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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

Westchester Surplus Draws Lawsuit over Hotel’s Damages from Fire Sprinkler

Operators of a New Orleans hotel have sued Westchester Surplus Lines Insurance Co. over its alleged failure to properly compensate them for damages caused when a sprinkler system malfunctioned.

Hospitality Enterprises Inc. and Garden District Hotel on St. Charles Avenue LLC filed their lawsuit in Orleans Parish Court against Westchester, a Roswell, Ga.-based unit of ACE USA.
On Jan. 7, 2010, the sprinkler system at the hotel malfunctioned and caused water damages to the building’s ceilings, walls, floors, contents and equipment. Plaintiffs said they promptly notified Westchester of the loss.

The plaintiffs said that Westchester informed a company representative that the insurer was reserving its rights to contest coverage and contending that coverage was not established for the claim.

Until September 2010, Westchester claimed that it needed further documentation of central station water flow alarm monitoring before it could make any payment, according to the complaint. Terms of the policy call for a central station water flow alarm, but the hotel said that any exclusion of coverage related to that alarm applied only to fire losses.

Westchester eventually tendered a check to the plaintiffs for $108,339, an amount they characterized as “grossly inadequate to compensate ... for losses sustained at the hotel.”

Westchester, the owners further said, “has been arbitrary, capricious, and without probable cause in delaying payment, and failing to complete the inspection and adjustment process timely, raising false issues regarding coverage and failing to make a reasonable offer to satisfy the claim.”

The plaintiffs accused Westchester of bad faith dealing and violating Louisiana statutes pertaining to handling claims in a timely manner. They asked the court to order the insurer to properly compensate them and assess Westchester a penalty of 50% of the amount due, as well as reasonable attorneys' fees and costs.

The hotel also sued a company it accused of shoddy cleanup work, as well as the Sewage and Water Board of New Orleans for alleged failure to properly operate the water and drainage system supplying water to the premises.

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