Newton company that owns hundreds of hotels sues insurers over Covid-19 losses; claims virus causes physical damage to indoor surfaces

Service Properties Trust, a Newton-based real-estate investment trust that owns more than 300 hotels in the US, including the Royal Sonesta in Cambridge, today sued nine insurers for refusing to pay out for its Covid-19 losses since the start of the pandemic.

It's the kind of suit a number of other local companies, including Legal Seafood, have filed, only to lose because their "all risks" polices only cover damage to their physical property, such as tables and chairs, and they had no proof of such damage.

In its lawsuit, filed in Suffolk Superior Court, however, Service Properties claims the virus has damaged the physical property at its hotels - both the surfaces of everything inside its hotels as well as the very air that sits in them, and that both the interiors in general and the inside air in particular are, in fact "physical property" covered by its policy.

Once the viruses damage the air through their existence, "they then settle on surfaces, adhering through gravitation and electrostatic forces," the company says. "This physical alteration of the surfaces also is damage."

Service Properties says the proof its hotels have had Covid-19 viruses floating through them - and settling on surfaces - is that more than 180 guests and workers at 42 of its hotels have tested positive for Covid-19, either during or immediately after visiting or working at them, since the start of the pandemic.

And it wants the $138 million in Covid-19 losses it says it paid for an expensive insurance policy to cover.

The 47-page complaint then details Service Properties's damage claim:

Shedding SARS-CoV-2 into the indoor air and onto surfaces throughout the Hotel Properties physically and tangibly changes, alters and transforms the content of the indoor air and the composition of the surfaces throughout the buildings and structures - such that they now contain concentrations of SARS-CoV-2 infectious particles (whereas, before, they did not). This physical alteration of the content of the air and of the surfaces is direct physical damage to the insureds' interests in real and personal property at the Hotel Properies as covered under this policy.

The presence and intrusion of COVID-19 and SARS-CoV-2 at the Hotel Properties has rendered the physical operations unfit for their insured use - fully operational hotel and hospitality operations - and thus, it has deprived SVC of the full operation of its property for its insured purpose. This loss of fitness and utility caused by the intrusion of a dangerous and potentially lethal physical substance is direct physical loss of the insured's interests in real and personal property at the Hotel Properties as covered under the Policy. ...

The physical changes to the content of the indoor air and the composition of the surfaces throughout the buildings and structures at each Hotel Property have been pervasive and omnipresent over time in light of the number of infected individuals shedding SARS-CoV-2 particles on-site and the constant reintroduction of those particles.

Sure, the company could try strong HEPA systems and disinfectants, but neither works, as the company says it found out after trying "extraordinary and robust measures to repair the physical impact, change, alteration, damage and loss from COVID-19 and SARS-CoV-2:"

Cleaning of surfaces is a means of repairing the damage caused by COVID-19 and SARS-CoV-2 to surfaces; it is not possible to effectively clean air. However, even cleaning of surfaces does not altogether eliminate the damage or end the physical loss. Some surfaces and objects retain residual infectious virus even after cleaning, and aerosolized infectious particles will attach to surfaces after cleaning. Cleaning does nothing to guard against property continually being reinfected as soon as COVID-19 again enters the space. In short, cleaning is temporary at best - a surface and object remain infectious if an aerosol is present, HVAC system is operational or if another infected person visits the space after cleaning. This intrusion will provide a constant modality for infection to people.

The Hotel Properties have been unable to eradicate COVID-19 and SARS-CoV-2 from the real and personal property at the Hotel Properties despite their efforts to eliminate both and to repair the property to its pre-pandemic physical operating condition

The company charges the insurers are also refusing to pay out despite clauses related to government actions that caused the problem - in this case, government-ordered shutdowns and restrictions. And it alleges that the insurers dragged out what it says was a phony review of the company's claims for damages, in a vain hope to just make the company go away.

Complete complaint (2M PDF).