7th Circuit confirms denial of COVID insurance coverage at downtown Indy’s Conrad Hotel

Continuing a national trend, an Indianapolis hotel that suffered significant blows as a result of the COVID-19 pandemic did not prevail until the 7e Circuit Court of Appeals in its attempts to obtain insurance coverage for its pandemic-related losses.

In 2020, occupancy rates at the Conrad Hotel in downtown Indianapolis dropped “in the low single digits” due to the COVID-19 pandemic. The hotel “lost nearly all of its business revenue” while incurring “additional expenses for cleaning and sanitizing the property.”

At one point, only six of the hotel’s 247 rooms were occupied, and the hotel suspended all operations in April 2020.

Circle Block Partners LLC and Circle Block Hotel LLC, which own and operate the Conrad, had purchased a commercial property insurance policy from Fireman’s Fund Insurance Company to cover the property. When the insurer denied Circle Block’s claims for losses, the owners first sued in Indiana state court, alleging breach of contract and seeking declaratory judgment of coverage in under the policy.

After the case returned to the U.S. District Court for the Southern District of Indiana, Judge James P. Hanlon granted Fireman’s Fund’s motion to dismiss, dismissing as moot Circle Block’s motions for a pleading and to compel.

7e Circuit confirmed in Circle Block Partners, LLC and Circle Block Hotel, LLC v Fireman’s Fund Insurance Company21-2459, citing the Indiana Supreme Court’s recent transfer denial in a similar case involving the Indiana Repertory Theater.

Indiana Court of Appeals judges previously ruled in the state court case that the IRT cannot claim COVID-related loss of use coverage under its insurance policy. insurance because the theater had not been physically damaged when it could not use the property to host live performances.

7and Circuit determined that the Conrad was in a similar boat: The company, although forced to close or reduce operations during the pandemic, did not allege “direct physical loss” or “direct physical damage” to the property.

“We recognize that Circle Block was unable to use the Conrad property as it would have liked. But like Indiana Repertory Theater and the overwhelming majority of similar cases under the law of other states have ruled, a temporary denial of a plaintiff’s preferred use of his or her property, absent a physical alteration, does not fall within the scope of ordinary meaning of “direct physical loss or damage”. Judge David Hamilton wrote.

The appeal panel added that due to Conrad’s status as an essential business for certain purposes, it was permitted to remain open to provide accommodation and delivery or catering services. Essentially, he concluded that the hotel was not rendered “completely uninhabitable by the pandemic”.

7e Circuit pointed to the wording of the restoration period policy to reinforce its conclusion. He found issues with the hotel’s argument – backed by amicus Purdue University – that virus particles physically attached to the Conrad’s surfaces, “adsorb” onto the building’s surfaces and materially damage them.

Further, the court noted that neither Sandy Point Dental, PC vs. Cincinnati Insurance Co., 20 F.4th 327 (7th Cir. 2021), nor Indiana Repertory Theater argue that any imaginable physical alteration is sufficient. Further, adopting Circle Block’s argument would require the court to “cut out a small number of circumstances in which a company’s COVID-19 insurance claim may be dealt with.”

“During oral argument, Circle Block acknowledged that its position would effectively be limited to hotels in Indiana, based on both the length of exposure and the types of surfaces present in the hotels,” Hamilton wrote. “But many other businesses where employees and customers may be subject to prolonged exposure – dental offices, restaurants or daycares – have draperies, rugs and other surfaces like those identified by Circle Block.

“For that matter,” he continued, “we have also rejected other hotels’ COVID-19 coverage claims. … We see no principled distinction in arguing that Circle Block can succeed where these plaintiffs cannot. haven’t done it.

With respect to Circle Block’s “broad definition” of “direct physical damage”, the 7e Circuit said such an understanding would extend coverage to any situation where “material matter” is added to a surface.

“A sneeze that spreads cold virus particles, for example, would be considered to have inflicted ‘direct physical harm,'” Hamilton concluded. “We find it hard to imagine that a reasonably intelligent insured would share such a broad understanding of this phrase. Circle Block also does not explain how this addition of ‘material matter’ would require ‘restoration or relocation’.

Finally, the appeal panel found that the district court did not err in dismissing the case without leave to amend the complaint. He also found that certification of two state law questions to the Indiana Supreme Court was not warranted.

These questions included:

  • Does the policy’s indefinite term “direct physical loss or damage” require tangible and visible physical alteration or destruction of property under Indiana law?
  • Does the persistent attachment of invisible – but physical, dangerous and harmful – particles to property constitute “direct physical loss or damage” under Indiana law?

“These issues are undoubtedly important to policyholders and insurers, but the Indiana Supreme Court will have the opportunity to address them in cases before state courts,” the appeals court concluded. “The Indiana Supreme Court recently decided not to address these issues when it denied the transfer in Indiana Repertory Theater. … This is not a case where certification “may be the only means by which the courts of the state can resolve a question of state law.”


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