7 more hotels file lawsuits to recover pandemic losses, but success is unlikely

Each lawsuit claims that “the pandemic had an unprecedented and catastrophic effect on [the] property and business operations, causing millions of dollars in losses.”

The Pearl is claiming no less than $3 million.

The hotels’ attorney, Richard Ellis of Reed Smith, declined to comment.

In December the Hotel Giraffe, owned by Henry Kallan, bounced back on its overdue mortgage payments that, according to data from Trepp, haven’t been made since March 2020.

The $32.6 million loan went delinquent shortly after the pandemic forced hotels to shut down, putting the 72-room Midtown South property at risk of foreclosure with its lender, Cantor Fitzgerald, Trepp data show. It’s now current on its payments, according to the data.

Kallan also owns the Casablanca, Library and Elysee hotels.

Citywide, hotels, restaurants and theaters have filed similar claims against insurers throughout the pandemic, but no rulings have been made in favor of any New York hotel.

Mark Browne, chairman of risk management and insurance at St. John’s University, said the majority of US businesses have not been successful in their business-interruption coverage claims.

An October 2020 case brought by the owners of the St. George Hotel in Brooklyn Heights to get more than $9.6 million from Affiliated FM Insurance was struck down in December by a federal judge in Brooklyn.

BD Hotels, whose portfolio includes the Bowery Hotel in the East Village and the Jane on the West Side, filed a complaint against its insurer, Federal Insurance, for denying coverage, prompting a lawsuit against the company from Federal in February 2021.

So far the 2nd, 4th, 6th, 7th, 8th, 9th,10th and 11th circuit courts have ruled that Covid-19 restrictions imposed by jurisdictions that haven’t caused physical loss or damage do not trigger loss-of-business claims from commercial property insurance policies.

The general argument made by insurers is that the pandemic didn’t cause direct physical damage to the hotels.

But in their complaints, the hotels are claiming that even former Mayor Bill de Blasio wrote in an executive order that “​​the virus physically is causing property loss and damage” because it made surfaces unsafe.

“We all believe that that language was in place to help businesses file claims like this,” said real estate lawyer Michael Pensabene of Rosenberg & Estis.

In another case, Assa Properties, which owns the MAve Hotel in the Flatiron District, sued its insurer, Lloyds of London, for $1 million because it was denied coverage after it said the homeless New Yorkers who resided there during the early stages of the pandemic destroyed its furniture.

“Generally speaking, I think these hotels should get something,” Pensabene said. But given the way the courts have ruled in favor of landlords in rent disputes with tenants, it isn’t likely the hotels will recover much of anything, he said.

“They won’t hold insurance carriers responsible,” he added.

An attorney for Greater New York Mutual Insurance declined to comment on the pending litigation.

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