A Successful Business Interruption Insurance Claim

We have covered a lot of business interruption insurance claims relating to the COVID-19 pandemic. The insureds almost always lose because the policies require some physical damage to property, and courts don’t think microscopic viruses cause physical damage, or because some of the policies had exclusions for business losses caused by epidemics. 

Mandarin Oriental, Inc. v. HDI Global Insurance Co. is different. The insured in this case owns hotels in major U.S. cities and alleged losses attributable to the pandemic totaling nearly $70 million. The defendants, along with other non-party insurers, provided “all risks” coverage capped at $10 million per occurrence, which Mandarin is alleging is a per-hotel limit, and there are four hotels at issue. The policies included Endorsement No. 3, which provides:

[T]his policy is extended to cover loss resulting from interruption of or interference with the business carried on by the Insured in consequence of: (a) Infectious or contagious disease manifested by any person while on the premises of the Insured or within a radius of 5 miles thereof.

Plaintiff has alleged COVID manifestations within a five mile radius of each of the four hotels during the coverage period.

Defendants argued that the Endorsement requires, and Mandarin failed to allege, a causal connection between its losses and any person with COVID-19 on the premises of or within five miles of one of the hotels. The court found the contractual language ambiguous. It might mean that Mandarin had only to allege that there were manifestations of COVID-19 within five miles of the premises and that it had losses caused by the pandemic. Mandarin has so alleged.

In its September, 2024 ruling, the court allowed Mandarin’s claims for breach of contract and breach of the implied covenant of good faith and fair dealing to proceed. Its claim for declaratory judgment was dismissed as duplicative.