Schleicher & Stebbins Hotels, LLC v. Starr Surplus Lines Ins. Co.

175 N.H. 744

302 A.3d 67

SCHLEICHER AND STEBBINS HOTELS, LLC & a.

v.STARR SURPLUS LINES INSURANCE COMPANY & a.

No. 2022-0155

Supreme Court of New Hampshire.

Argued: November 10, 2022

Opinion Issued: May 11, 2023

Rath Young and Pignatelli, P.C., of Concord (Michael S. Lewis and Michael K. O'Neil on the brief), and Anderson Kill, P.C., of New York, New York (Marshall Gilinsky and Ethan W. Middlebrooks on the brief, and Marshall Gilinsky orally), for the plaintiffs.

Primmer Piper Eggleston & Cramer PC, of Manchester (Doreen Connor on the brief and orally for all defendants), and Zelle LLP, of Framingham, Massachusetts (Matthew Gonzalez and Seth Jackson on the brief), for defendant Everest Indemnity Insurance Company.

Kennedys CMK LLP, of Basking Ridge, New Jersey (Kristin V. Gallagher and Eduardo DeMarco on the brief, and Kristin V. Gallagher orally), and Cullencollimore, PLLC, of Nashua (Kevin G. Collimore on the brief), for defendant AXIS Surplus Insurance Company.

Paul Frank + Collins, P.C., of Burlington, Vermont (Megan A. Sigur and Nolan C. Burkhouse on the brief), Robinson & Cole LLP, of Hartford, Connecticut (Wystan M. Ackerman on the brief), and Robins Kaplan LLP, of Los Angeles, California and Boston, Massachusetts (Amy Churan and Matthew P. Cardosi on the brief), for defendants Starr Surplus Lines Insurance Company and Certain Underwriters at Lloyd's and London Companies Subscribing to Policy Number EW0040519.

Sulloway & Hollis PLLC, of Concord (Alexander Henlin on the brief), and Dickinson Wright PLLC, of Phoenix, Arizona (Bennett Evan Cooper on the brief), for defendant Evanston Insurance Company.

Morrison Mahoney LLP, of Boston, Massachusetts (Michael Aylward on the brief), and Clausen Miller P.C., of Chicago, Illinois (Melinda S. Kollross on the brief), for defendant Hallmark Specialty Insurance Company.

Devine Millimet & Branch, P.A., of Manchester (Andrew Dunn and Donald L. Smith on the brief), and Phelps Dunbar LLP, of Tampa, Florida (Patricia McLean and Jay Sever on the brief), for defendant Scottsdale Insurance Company.

Vitt & Associates, PLC, of Norwich, Vermont (Geoffrey Vitt and Sarah J. Merlo on the brief), for defendant Mitsui Sumitomo Insurance Company of America.

Nixon Peabody LLP, of Manchester (David A. Vicinanzo and James Hatem on the brief), for the American Property Casualty Insurance Association, as amicus curiae.

Vrountas, Ayer & Chandler, P.C., of Manchester (Christopher T. Vrountas on the brief), and Hunton Andrews Kurth LLP, of Washington, D.C. (Michael S. Levine on the brief), for the New Hampshire Lodging & Restaurant Association, as amicus curiae.

Perez Law, of Medford, Massachusetts (Michael Perez on the brief), for the New Hampshire Medical Society, as amicus curiae.

Reed Smith LLP, of Pittsburgh, Pennsylvania (Michael A. Kostiew on the brief), for United Policyholders, as amicus curiae.

HICKS, J.

This interlocutory appeal is from an order of the Superior Court (Kissinger, J.) granting the motion for partial summary judgment filed by the plaintiffs, Schleicher and Stebbins Hotels, LLC, Renspa Place LLC, Chelsea Gateway Property LLC, OS Sudbury LLC, Monsignor Hotel LLC, SXC Alewife Hotel LLC, Lawrenceville, LLC, Second Avenue Hotel Lessee LLC, Second Avenue Hotel Owner LLC, Medford Station Hotel LLC, WDC Concord Hotel LLC, Broadway Hotel LLC, Fox Inn LLC, Melnea Hotel LLC, Natick Hotel Lessee LLC, Superior Drive Hotel Owner LLC, Arlington Street Quincy Hotel LLC, Albany Street Hotel Lessee, LLC, Albany Street Hotel, LLC, Cleveland Circle Hotel Lessee LLC, Cleveland Circle Hotel Owner LCC, Worcester Trumbull Street Hotel, LLC, Assembly Hotel Operator LLC, Assembly Row Hotel LLC, Parade Residence Hotel LLC, Portwalk HI LLC, Route 120 Hotel LLC, Vaughn Street Hotel LLC, and FSG Bridgewater Hotel LLC; denying the cross-motion for summary judgment filed by the defendants, Starr Surplus Lines Insurance Company, Certain Underwriters at Lloyd's and London Companies Subscribing to Policy Number EW0040519, Everest Indemnity Insurance Company, Hallmark Specialty Insurance Company, Evanston Insurance Company, AXIS Surplus Insurance Company (AXIS), Scottsdale Insurance Company, and Mitsui Sumitomo Insurance Company of America; and granting defendant AXIS’ motion for partial summary judgment. See Sup. Ct. R. 8.

