In the latest sports industry example of a dispute over which business ought to absorb pandemic-related financial losses, the Atlanta Falcons and Atlanta United FC have sued two insurance companies for breach of contract and bad faith.
The two teams, joined by the Atlanta Falcons Stadium Company, argue that their insurers have unlawfully refused to pay business-interruption coverage. At issue are the Mercedes-Benz Stadium, the Home Depot Backyard greenspace, and team training sites suffering “direct physical loss or damage” on account of COVID-19. These properties are no longer as functional or as profitable as they were prior to the pandemic. The Atlanta plaintiffs thus seek coverage for their substantial losses of business income.
Sportico has obtained a copy of the 44-page complaint, which was filed in a Rhode Island superior court and names two Rhode Island companies (Factory Mutual Insurance and Affiliated FM Insurance) as defendants. The Atlanta Journal-Constitution was first to report on the filing.
The pandemic, coupled with state and municipal gathering restrictions and stay-at-home orders, have led the Falcons and United to substantially limit attendance at games and at other events where tickets are sold. This reduction has translated into fewer ticket sales and forgone opportunities to sell merchandise and concessions. The complaint also highlights how the diminishment of on-site spectators shrinks the value of advertising space sales.
In normal times, the complaint stresses, these properties “are world-class event spaces” that host “sporting events, concerts, entertainment events, private events, and tours.” A number of Atlanta-based events have been cancelled or indefinitely postponed. They include the 2020 Men’s Basketball Final Four, Chick-fil-A Kickoff college football games and concerts by Justin Bieber, Kenny Chesney and the Rolling Stones. To illustrate the accompanying impact, the cancellation of the Final Four meant that Mercedes-Benz did not pay a “sizeable” yearly naming rights fee.
It’s clear the Atlanta plaintiffs have lost substantial revenue as a result of the pandemic and will continue to lose money until the world returns to normal. What’s less clear is whether these losses fall under the terms of the insurance policies and whether coverage is excluded by additional provisions.
As described in the complaint, the insurance companies are responsible for losses related to direct physical loss or damage. The policies contain a “communicable disease response” section, which contemplates recovery for reasonable and necessary costs related to the “cleanup, removal and disposal of presence of communicable diseases.” The Atlanta plaintiffs interpret this language as contractual confirmation that the insurers “explicitly recognize that physical loss or damage to property can result from communicable disease.” The policies also allegedly cover business-interruption losses brought on by “civil authority” events, meaning government orders that forbid activities.
Atlanta further highlights that the SARS-CoV-2 virus is a “physical presence” that exists in the air and on surfaces and is highly contagious. The virus, of course, can “be seen, counted, measured, and destroyed” and cause serious health problems. From that lens, the plaintiffs charge, the virus is akin to a “crumbling and open roof from the aftermath of a tornado”—both calamities render the interior spaces of facilities unusable or less usable.
The Atlanta teams acknowledge that the policies contain coverage exclusions, though they insist that none applies to the actual presence or potential presence of COVID-19. For instance, one set of exclusions exempts coverage for business-interruption losses caused by such acts as “nuclear reaction, war [or] rebellion.” Another relieves the insurers of responsibility for “contamination” though Atlanta insists such language “does not exclude coverage for business interruption or time element losses.”
According to the complaint, one of the policies provides up to $1.6 billion in coverage for property damage per occurrence. The other offers up to $142.1 million per occurrence.
In the weeks ahead, the two insurance companies will respond to the complaint. They will likely articulate a very different view of the policies and insist that coverage either does not apply or that any possible application is extinguished by an exclusion.
As previously detailed in Sportico, business-interruption cases brought on by the pandemic have led to conflicting interpretations of policies drafted long before COVID-19 came into existence.
This conflict in part reflects COVID-19 not necessarily “damaging” property beyond attaching to surfaces and remaining in the air for a period of time. Many properties have also been deemed usable, albeit with fewer persons permitted entry. There is also debate about whether recovery is appropriate when a policy uses the word “virus” instead of “disease” and whether the reason for a cancellation is the pandemic or the government’s response to the pandemic. While these may seem like splitting-hair considerations, they lie at the heart of legal interpretation. They could also determine whether many millions of dollars are paid out.