MLB Sues Insurers Over Billions in Pandemic-Related Losses

MLB  - Opening Day between the Miami Marlins and the Chicago Cubs - March 29, 2018 -Getty-H 2018
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The COVID-19 pandemic has sparked a wave of litigation against insurance companies for denying coronavirus-related claims and, in one of the latest suits, Major League Baseball is swinging for the fences in claiming more than a billion dollars in losses from ticket sales, advertising revenue and more should have been covered.

In a complaint that has gone under the radar since its filing on Oct. 16, the MLB and each of its 30 teams sued AIG, Factory Mutual, and Interstate Fire and Casualty Company for breach of contract. The league claims it's facing "catastrophic economic losses" after it was forced to cancel more than 1,500 games — and play the ones that weren't canceled in empty stadiums. Those losses, it argues, should have been covered by its extremely expensive "all risk business interruption coverage."

"Baseball paid millions of dollars in premiums year after year because it deliberately bought broad, more protective coverage," writes attorney Rani Gupta in the complaint. "The All Risks Policies, for example, specifically insure against physical loss or damage arising from communicable disease caused by virus. The All Risks Policies also include coverage promises for business interruption losses, losses occasioned by government orders, losses occurring when access to or from stadiums becomes difficult or risky, the costs of crisis management, and extra expense payments, among many covered losses."

In a section of the complaint that explains America's pastime to the court, the MLB says an average of 28,317 fans attended each of the 2,430 regular season games in 2019. Then, of course, there's the postseason and the All-Star game. While it also collects revenue from other sources, the league says most of its money comes from things that require those fans to come to the ballpark, like tickets, parking, concessions and merchandise. This year, that income was "almost zero."

Another large chunk of revenue comes from game telecasts, media buys across its websites and apps, and sponsorships, all of which it says also largely depend on the games being played.

To protect its interests, the league bought multiple "top-shelf" insurance policies, and three of them are central in this dispute. In total, the league says its policies cover over $1.6 billion in losses for any one "occurrence" and potentially more for multiple occurrences.

The league argues its all risks insurance covers both physical loss or damage and business interruptions — and specifically includes crisis management coverage for losses or expenses arising from "an interruption or interference with business as a consequence of either infectious or contagious disease contracted or manifested by any person while on the premises of the Insured, or the closing of all or part of the insured premises by order of a competent public authority because of the existence or threat of actual or suspected hazardous conditions at insured premises."

COVID-19, MLB argues, meets all the criteria for its coverage to kick in, though it notes not all viruses necessarily would. Writes Gupta in the complaint, "COVID-19 is a rare exception that, because of its particular nature and characteristics, meets all of these criteria: it is a communicable disease; it has caused physical loss and damage; and it has thereby led to hundreds of orders prohibiting anything other than very small gatherings, and ultimately, to enormous financial losses."

Much of the complaint centers on attempting to show that COVID-19 caused the requisite "physical" loss or damage referenced in various provisions. AIG hasn't responded to a request for comment on the complaint, but in another suit involving unrelated parties, Travelers Insurance argued that the pandemic isn't causing the kind of direct physical loss that's required for coverage.

The league disagrees, arguing that the droplets by which the virus is transmitted make both the air and surfaces within ballparks dangerous.

"The coronavirus and coronavirus-containing respiratory droplets and nuclei are physical substances that are active on physical surfaces and are also emitted into the air," writes Gupta, who notes that every single team in the MLB has had at least one player, coach or staff member contract COVID-19. "Such substances are not theoretical, informational, or incorporeal, but rather have a material existence and are physically dangerous."

The MLB argues that an exclusion for "contamination" isn't applicable here because it "refers to 'virus' and to 'disease causing or illness causing agent' but not to communicable disease, which is expressly covered by the Policies." Further, the league argues, if its insurers had wanted to carve out a clear exception they could have.

"[T]he Insurers were aware of and had available to them, since at least 2006, the Insurance Services Office’s explicit virus exclusion, which states: 'We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease,'" writes Gupta. "But the Insurers chose to include Communicable Disease coverage and not to include the ISO Virus Exclusion in the All Risks Policies."

The MLB is asking the court for a declaration that states, among other things, each of the relevant provisions was triggered by its claims and there are no exclusions in its policies that limit or preclude coverage.

Read the full complaint below.