MHG Hotels sues insurer for claim denial as pandemic-related losses climb

The occupancy rate at the Courtyard by Marriott in Noblesville is down to single digits. (IBJ photo/Mickey Shuey)

A local hotelier expects to lose more than $20 million from declines in travel tied to the coronavirus pandemic, according to a lawsuit filed against its insurer earlier this month.

Indianapolis-based MHG Hotels LLC and its 25 subsidiary holding companies on May 1 sued EMC Risk Services LLC in Marion County Superior Court, after the insurer rejected a claim for business interruption losses.

MHG Hotels operates at least 18 hotels under various brands, with most of those in central Indiana. It also has several properties under development.

The hotel operator alleges the Des Moines, Iowa insurer breached its contract, acted in bad faith and committed fraudulent misrepresentation by denying claims.

MHG’s insurance policies do not specifically exclude coverage of pandemic events or government shutdowns, according to the lawsuit, which also alleges the claim it filed was not properly investigated by the insurer before denial.

MHG said it has “suffered substantial business loss … [that is] continuing to increase. These losses are expected to exceed $20 million.”

The company has also been forced to temporarily close or modify operations for several properties and lay off hundreds of its employees.

CEO Sanjay Patel told IBJ in early April that the hotel industry had an “abundant amount of supply that just isn’t being used” because of the virus. Occupancy rates have consistently hovered around 20% in the Indianapolis metropolitan area—and far lower downtown—since late March.

“It’s all ruined—there’s no demand,” Patel said.

At least 10 downtown hotels have closed for an extended period because of COVID-19, according to Nashville hotel benchmarking firm STR. At least four of those hotels have reopened.

MHG in its lawsuit alleges it was was informed its claim would be denied March 24, just one day after it was submitted to EMC.

Patel “received several calls from EMC informing him that EMC did not intend to cover [the] losses, and that he should expect a denial letter in the coming weeks,” the suit says. The denial letter was received April 24.

MHG requested compensatory and punitive damages, as well as legal fees and interest. It also asked for a jury trial.

Several Indianapolis area businesses have tried to combat major revenue losses inflicted by COVID-19 by filing business interruption claims. But insurers have generally denied those requests, sparking several lawsuits since April.

Indiana Repertory Theatre sued its insurer April 7 on similar grounds to MHG.

Patel and EMC did not return calls requesting comment.

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8 thoughts on “MHG Hotels sues insurer for claim denial as pandemic-related losses climb

    1. Right, and raise everyone’s property and casualty rates too.

      .

      The insurers have a double-whammy: black swan business interruption, and black swan stock market/investment losses. Smaller insurers may only be able to pay a little to everyone affected, if anything.

    2. Hey Chris B, if you paid health insurance premiums would you expect health insurance coverage for your medical claims or would you say, wait, if they pay my medical claims they will raise everyone’s health insurance…so let’s not pay the claim. I seriously doubt that. When central Indiana experienced serious property damage due to high winds and hail about two years ago, would you or did you fight for coverage to replace your damaged roof or would/did you say wait, don’t worry Mr. Adjustor for the Billion $$ Insurance Corp forget my claim because it might raise everyone’s property & casualty insurance premiums? Again, I doubt it.

      The bottom line is that many businesses have been paying BI insurance premiums for years without a single claim and now when they need the coverage for the very survival of their business, insurers are saying NO or finding “gray areas” for exclusions.

      Are you or have you ever been a business owner? If not, you can go ahead and have an opinion because you are entitled to it but there is no reality or substance to your opinion because you don’t know what it is like right now.

    3. I don’t hear Chris B. saying that they shouldn’t pay, just that they may not be able to (maybe I’m misinterpreting his comment). A Black Swan outlier event is one that goes well beyond any risk profile that an insurer would be prepared for. Should they be denying legitimate claims? No. But the reality is that insurance companies can go bankrupt also . . .

  1. Chris B. Isn’t that the risk of being in the insurance business? You may suffer huge losses. If it’s covered under the policy, then it should be paid out regardless of losses to shareholders or profit margin to the insurers.

    1. Scott G? Just curious. Why a question about TIF or other tax breaks? Again, just curious.

  2. What is critical here is what the policy says. Our state Supreme Court has a history of finding coverage when it is convenient to,”spread the risk” among the public like back in the days of ground pollution where no coverage was contemplated by the insuring agreement between the policyholder and the company.

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