In H&H Hospitality L.L.C. v. Discover Specialty Ins. Co., No. 10-1886 (S.D. Tex. Dec. 20, 2011), the U.S. District Court for the Southern District of Texas granted summary judgment in favor of a commercial property insurer in an action brought by an insured motel owner for wrongful denial of a business interruption claim arising from property damage caused by Hurricane Ike. The Court held that the policy did not provide coverage for the reduced business operations experienced by the policyholder.
H&H Hospitality L.L.C., the owner/operator of a motel located in Spring, Texas, was the named insured on a commercial property insurance policy issued by Discover Specialty Insurance Co. In September 2008, Hurricane Ike damaged the hotel, rendering approximately 40 rooms unrentable, but other rooms remained rentable and were rented following the storm. The policyholder submitted a claim to the insurer for business interruption losses of $293,191. After the insurer paid $51,971 on the claim, H&H sued Discover for wrongful denial of its claim for the remaining amount, and both parties subsequently moved for summary judgment.
In its decision, the District Court noted that the phrase “necessary suspension of your operations,” contained in the policy’s business interruption provision had been interpreted to cover the risk of a complete cessation of business activities at the covered premises. By contrast, policies that describe “necessary or potential suspension” of business activities have been interpreted to allow coverage for a partial cessation of business. As a result, the Court found that the policyholder’s argument that its policy provided coverage for reduced business operations lacked support in the plain language of the policy.
Interestingly, the Court pointed out that even if it assumed the existence of coverage, H&H failed to present evidence to raise a fact issue that it was unable to meet customer demand for rooms because H&H’s own “listing of occupancy stats,” which was uncontroverted, supported an inference that H&H did in fact have a supply of rooms sufficient to meet demand. For these reasons, the District Court granted summary judgment in favor of the insurer.
For more analysis of the suspension or interruption requirement in hotel/hospitality policies, see Michelle Claverol’s post, Hotels May Find Courts’ Interpretation of Business Interruption Coverage Inhospitable.
For tips on avoiding business interruption coverage gaps check out Michelle’s post,
Hotels May Find Courts’ Interpretation of Business Interruption Coverage Inhospitable, Part 2.