Wiley’s client, the United States Court of Appeals for the Fifth Circuit, recently upheld the insurer’s motion to dismiss in Hotel Management New Orleans, LLC v. General Star Indem. Co. The case involved an insured hotel in New Orleans that suffered financial losses due to the COVID-19 pandemic and sought coverage under its commercial property insurance policy, including business interruption coverage. However, the insurer argued that the policy only covered losses resulting from “direct physical loss or damage” to the property, which the insured could not establish.
The case continued to court, with the insurers seeking dismissal on the basis that the economic loss suffered by the insured did not meet the criteria for coverage under the policy. The United States District Court for the Eastern District of Louisiana granted the motion, and the insured appealed. The Fifth Circuit upheld the decision.
At the time of the appeal, the Louisiana Supreme Court had not specifically addressed the issue of whether losses caused by the COVID-19 pandemic constituted “direct physical loss or damage” under insurance policies. However, in Q Clothier New Orleans, LLC v. Twin City Fire Insurance Co., the Fifth Circuit had already suggested that losses resulting from “property injury and deprivation” may fall under this category.
The Louisiana Supreme Court later confirmed this speculation in Cajun Conti LLC v. Certain Insurance Companies at Lloyd’s of London, clarifying that “direct physical loss or damage” can include not only visible physical damage, but also situations where the property is made unusable.
The Fifth Circuit’s decision in Hotel Management New Orleans, LLC v. General Star Indem. Co. therefore focused on the interpretation of the policy itself, ultimately ruling that the insured could not establish a direct physical loss that would trigger coverage under Louisiana law.