New Hampshire-based hotel group sues insurers over Covid coverage
In Superior Court suit, firm says its losses were not excluded in policies
A group of 23 hotels – including four in New Hampshire – is suing their insurance companies, claiming that they were refused coverage for their pandemic losses even though they were not excluded by their coverage.
The group, led by New Hampshire-based Schleicher and Stebbins Hotels (S&S), a hotel management company, filed the suit in June in Merrimack County Superior Court. The first hearing was held on the matter last Thursday in what promises to be lengthy litigation.
The suit – one of a thousand suits filed around the country by the hospitality industry against insurers – appears to be the first in New Hampshire. Many have failed because most policies – 83% – specifically exclude coverage under a pandemic, but the policies in this case don’t have those exclusions, says S&S, and the losses should be covered.
The New Hampshire hotels involved – which rent out about 500 rooms are Residence Inn, Hampton Inn, and AC Hotel Portsmouth, all in Portsmouth, and the Hilton Garden Inn in Lebanon.
All of the hotels involved are in New Hampshire, Massachusetts and New Jersey, and they were developed by Hooksett-based XSS Hotels and managed by S&S, a Seacoast company founded more than 25 years ago by Mark Stebbins, who is also chair and CEO of Hooksett-based Procon Construction, one of the biggest construction companies in the state.
Last year, Stebbins told NH Business Review, his hotel business “fell off a cliff. We had to lay off 1,600 people. It was the most devastating experience we ever faced.”
The suits claim that S&S paid nearly $1 million in premiums for “all-risk coverage,” which includes business interruption and being shut down by civil authority, and the hotels say they suffered losses of $7.6 million in March 2020 and $16.3 million a month after that. The policy should provide up to $150 million in coverage, they say.
The hotels contacted their insurance companies in March as governors in multiple states, including New Hampshire, began issuing stay-at-home orders shutting them down for all but essential workers and vulnerable populations. While that eased up in June, continued restrictions, including quarantined requirements for travelers and the fear of the virus, continued to hurt the hotel business severely.
Stebbins estimates his corporation lost about $80 million as of November, with the four New Hampshire hotels accounting for about $15 million of that. The summer was OK, he said, but the winter was “brutal.”
At first, says one filing, they didn’t really get an explanation. Instead, the insurers acted as if all the hotels were asking for was to be reimbursed for the cost of sanitation, not an advance payment for millions of dollars of loss revenue.
“It feels like the insurance companies are giving us the runaround at a time when we badly need their support,” says one of the plaintiffs in a letter to the insurers in May.
“It’s been over a year, and we haven’t seen a penny. We have been paying millions for years and years,” Stebbins said. “None of them are paying out. Meantime, they are raising the rates. On top of that, now I have legal fees.”
After the hotels filed their suit against the eight insurers, which includes underwriters at Lloyd’s of London, several insurers did claim they were excluded from such policies.
In their 328-page motion, the insurers claim that they didn’t have to pay for two reasons: when the governors shut the hotels down, it didn’t cause “direct physical loss of or damage to” the property and because of the “microorganism exclusion,” stating that the policy does “not insure any loss, damage, claim, cost, expense or other sum directly or indirectly arising out of or relating to mold, mildew, fungus, spores or other microorganism of any type, nature or description, including but not limited to any substance whose presence poses an actual or potential threat to human health.” Then the complaint points to the several dictionaries that define microorganisms to include viruses.
The hotels, in their answer, accuse the insurers of “dictionary shopping” and quote many other dictionaries to make the case that “Mold Mildew Exclusion is Not a Virus” as well as quoting from various introductory biology textbooks that “it is common knowledge to elementary through high school students that viruses are not alive and are not a microorganism.”
One insurer, AXIS Surplus Insurance Company, filed a motion its microorganism exclusion does have the word virus in it: “Pollutants or contaminants, include, but not limited to bacteria, fungi, mold, mildew, virus or hazardous substances,” though it adds “as listed” in various anti-pollution laws, such as the Clean Air Act.
Nevertheless, the suit doesn’t just hang on a word, argue the hotels.
“When property is rendered useless and causes devastating business interruption losses, it matters not that the cause was a tiny virus or a massive earthquake – the significance from a property insurance perspective is the same,” argue the plaintiffs.
Such are the arguments being played out around in lawsuits throughout the country, says Marshall Gilinsky, a New York lawyer who is lead attorney and has been involved in many of the suits.
Gilinsky said that many have been tossed out at the federal level have been tossed out, while many at the state level have been in their favor.
It goes back to an ongoing debate between insurers and insureds over what policies cover.
New Hampshire law is particularly favorable when it comes to making “this connection between usage and damage”, adds Michael Lewis, an attorney at Concord-based Rath, Young and Pignatelli, who is serving as local counsel on this case. That’s because private property is so strong that “there are even privacy rights in our trash.”
Take a look at what Gilinsky calls the “cat pee” case, in which the owners of a condo in Epping claimed that the odor from the urine in another unit made theirs not habitable, a view the New Hampshire Supreme Court agreed with in Mellin v. Northern Security Insurance Co. in 2015.
But the issue to Stebbins is “governors closed us down. We literally had to lock our doors for someone to get into the hotel. They had to hold up a piece of paper to the class to show that they were certified essential workers. This isn’t the matter of a bad smell. People were taken from or hotels to hospitals who died,” said Stebbins.
However, said Stebbins, at least he was in a position to be able to challenge this. “Just think of the guy who holds one hotel. If they sue the insurance companies, they go broke, and if they don’t, they also go broke,” he said.
Or, as Mike Somers, president of the New Hampshire Lodging and Restaurant Association said, “What good is paying insurance premiums if they can’t collect? If the policy covers it, then the policy should cover it.”
NH Business Review reached out to four New Hampshire attorneys representing the insurers in this case. The only one to respond by deadline declined comment.