Lawsuit Tests State’s Request That Insurers Be Generous With Civil Unrest Claims

By Jim Sams | February 3, 2021

A lawsuit filed by the owner of a Chicago hotel and its rooftop bar will put to test a request by the Illinois Insurance Department that insurers disregard any slowdown caused by COVID-19 when calculating business income lost due to civil unrest last spring.

ECD-Great Street DE, owner of TheWit hotel and the Roof lounge, alleges that Zurich American Insurance Co. ignored a June 8 bulletin by Insurance Department Director Robert H. Muriel that says carriers adjusting business-interruption claims caused by civil unrest should “base payouts on business activity levels that eliminate the impact of COVID-19.”

“Instead, Zurich has brazenly used the pandemic to its own advantage by severely deducting business interruption loss owed to ECD on the basis of COVID-19,” the lawsuit states.

ECD-Great Street is seeking cover for $14,826,973 in income it says it lost when it was forced to close its lobby for four months — and cut off access to the lounge and a restaurant — after rioters and looters smashed windows, ransacked the lobby and set fire to a police vehicle in front of the hotel. Zurich has paid only $􏰍􏰹􏱆􏰷􏰍1,483,895, according to the lawsuit.

TheWit, a 27-story hotel with 310 guest rooms, opened in 2009 on the Loop, a downtown Chicago elevated light-rail line that encircles the business and theater district. The building is known for a chartreuse lighting bolt that extends down the west side from the top floor to street level.

On May 30 last year, TheWit was at the epicenter of rioting that erupted during protests of the Minneapolis police killing of George Floyd. Rioters smashed custom-made glass panes that encircled the hotel lobby, stole or destroyed furniture in the lobby and adjacent State & Lake Restaurant and set fire to a police sports-utility vehicle that spread and destroyed granite landscape planters.

The state Insurance Department issued Company Bulletin 2020-15 in response to the riot. Insurers were asked to treat any claims caused by civil unrest as a catastrophic event and give policyholders the benefit of the doubt. The bulletin also asked carriers to calculate lost business income as if COVID-19 were not a factor.

The lawsuit says managers of TheWit were not able to reopen the hotel until Oct. 1. The closure eliminated revenue from hotel rooms as well as the ground-floor restaurant, a full-service spa and the 27th floor Roof lounge. The summer months usually are filled with “high-margin” private events.

The hotel alleges that Zurich did not make a $100,000 advance payment on its claim until July 8, more than a month after the riot. The carrier made two additional payments later, but made the checks out the wrong payee, the lawsuit says. Zurich was also to slow approve a renovation budget submitted by its contractors, causing further delays, the suit says.

ECD-Great Street says a Zurich consultant, MDD Forensic Accounting, submitted a flawed preliminary estimate on room revenue lost because of the damage. That estimate also completely ignored revenues from food and beverage sales at the hotel bar and restaurant. What’s more, MDD had included a “massive discount” its calculation of loss revenues to account for reduced sales due to COVID-19, directly contradicting the Insurance Department’s bulletin, the lawsuit says.

ECD-Great Street says Zurich is applying that COVID-19 discount even as it denies claims from policyholders seeking cover for revenues lost during government-ordered shutdowns.

“In short, in the most cynical fashion, Zurich is using the pandemic as a shield and a sword by denying US businesses’ coverage for their lost income resulting from COVID-19 while simultaneously leveraging the pandemic to wipe out coverage for other catastrophic losses and business closures, including those resulting from the May 30, 2020 events of civil unrest,” the suit says. “If Zurich has its way, COVID-19 will turn out to be a serendipitous boon to its bottom line.

Whether the Insurance Department’s bulletin has any any sway over the how the hotel’s revenue losses are calculated remains to be seen. Policyholder attorney Angela Elbert with Neal Gerber Eisenberg in Chicago noted in a June 12 blog post that the department’s bulletin was labeled as a “request.” She said the department “has limited ability to require insurers to adjust claims in accordance with these guidelines.”

The hotel filed the lawsuit in Cook County Circuit Court, but Zurich removed the case to the U.S. District Court in Chicago.

The ReedSmith law firm in Chicago is representing ECD-Great Street in the lawsuit. Partner Kevin B. Dreher declined to comment on the pending litigation.

Zurich is represented by Alexander William Ross with Clyde & Co. He did not respond to a request for comment sent Tuesday afternoon.

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