Insurance: Policies didn’t cover hotel’s COVID business losses

Where hotels argued that financial losses they suffered during the Covid-19 pandemic were covered by insurance policies, but they did not allege facts showing any tangible harm to their properties, the carriers’ demurrer was sustained.

Background

Sotherly Hotels Inc., Sotherly Hotels LP and Our Town Hospitality LLC appeal a decision from the circuit court sustaining appellees’ demurrer and dismissing appellants’ breach of contract case with prejudice. Appellants claim the circuit court erred in determining that the complaint did not sufficiently allege direct physical loss or damage, as required for coverage under the contractual policies between appellants and their insurance providers.

Contract

Appellants’ breach of contract claim is premised on the assertion that the harms they suffered due to the COVID-19 pandemic qualify as “physical loss[es] or damage[s]” for which they are entitled to coverage under their insurance policies with appellees. Appellants also assert their entitlement to coverage under special provisions in the contracts that do not require proof of physical loss or damage.

The premise of appellants’ complaint is that their financial losses and reduction in functional capacity caused by COVID-19 are coverable as “physical loss[es] or damage[s]” under their insurance policies with appellees. Merely stating that conclusion, however, does not make it so.

Nor does appellants’ argument that COVID-19, in the form of airborne droplets, “physically transformed the composition of the surfaces and air within [their hotels] at a microscopic level” support a finding that COVID-19 caused direct and tangible loss or damage to appellants’ properties. Therefore, based solely on the facts alleged in appellants’ pleadings, this court finds that the complaint does not adequately establish a basis for coverage where appellants do not allege any tangible harm to their properties.

Appellants also allege the pleadings show they were entitled to coverage under special provisions of their policies that expand coverage beyond the “physical loss or damage” requirement. The specific provisions that appellants rely upon here are for Communicable Disease Coverage, Civil Authority Coverage and Crisis Management Coverage under the Fireman’s Fund Policy of the Main Program.

This court finds that appellants have not alleged facts sufficient to establish their entitlement to coverage under any of those provisions. Because appellants do not claim coverage under any other special provision in their insurance contracts, this court holds that the circuit court did not err in granting appellees’ demurrer and dismissing the insufficient complaint.

Affirmed.

Sotherly Hotels Inc. v. Fireman’s Fund Insurance Company, Record No. 1981-22-1, Sept. 24, 2024. CAV (unpublished opinion) (Huff). From the Circuit Court of the City of Williamsburg and County of James City (Brodie). Matthew J. MacLean (Joseph D. Jean; Scott D. Greenspan; James J. O’Keeffe IV; E. Kyle McNew; Pillsbury Winthrop Shaw Pittman LLP; MichieHamlett PLLC, on briefs), for appellants. Brett Solberg (Olivia Houston; Vincent J. Palmiotto; Jonathan Hacker; James H. Revere, III; Taryn M. Kadar; Zachary J. Ferreira; Diane Montgomery; Robert T. Pindulic; Matthew A. Lafferman; DLA Piper LLP (US); Clyde & Co US LLP; O’Melveny & Myers LLP; Kalbaugh, Pfund & Messersmith, P.C.; Fields Howell LLP; Midkiff, Muncie & Ross, P.C.; White and Williams LLP; Dentons US LLP, on brief), for appellees. VLW 024-7-295. 22 pp.