

The insurers in the case are Starr Surplus Lines Insurance Co., Certain Underwriters at 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. of 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 Lesee, Second Avenue Hotel Owner, Medford Station Hotel, WDC Concord Hotel, Broadway Hotel, Fox Inn, Melnea Hotel, Natick Hotel Lesee, Superior Drive Hotel Owner, Arlington Street Quincy Hotel, Albany Street Hotel Leasee, Albany Street Hotel, Cleveland Circle Hotel Lesee, Cleveland Circle Hotel Owner, Worcester Trumbull Street Hotel, Assembly Hotel Operator, Assembly Row Hotel , Parade Residence Hotel, Portwalk HI Hotel, Route 120 Hotel, Vaughn Street Hotel and FSG Bridgewater Hotel.


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