In a rare policyholder win, a federal district court has refused to dismiss Covid-19-related business litigation filed by the Sacramento Kings basketball team and its venue against FM Global.
Plaintiff Sacramento Downtown Arena, which owns the team’s stadium in Sacramento, California, had purchased an FM Global comprehensive policy that had a maximum coverage of $850 million per occurrence,
Its trial — Sacramento Downtown Arena LLC et al. v. Factory Mutual Insurance Co . — was filed in US District Court in Sacramento in March 2021.
The policy “at the center of this case can reasonably be construed to define the presence of a “communicable disease”; as “physical loss or injury,” the ruling said.
“The policy’s first sentence explains that it only offers coverage for risks of ‘physical loss or damage.'” It later lists “Additional coverage for insured physical loss or damage,” which includes “the reasonable and necessary expenses incurred” in response to government orders which governs the actual occurrence of an “infectious disease”.
“An insured could reasonably expect, given these conditions, that the occurrence of a contagious disease such as covid-19 would fit under the umbrella of ‘physical loss or damage’ for the policy as a whole,” the ruling said.
“This reasoning extends equally to plaintiffs’ claims based on losses arising out of civil and military orders,” which were tied back to the physical injury, the ruling said. “An insured could reasonably expect that the term `physical injury’ would have the same meaning throughout the policy.”
The court held that two policy exclusions, for contamination and loss of use, do not apply.
Attorneys in the case did not respond to requests for comment.
The vast majority of courts have ruled in favor of the insurers in comparable cases, including the 9th US Circuit Court of Appeals in San Francisco, to which this case can now be appealed.
The 9th Circuit has issued several rulings in favor of insurance companies regarding COVID-19. In May, for example, it ruled in favor of American International Group Inc. in a lawsuit filed by Palmdale States Inc., which operates the Casa Bella Event Center in Sunol California, in Palmdale Estates Inc. v. Blackboard Insurance Co . That decision upheld a ruling by the U.S. District Court in San Francisco.