Mandarin Oriental, Inc. v. HDI Global Insurance Company

Background

Mandarin Oriental, Inc. sued HDI Global Insurance Company and Assicurazioni Generali S.p.A. over insurance coverage for COVID-19-related business-interruption losses at its hotels in Miami, New York, Washington, D.C., and Boston. Mandarin alleged that the insurers’ policies included Endorsement No. 3, which covered losses from business interruption or interference caused by an infectious or contagious disease manifested by a person on the insured premises or within five miles of those premises.

Mandarin alleged that COVID-19 was manifested within five miles of each hotel, that the hotels suffered business-interruption losses, and that the insurers made no payments on its COVID-19 claims. It sought a declaration that the insurers were obligated to compensate it for the losses and asserted a breach-of-contract claim. The contract claim also alleged that the insurers breached the implied duty of good faith and fair dealing by delaying claim handling, failing to provide a coverage position, failing to make advance payments, and not attempting prompt and fair settlements.

The insurers moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The parties applied New York law, and the court noted that the full insurance policies had not yet been provided; the opinion relied on provisions of Endorsement No. 3 quoted in the complaint.

Breach-of-Contract Claim

The insurers argued that the phrase “in consequence of” required Mandarin to plead a specific causal connection between particular COVID-19 cases within five miles of a hotel and the hotel’s business losses. Mandarin argued that the provision required a broader causal connection and did not require any particular COVID-19 case to be the specific or exclusive cause of a loss.

The court held that the quoted policy language did not unambiguously support the insurers’ narrower interpretation. It found that the complaint plausibly alleged that the hotels’ business-interruption losses resulted from COVID-19 manifestations within five miles of the hotels. Because the policy language was not sufficiently clear to impose the demanding causation requirement urged by the insurers, the court denied dismissal of the breach-of-contract claim.

The court also rejected the argument that Mandarin’s allegations were merely conclusory. It concluded that the complaint provided sufficient details about COVID-19 manifestations near each hotel, the resulting business-interruption losses, Mandarin’s notices to the insurers, and the insurers’ failure to pay. The court therefore denied the insurers’ motion to dismiss Count II, including the implied-covenant theory. It determined that the implied-covenant allegations were not duplicative at the pleading stage because they concerned alleged bad-faith claims handling and delay, while the contract theory concerned failure to pay covered losses.

Declaratory-Judgment Claim

Mandarin’s Count I sought a declaration about the insurers’ coverage obligations. The court explained that the Declaratory Judgment Act gives federal courts discretion to decide whether to issue such a declaration. Because the same insurance-coverage issue would necessarily be resolved through the breach-of-contract claim, the court found that a declaration would serve no additional purpose. It also found that the damages available through the contract claim provided a better or more effective remedy.

The court therefore declined to exercise discretionary jurisdiction over Count I and dismissed that count without prejudice. “Without prejudice” means the dismissal did not bar refiling the claim, although the opinion states that the same issue would be addressed through the contract claim in this action.

Disposition

The court denied Defendants’ motion to dismiss. It separately dismissed Count I without prejudice and directed the Clerk of Court to close Docket Number 24.