COVID-19 Claim Survives Insurers’ Motion to Dismiss
The insurers' motion to dismiss a COVID-19 claim was denied based upon an endorsement for business interruption claims. Mandarin Oriental, Inc. v. HDI Global Ins. Co., 2024 U.S. Dist. LEXIS 169836 (S.D N.Y. Sept. 19, 2024).
Mandarin owned hotels in, among other cities, Miami, New York, Washington, D.C. and Boston. It held "all risks" commercial lines policies issued by a group of insurers that included HDI Global Insurance Company and Assicurazioni Generali S.p.A. The policies issued by HDI and Generali contained Endorsement No. 3, which provided, "this policy is extended to cover loss resulting from interruption of or interference with the business carried on by the Insured in consequence of infectious or contagious disease manifested by any person while on the premises or within a radius of 5 miles thereof.
The hotels were impacted by the COVID-19 pandemic and the manifestations of COVID-19 by any person within a 5-mile radius of each of the hotels. Mandarin suffered millions of dollars in business interruption and interference losses at these locations during the pandemic.
Mandarin notified the insurers of its COVID-19 related claims. Neither HDI or Generali made any payments to Mandarin in connection with the COVID-19-related claims. Mandarin sued and the insurers moved to dismiss.
The insurers urged dismissal because of the purported failure of the complaint to allege a plausible connection between particular COVID-19 cases and any interruption or interference with Mandarin's business. Mandarin argued the endorsement should not be read with such a narrow causation requirement. The insurers argued that the use of the phrase "in consequence of" in Endorsement No. 3 established a proximity requirement for losses to be covered under the policy. The policy required Mandarin to allege a causal connection between its losses and any person with COVID-19 either on or within 5 miles of a Mandarin hotel. Mandarin argued that Endorsement No. 3 did not require that any specific COVID -19 case be the specific but-for or exclusive cause of the loss.
Because the text of Endorsement No. 3 did not unambiguously support the insurers' narrow causation reading, dismissal of Mandarin's breach of contract claim was not appropriate. While the Endorsement's "in consequence of" language imposed some degree of casual relationship, the core question was how far the causal chain reached.
A plausible reading of Endorsement No. 3 was that the provision merely required that the business interference or interruption loss be caused by an infectious or contagious disease, with that disease being manifested by any person within a five-mile radius of the hotel. At this pleading stage, the court was unable to assess what leval of causation would be consistent with the reasonable expectation of the average insured in this context. Therefore, Mandarin had plausibly alleged that its business interruption losses were covered by Endorsement No. 3.
The insurers also sought dismissal of Mandarin's claim for breach of the duty of good faith and fair dealing. The breach allegedly arose in engaging with Mandarin's claim and in delaying the claims handling process. As pleaded in the complaint, Mandarin's theory for a breach of the implied duty survived.
