Crescent Plaza Hotel Owner, L.P. v. Zurich American Insurance Co., No. 21-1316 (7th Cir. 2021)
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In March 2020, the Dallas County government issued orders restricting the operations of local businesses in light of the COVID-19 pandemic. Hotels were permitted to continue to provide lodging, and delivery and take-out food services, subject to social-distancing rules. Crescent owns the Dallas Ritz-Carlton hotel, which offers guest rooms, a restaurant and bar, general event space, a salon, spa, and fitness center. Crescent alleges that COVID-19 rendered the air in the hotel unsafe and diminished the functional space available, causing significant losses of income. Crescent also alleges that it incurred expenses to install plexiglass partitions and hand sanitizer stations, to display signs throughout the hotel, and to move furniture to permit social distancing. Crescent’s Zurich insurance policy requires “direct physical loss or damage” to covered property and includes an exclusion for losses attributable to any communicable disease, including viruses, and a microorganism exclusion, which bars coverage for losses “directly or indirectly arising out of or relating to mold, mildew, fungus, spores or other microorganisms of any type, nature, or description, including but not limited to any substance whose presence poses an actual or potential threat to human health.”
The Seventh Circuit affirmed the dismissal of Crescent’s suit against Zurich. The phrase “direct physical loss or damage” requires either “a permanent [dispossession] of the property due to a physical change … or physical injury to the property requiring repair.” The microorganism exclusion independently bars coverage for the hotel’s claimed losses.
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