Legionnaires’ Outbreak Raises Significant Insurance Issues
Time 3 Minute Read

A recent outbreak of Legionnaires’ Disease has been traced to a Sheraton hotel in Atlanta, Georgia.  According to the Georgia Department of Public Health, 11 cases are confirmed and 55 more cases are “probable.”  The Atlanta Sheraton closed on July 15 to investigate the outbreak.  The closure is certain to result in a substantial immediate loss of revenue for the property.  The closure and loss of advanced reservations also will likely result in an extended interruption of hotel revenue.  Add to that potential stigma-related losses that will result from those afraid to reenter the property after the hotel reopens.  Sheraton will likely turn to its insurers to seek payment for its business interruption costs.

Typically, Legionnaires’ outbreaks spur discussion of coverage under Commercial General Liability insurance and whether that insurance is precluded by microorganism, mold, fungus, and similar biological exclusions.  However, Legionnaires’ outbreaks also have the potential, especially as it concerns the hospitality industry, to raise issues under first-party time element coverages, among others.  The closure, therefore, serves as a reminder to those in the hospitality and travel industries to ensure that appropriate coverages are in place.

For instance, insurers may contend that the suspension of operations was not the result of direct physical loss to covered property, or that the resulting loss was not the result of a covered peril.  Whether those positions carry merit will turn on the facts and circumstances of the particular interruption and, thus, require a prompt and thorough investigation by the insurer.  Often, however, insurers will deny the claim based on their experience with other claims and not the facts of the claim at hand.

Where claims are accepted, valuation also may be contested, with insurers maintaining that any losses sustained during the closure period can be made up after the property or business reopens.  While some make up should be expected, it by no means can reasonably be expected to negate the entire loss.

Finally, insurers will invariably contend that extended business interruption coverage should not apply because loss sustained after the property reopens is likely the result of stigma.  Absent (1) specific language in the policy barring coverage for stigma loss, and (2) proof by the insurer that the continuing loss is the result of stigma and not some other covered cause of loss, policyholders should challenge the denial or limitation.

  • Partner

    Larry Bracken has 38 years of experience litigating insurance coverage, class action and commercial cases in federal and state courts throughout the United States. Pro bono representation of clients in habeas corpus, prisoner ...

  • Partner

    Mike is a Legal 500 and Chambers USA-ranked lawyer with more than 25 years of experience litigating insurance disputes and advising clients on insurance coverage matters.

    Mike Levine is a partner in the firm’s Washington, DC ...

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