Recently, in H & H Hospitality LLC v. Discover Specialty Ins. Co., C.A. No. H–10–1886, 2011 WL

6372825 (S.D. Tex. Dec. 20, 2011), U.S. District Court Judge Werlein (from the Houston Division of the Southern District) granted summary judgment in favor of Discover Specialty on its insured’s business interruption claim made following Hurricane Ike.  The plaintiff/insured, H & H Hospitality LLC was, at the time Hurricane Ike struck Houston in September 2008, the named insured on a commercial property insurance policy issued by Discover Specialty covering a Super 8 Motel located in Spring, Texas. Approximately 40 hotel rooms were rendered unrentable by the storm.  In spite of the damages sustained, H & H had some undamaged, rentable rooms available and kept the property open continuously after the storm.   H  &  H  claimed  business  interruption  losses  of  $293,191.00,  of  which  Discover  paid  only $51,971.02.

Discover moved for partial summary judgment on the business interruption claim, contending that it does not apply because the hotel never closed and therefore had no “necessary suspension of operations” to trigger  coverage  under  the  relevant  policy.   Discover  argued  that  a  “necessary  suspension  of  your ‘operations’” means a complete cessation or stoppage of business activities at the covered premises.  H & H countered that the court should consider “the nature of the premises at issue” in determining what constitutes a “necessary suspension of operations,” and that as a hotel with rooms to rent, the business interruption provision should be construed to provide coverage because some of its rooms were damaged by the storm and as to those rooms, “their use as a revenue generating good was ... ‘suspended’ as a result of Hurricane Ike.”

The policy did not define “necessary suspension of your operations.”  But the court noted courts have interpreted identical or similar language to cover the risk of a complete cessation of business activities at the  covered  premises.   In  contrast,  courts  have  construed  policy  provisions  that  state  “necessary  or potential suspension” of business operations or “necessary interruption of business, whether total or partial” to allow coverage for a partial cessation of business without requiring a total business shut down.  The policy at issue contained no qualifying clause to cover the risk of “potential” or “partial” suspension.  The court further noted that H & H presented no evidence to raise a fact issue that it was unable to meet customer demand for rooms.  H & H did not claim, nor did it submit evidence to show, that it could not fulfill its customers’ demand with the inventory of rooms for rent that it had available, or that it ever once had to turn customers away. Hence, the court concluded that although H & H may have sustained a business slowdown, the uncontroverted summary judgment evidence was that it did not suffer a “necessary suspension of operations” such as to trigger coverage under the business interruption clause of the Policy. Accordingly, the court granted Discover’s motion for summary judgment on H & H's business interruption claim.

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