No Direct Physical Loss or Damage – Crescent Hotels & Resorts v. Zurich and Interstate

Crescent Hotels & Resorts, LLC v. Zurich Am. Ins. Co. and Interstate Fire & Casualty Company, No. 2021-02974 (Va. Fairfax Cnty. Aug. 18, 2021)

In the first Commonwealth of Virginia COVID-19 ruling, Mound Cotton secured a victory on behalf of its client, Zurich American Insurance Company. The court sustained the insurers’ demurrers to the Complaint with prejudice, concluding, on the record, that the phrase “direct physical loss or damage” is not ambiguous and “does not reach the circumstances that we have here where there’s a presence of virus.” The court also held that the contamination exclusion, which defined “contamination” as including “virus,” precluded coverage for the hotel’s COVID-19 business income loss. Finally, the court rejected plaintiff’s argument that, if a virus can never cause direct physical loss or damage, there would be no need to include a virus/contamination exclusion. The court disagreed that “having a belt-and-suspenders approach somehow renders other portions of the contract not to have meaning.”

Partners Philip Silverberg and Hilary Henkind represented Zurich American Insurance Company.

The Order can be seen here.