Published March 30th, 2022 by Kyle Langan
LA Lakers vs. Chubb
In 2021, the Lakers sued Federal Insurance Co., a Chubb subsidiary. The team alleged losses in the tens of millions ($) in revenue due to closure of the Staples Center in March 2020 resulting from COVID stay-at-home orders issued by LA and California (Ayers, 2022). “The Lakers also incurred additional costs by installing new air filters, touchless bathroom fixtures, coverings for high-touch surfaces, and plexiglass dividers to prevent the spread of the virus” (Ayers, 2022).
The Western Division of the U.S. District Court for the Central District of California dismissed the Los Angeles Lakers’ “pandemic-related business interruption and civil authority claims, but allowed the team to pursue coverage for cleaning or repairing alleged property damage” (Ayers, 2022).
The Lakers successfully alleged a claim for property damage, based on “physically altered surfaces … that required cleaning or replacement before the Covered Properties were safe again” (Ayers, 2022).
The claims for business interruption or civil authority coverage were dismissed. Since 2020, insurers have frequently denied coverage for pandemic-related business interruption; this is due to the lack of property damage, or contract language that excludes viruses. For this ruling, precedent was heavily based on a case decided by the California Court of Appeals in late 2021 (Inns by the Sea v. Cal. Mut. Ins. Co.). It was ruled that repairing property damage alone did not dictate whether the team’s arena could reopen. Even with the repairs and alterations, “the Staples Center still could not have reopened until the State of California allowed it to reopen on April 15, 2021,” the Court noted (Ayers, 2022).
What is Civil Authority Coverage?
The team’s claims for civil authority coverage also failed – the Lakers argued that closures of nearby Metro stations constituted ‘prohibition of access’ but the Court found the orders “were aimed at limiting viral spread in the community, not at mitigating property damage at any specific facility” (Ayers, 2022). Civil authority coverage is included within business income/extra expense insurance forms; income losses arising as a direct result from actions of local police, fire, etc., may be covered (IRMI). “Orders made by civil authority must be the cause of the lack of access to insured premises (or the reason that normal operations cannot continue) due to damage caused by a peril covered under your policy. There must be an act of civil authority for coverage to apply; blocked access to a location alone is insufficient to trigger coverage” (IRMI). The International Risk Management Institute provides clarity on civil authority coverage, and why the court ruled against the Lakers. In this case, orders made by LA civil authority were not deemed the cause of loss because the orders were not aimed at mitigating property damage. Instead, the goal was public safety. More on business interruption coverage: commercial property insurance covering loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations (IRMI). It is vital for the financial health and longevity of companies (all sizes) to put this protection in place.
Is your broker providing guidance on business interruption and civil authority coverage? If the answer is no, shoot me an email at firstname.lastname@example.org.
Insurers continue to prevail in the majority of COVID-19 business interruption lawsuits, including on appeal. However, the Lakers’ look to gain a partial win in this case (which is much needed – the team is currently 11th in the West). The Lakers are rightfully exercising their right to pursue indemnity through timely purchased coverage. In doing so, courts are allowing them to proceed with the property damage and bad faith claims against Chubb, even though the NBA team’s business interruption claim was dismissed.
Ayers, E. (2022, March 21). La Lakers can pursue Covid property damage claim, court rules. Risk Manager FPN. Retrieved April 1, 2022, from https://www.advisen.com/tools/fpnproc/fpns/articles_new_24/P/426417879.html?rid=426417879&list_id=24
IRMI: The next level of business income coverage. The Next Level of Business Income Coverage | Expert Commentary | IRMI.com. (n.d.). Retrieved April 1, 2022, from https://www.irmi.com/articles/expert-commentary/the-next-level-of-business-income-coverage