Brookfield Hotel REIT sues insurers for denying pandemic-related claims

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Left to right: Brian Kingston of Brookfield and Jonathan P. Mehlman of Hospitality Investors Trust with Hilton Garden Inn Monterey (Brookfield, Hospitality Investors, Hilton)

Hospitality Investors Trust, a hotel investor bankrupted by the pandemic and taken over by Brookfield Property Group, is suing its insurers over Covid-related losses.

The private REIT, which owns Hilton, Marriott and Hyatt-branded hotels, filed a lawsuit in New York on Tuesday against six insurers over a “sham investigation” designed to delay and deny up to $150 million in coverage “in part of a broad ‘all-risk’ commercial property insurance policy,” according to the complaint.

The hotel company said its insurance policies cover “physical loss or damage,” “business interruption loss” and “communicable disease coverage,” with no requirement for physical loss or damage.

The insurers dispute the claim that the pandemic caused physical damage and argue that claims for loss or damage due to the pandemic are excluded by the policies, according to the lawsuit.

The complaint listed as defendants Allied World Assurance Company, Arch Specialty Insurance, Endurance American Specialty Insurance, Interstate Fire & Casualty, Starr Surplus Lines, Westport Insurance Corp. and Zurich American Insurance. The companies declined or did not respond to a request for comment.

Hospitality Investors has estimated its business interruption losses during the pandemic at $54 million — at least — in more than 12,000 hotel rooms at 98 properties nationwide. Society compares Covid to airborne asbestos fibers, carbon monoxide, smoke from wildfires and ubiquitous smells including cat urine – “all of this [the courts have found] cause direct physical loss or property damage,” the lawsuit alleges.

The company was, in part, a victim of timing. He refinanced his portfolio with a $1.04 billion debt deal in 2019 as occupancy rates showed steady growth, but was unable to repay debt after the pandemic took hold and strangled revenues across the sector.

Insurers have largely avoided paying claims from companies that have lost money due to the pandemic. Policies rarely explicitly cover the effects of communicable diseases, and courts have largely refused to interpret the pandemic as causing property damage. Insurance products that cover business interruptions unrelated to property loss are rare, according to a 2021 report from the OECD.

Federal legislation proposed last year by New York Rep. Carolyn Maloney that would require insurers to offer business interruption policies to cover certain losses from infectious disease outbreaks remains in limbo. Proposed legislation in some states, including New York, requiring insurers to retroactively offer pandemic coverage, met with early federal resistance.

The hospitality industry has suffered in the wake of the pandemic as waves of layoffs and deep cuts in revenue crumbled with each new variant of the virus.

Lawsuits recently filed by three New York hotels against insurers for pandemic-related losses are ongoing.

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