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In a win for Wiley’s client, the United States District
Court for the Eastern District of Louisiana, applying Louisiana
law, granted an insurer’s motion to dismiss with prejudice,
finding that an insured hotel’s economic losses related to the
COVID-19 pandemic could not trigger coverage under a commercial
property insurance policy. Hotel Mgmt. of New Orleans, LLC
v. General Star Indem. Co., 2022 WL 1503299 (E.D. La. May 12,
2022). Specifically, the court held that the
insured failed to allege “direct physical loss of or damage
to” property. The Court’s decision was the latest in a
significant number of wins for insurers in similar cases.
The insured owned and operated hotels in New Orleans. The
insured suffered financial losses due to the COVID-19 pandemic.
However, the insured did not allege that its property was tangibly
altered by the virus or that any physical repairs to its property
were needed. The insurer moved to dismiss on the basis that such
economic losses were not “direct physical loss of or damage
to” property, which is required to trigger coverage under the
relevant policy, which included Business Income and Extra Expense
Coverage (colloquially referred to as “business interruption
coverage”). The insurer also argued that the policy’s
Civil Authority Coverage was not triggered because the
COVID-related governmental orders were issued to slow the spread of
the virus rather than in response to any property damage.
The Court noted that, although the Louisiana Supreme Court had
not yet directly addressed the issue, the Fifth Circuit recently
did so. In Q Clothier New Orleans, L.L.C. v. Twin City Fire
Insurance Co., 29 F.4th 252 (5th Cir. 2022), the Fifth Circuit
concluded that some “tangible alteration, injury, or
deprivation” was required to trigger business interruption
coverage. The Fifth Circuit also determined that Civil Authority
Coverage required some connection between COVID lockdown orders and
property damage, which was “absent where the orders responded
to a global pandemic, not property damage.” The district court
found Q Clothier to be “on all fours” with the
current case and therefore granted the insurer’s motion to
dismiss. The court reasoned that “[the Insured’s]
allegations include no instances of alteration to its
property.” Moreover, the court concluded, “COVID-19 did
not make [the insured’s] property unsafe; it made gathering
indoors unsafe,” and “[t]here was no need to repair or
alter [the insured’s] property because of the virus.”
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