Nearly nine years after Hurricane Ivan devastated Grand Cayman’s Hyatt Regency hotel, the property owner is still locked in battle with an insurance company in multiple courts. All the while, the skeleton of the former hotel sits in limbo on the edge of the Esterley Tibbetts Highway, even though the vast majority of the insurance claims have been settled since March 2010.
Hotel owner Embassy Investments accuses Texas-based insurer Houston Casualty Company (one of more than a dozen covering the property) of bad faith and unfair dealing, and has claimed under Texas law it’s entitled to hundreds of millions of dollars in damages due to the hotel’s continued dormancy. The insurer suggests the hotel owner, in order to enhance its prospects in Texas courts, sought to create the illusion the insurer was blocking the claims process.
Legal documents indicate Embassy has settled with every other insurer except Houston Casualty, which provided coverage to the former Hyatt through its London branch, and accordingly maintains the connection to Texas is tenuous. Houston Casualty’s total exposure on the policy was US$1.2 million, or 2.3 per cent, of the hotel’s insured value of US$50 million.
Partial reopening, demolition
The most recent settlement agreement with the other insurers was reached in March 2010.
Category Five Hurricane Ivan struck in September 2004. The oceanfront component of the Hyatt property was renovated and reopened a few months later. Hyatt’s 20-year management contract ended 31 December, 2007, and the 53-room oceanfront hotel was renamed Grand Cayman Beach Suites.
Last fall, contractors executed a partial demolition of the inland 236-room hotel building. Since that partial demolition was completed, no work appears to have been carried out at the site.
While Embassy Investments has remained silent about its plans, former Premier McKeeva Bush has said the property would become a Hilton, and development professionals buzzed about a four-star, 168-room business hotel and spa.
‘Abuse of process’
Thus far, Cayman Islands courts have expressed little sympathy for Embassy’s arguments against Houston Casualty. In January 2010, independent London arbitrator Stephen Males ripped the hotel owner’s conduct.
Representatives of Embassy and Houston Casualty declined to comment, citing the ongoing legal situation.
In January 2012, Cayman Grand Court Justice Charles Quin pronounced Houston Casualty innocent of inequity and found the hotel owner “guilty of intentional and contumelious action which, together with the inordinate and inexcusable delay, amounts to an abuse of process of this court”.
The Cayman Islands Court of Appeal has agreed with Justice Quin’s decision to dismiss Embassy’s original June 2005 claim filed against the Texas insurer. The court published its reasons for judgment 31 July. An appeals hearing may take place in mid-November regarding an application to the UK’s Judicial Committee on the Privy Council, the final appellate court for Cayman.
In April, a different composition of Cayman’s Court of Appeal heard Embassy’s appeal of another of Justice Quin’s decisions, regarding a successful claim by Houston Casualty for libel committed by Embassy in the Cayman media. That judgment was pending as of 1 August. Meanwhile, in a US federal court in Texas, a suit by Embassy against Houston Casualty remains static until the final outcomes of litigation in Cayman.
Featured prominently in the 1993 movie “The Firm”, Grand Cayman’s Hyatt was purchased by Embassy, a Jersey company, in December 2003. Embassy arranged to cover the hotel with multiple layers of insurance from an array of companies. The insured value of the property was US$50 million.
The property’s primary insurers acted swiftly after Ivan hit, paying Embassy the full policy limits of US$10 million as of January 2005. At that point, the “excess insurers”, responsible for the remaining US$40 million in coverage, took over the claims process.
With no agreement reached with the excess insurers by June 2005, Embassy filed suit in Cayman court.
The London arbitrator reviewed the case history in his January 2010 report. “It was Embassy’s position that HCC and its co-insurers had no valid reason for refusing to pay the full amount due under the insurance up to the policy limits and ‘that they have simply been trying to scratch around to find reasons for putting off the evil day when they have to part with their money’,” he said, quoting the skeleton argument of Embassy’s legal counsel seeking summary judgment.
Multiple insurers, including Houston Casualty, told the court they were avoiding the policy due to alleged material non-disclosures relating to the profitability of the Hyatt since 2002.
In late July 2006, the main excess insurer Nemwil settled with Embassy for 90 per cent of its total exposure under the claim.
In March 2010, Embassy reached a settlement agreement with all the other insurers, except Houston Casualty, for US$16.75 million.
After years of offers, counteroffers, meetings and miscommunications, Embassy filed suit in Texas court in July 2009, accusing Houston Casualty of violating the Texas Insurance Code, and duties of good faith and fair dealing, and that Houston Casualty had engaged in a conspiracy with the other insurers, plus “other tortious conduct”. Embassy demanded a trial by jury in Texas and claimed it is entitled under Texas law to treble the amount of actual damages caused by the hotel’s continued closure.
At that point, Houston Casualty had offered to settle the claim by paying Embassy US$1.79 million (representing the full policy amount plus legal costs), with Embassy free to pursue litigation in Texas.
The filing of the Texas suit sparked an arbitration hearing in London, during which Embassy claimed that its business interruption losses amounted to US$14 million per year, or US$42 million accounting for treble damages. Embassy claimed possible damages of US$210 million. (According to those maths, as of September 2014, after nine years of closure, possible damages would total US$378 million, which is seven-and-a-half times the insured value of the hotel, and 322 times the amount of Houston Casualty’s exposure on the policy.)
The Texas Department of Insurance directed the Caymanian Compass to a pair of sections in the Texas Insurance Code, allowing a person to recoup the actual amount of damages due to “unfair” or “deceptive” acts or practices, and allowing for the Texas court to award three times the amount of damages if the defendant knowingly committed the deceptive acts.
The Texas department was not able to provide information on similar provisions in other states but said most states have some form of Deceptive Trade and Practice Act. The department was also unable to provide information on how common it is for a Texas court to find an insurer liable for damages many times greater than the amount of the policy.
During the 2009 arbitration, Houston Casualty suggested “Embassy does not want to settle the policy claim because it wishes to maintain and magnify the allegation that HCC is ‘blocking’ settlement by all the insurers,” according to Mr. Males’s judgment.
“I am forced to the conclusion, surprising as it may appear at first sight, that this suggestion is correct. Presumably Embassy calculated, or was advised, that its eventual prospects in Texas would be enhanced by seeking to create a record on the basis of which it could make further allegations of inequitable c
onduct on the part of the insurers and collusion between them,” Mr. Males wrote.
The Texas court action remains stayed until the end of litigation in Cayman.