The three questions presented on appeal are: (1) under Mellin v. Northern Security Insurance Co., 167 N.H. 544, 115 A.3d 799 (2015), does the presence of SARS-CoV-2 in the air or on surfaces at a premises, if proven, satisfy a requirement under a property insurance policy of "loss or damage" or "direct physical loss of or damage to property"; (2) does the "mold, mildew & fungus" clause and microorganisms exclusion endorsement in the policies unambiguously preclude coverage for the plaintiffs’ claimed losses; and (3) does the pollutants and contaminants exclusion in defendant AXIS’ policy unambiguously preclude coverage for the plaintiffs’ claimed losses? We answer question (1) in the negative and hold that the presence of SARS-CoV-2 in the air or on surfaces at a premises, if proven, does not satisfy a requirement under a property insurance policy of "loss or damage" or "direct physical loss of or damage to property" under Mellin, 167 N.H. 544, 115 A.3d 799, and decline to answer questions (2) and (3).

I. Facts

We accept the statement of the case and facts as presented in the interlocutory appeal statement and the trial court order, and rely upon the record for additional facts as necessary. See State v. Hess Corp., 159 N.H. 256, 258, 982 A.2d 388 (2009).

The plaintiffs own and operate twenty-three hotels. Four are located in New Hampshire, eighteen in Massachusetts, and one in New Jersey. The plaintiffs purchased $600 million of insurance coverage from the defendants for the policy period from November 1, 2019 to November 1, 2020. Each insurance company accepted a specific share of the risk, as described in the policies at issue. With the exception of certain addenda, the relevant language of the policies is identical. Each policy states, in part, that it "insures against risks of direct physical loss of or damage to property described herein ... except as hereinafter excluded."

On January 9, 2020, the World Health Organization (WHO) first identified the SARS-CoV-2 virus, which is responsible for causing COVID-19. Soon thereafter, COVID-19 became a pandemic, and all fifty states adopted public health measures to control its spread. Beginning in March 2020, the governors of New Jersey, Massachusetts, and New Hampshire issued various orders requiring citizens to stay home or in their places of residence unless engaged in a limited number of enumerated activities, and orders restricting the operations of the hotels. Each of these orders, as the trial court found, was issued in an attempt to control the spread of COVID-19, which primarily spreads "when an infected person is in close contact with another person" (quotations omitted). Although most infections are caused through close contact, the United States Centers for Disease Control and Prevention has determined that airborne transmission can occur under special circumstances, such as those involving prolonged exposure to respiratory particles, enclosed spaces, or areas with inadequate ventilation or air handling. In addition, "fomite transmission" can occur generally when infectious viral particles land on a surface and a person touches the contaminated surface, and then touches his or her mouth or nose. While fomite transmission has been considered a potential mode of COVID-19 transmission, there are no specific reports which have directly demonstrated that it has occurred.

For periods of time, pursuant to the governors’ orders, hotels in each of the three states were permitted to provide lodging only to vulnerable populations and to essential workers. These essential workers included healthcare workers, the COVID-19 essential workforce, and other workers responding to the COVID-19 public health emergency. Beginning in June 2020, the plaintiffs’ hotels were permitted to reopen with a number of restrictions on their business operations.

In or about March 2020, the plaintiffs, through their insurance broker, provided notice to the defendants that they were submitting claims in connection with losses stemming from COVID-19. In May and June 2020, several defendants sent letters to plaintiffs identifying relevant policy provisions, requesting additional information, and reserving their rights to deny coverage pending the ongoing claim investigation. On June 19, 2020, the plaintiffs filed suit in superior court, seeking a declaratory judgment that they are contractually entitled to insurance coverage for business interruption losses resulting from the COVID-19 pandemic. The complaint asserted that "[t]he property damage and orders of civil authority associated with the coronavirus have caused Plaintiffs to sustain tens of millions of dollars in business income losses," and that "[t]hese losses are covered under the insurance policies that Plaintiffs purchased from Defendants." The plaintiffs sought coverage under the policies’ business interruption losses provision, set forth in paragraph 10 of the policies, and under extension of time element coverage provisions set forth in paragraph 21 of the policies. Both the business interruption and extension of time element coverage provisions insure against the loss of business income caused by loss, damage or destruction of property. The extension of time element coverage provisions, in certain circumstances, insure against actual losses sustained by the insured when loss or damage to property occurs at the premises of third parties.

On November 23, 2020, the plaintiffs moved for partial summary judgment, requesting that the superior court find that, under New Hampshire law, any requirement under the policies of "loss or damage" or "direct physical loss of or damage to property" is met when the property...