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Physical damage from pandemic hard for pro sports teams to prove

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Physical damage from pandemic hard for pro sports teams to prove

Lawsuits in two professional sports leagues over denied pandemic-related business interruption claims are asking insurers to cover losses that may be beyond the boundaries of their policies.

Tilman Fertitta, the owner of the National Basketball Association's Houston Rockets and the team's home arena, is suing Affiliated FM Insurance Co. for not being able to access his $400 million policy to recoup losses stemming from the suspension of the NBA regular season, and from canceled events at the Toyota Center.

The other action is between a group of 50 minor league baseball teams and their insurers. The teams, who allege that the presence of the virus that causes COVID-19 inflicted actual physical property damage, want the insurers to cover their financial losses, which they blame on pandemic-related shutdowns and the inability of Major League Baseball to provide players for their teams.

The minor leagues canceled their seasons on June 30 after Major League Baseball said it would not send them players due to the pandemic.

Jason Freier, CEO of Hardball Capital, an ownership group that runs three of the teams involved in the lawsuit, in an interview said the teams' insurer, National Casualty Co., is pointing to some "very broad exclusion language" in their policy he said is "either not applicable or unenforceable."

"They're claiming that the virus doesn't constitute physical damage," said Freier, whose group owns teams in Fort Wayne, Ind., Chattanooga, Tenn., and Columbia, S.C. "I think they are assuming that the virus is the sole reason that we are shut down, which I don't think is precisely accurate either."

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Alan Taylor, a lawyer with Segal McCambridge Singer & Mahoney Ltd., said both the basketball and baseball lawsuits are seeking to add to what the policies were intended to cover at the time they were secured.

"You can't add clauses to the contract that don't exist," Taylor said in an interview.

"[The insurer] can say, 'You can't go ahead now and expand those risks because something happened that isn't covered and you got the short end of the stick,'' he added.

A decision handed down Aug. 6 in another lawsuit concerning business interruption said just that. In Rose's 1 vs. Erie Indemnity, District of Columbia Superior Court Judge Kelly Higashi said the plaintiff, a group of D.C. restaurateurs, cannot collect on their business interruption policies because no physical damage was done to their properties.

Christine Barlow, managing editor of FC&S Expert Coverage Interpretation, said the end result of these legal battles comes down to the policies' wording; actual repairs to the structure would have to be done to be able to claim physical damage.

"If I can clean it off with a Clorox wipe or Lysol or whatever your normal industrial cleaner is, you haven't damaged the property," Barlow said in an interview.

Should a judgment be entered in favor of the baseball teams, who are suing Philadelphia Indemnity Insurance Co., Acadia Insurance Co., National Casualty, Scottsdale Indemnity Co. and Scottsdale Insurance Co., Darren Hickey, vice president of Hub International Ltd.'s sports and entertainment practice, said the number would be "huge."

"Think of all the minor leagues, Single-A, Double-A, Triple-A, the companies that do business with all of those minor league stadiums that aren't selling food and beverage and T-shirts," Hickey said in an interview. "I don't know if anybody can truly put a realistic number on [the potential reward]."

Other organizations that had to cancel events because of the pandemic have been able to recoup some of their losses through their event cancellation insurance policies. Both the Wimbledon tennis championships and The Open golf championship in the U.K., which were canceled in April, had event cancellation policies that included global pandemic insurance. The extra coverage was added after the SARS outbreak in 2003.

No numbers were available for The Open, but Wimbledon has been paying $2 million annually for its coverage and will receive a $141 million payout, less than half of the $356 million the tournament earned annually.

"Whoever bought the policy was paying attention and made sure that they got a policy that covered most everything, including a highly unlikely pandemic, which we're right in the middle of," Barlow said.

Pandemic coverage will not be available next year, said Richard Lewis, chief executive of the All England Club. He told the Daily Mail that getting the coverage for the 2021 tournament would be "impossible" because of the current state of the insurance market.

The NCAA was able to cash in on its $275 million March Madness event cancellation policy after the men's and women's basketball tournaments were canceled March 12. Still, that is well short of the $800 million the NCAA expected to make from the tournament.