By Jeff Birren, Senior Writer.
Tough economic times often leads to litigation as companies try to sue their way out of their financial difficulties. In 2020 minor league baseball was shut down by COVID-19, and many teams filed lawsuits against their insurance companies that denied the claims. Three teams sued their insurance carriers in the U.S. District Court in New Jersey, alleging breach of contract, anticipatory breach of contract, and seeking declaratory judgment. Recently the Court granted a motion to dismiss the causes of action against one defendant because the policies specifically “exclude coverage for any ‘loss, cost or expense caused by resulting from or relating to any virus’” (7th Inning Stretch LLC et al v. Arch Ins. Co., et al, U.S.D.C, N.J. Case No. 20-8161 (SDW) (LDW) (“7th Inning”), (1-19-21)).
Background
COVID-19 brought havoc to many businesses and baseball was no exception. On March 12, 2020 Major League Baseball cancelled what remained of spring training and postponed the start of the regular season by at least two weeks. Four days later MLB announced that the regular season was postponed indefinitely as was minor league baseball. On June 23, 2020 a number of minor league teams sued their insurance companies for denying coverage for the losses caused by COVID-19 (Chattanooga Professional Baseball, LLC d/b/a Chattanooga Lookouts et al v. Philadelphia Indemnity Insurance Co, et al, U.S.D.C. E.D. Penn., Case No. 2:20—cv-03032-TJS (6-23-30)). Just two days later the Court noted that the class case for breach of contract and declaratory judgment was “filed by fifteen plaintiffs located in eleven different states against five insurance companies involving different contracts of insurance” and consequently severed each case (Id., Order (6-25-20)).
On June 30, 2020 the remaining minor league baseball season was cancelled. Two days later, 7th Inning was filed in New Jersey federal court. The complaint was 25-pages and with 391 pages of exhibits that included the insurance policies. 7th Inning Stretch, De Wine Seeds Silver Dollars Baseball, LLC (the Asheville Tourists) and Whitecaps Professional Baseball Corporation (the West Michigan Whitecaps) were the plaintiffs. Arch Insurance Co. (“Arch”) and Federal Insurance Co. (“Federal”) were the defendants. The case was assigned to Judge Susan D. Wigenton.
The plaintiffs subsequently filed an Amended Complaint that was 36 pages with 491 pages of exhibits. Arch and Federal were given an extension to respond. Count One was brought by the Whitecaps against Federal. Federal answered the Amended Complaint on October 10, 2020. Arch had a different plan.
Arch filed a Motion to Dismiss the second and third causes of action asserted against it by 7th Inning and DeWine Seeds on October 14, 2020. The two plaintiffs naturally filed an opposition and Arch replied. The plaintiffs tried to file a sur-reply but that was denied by the Court. COVID-19 also led to the cancelling of oral argument in cases across the country, andthe Court “reached its decision without oral argument” (7th Inning at 2).
The District Court Decision
The Court stated that “an adequate complaint” must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” This “requires more than labels and conclusions” and the factual “allegations must be enough to raise a right to relief above the speculative level.” The Court had to “accept all factual allegations as true” and “construe the complaint in the light most favorable to the plaintiff.” This “tenet” “is inapplicable to legal conclusions” and “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice” (Id., internal citations omitted).
The Court “writes only for the parties and assumes their familiarity with the procedural and factual history of this matter.” Governors “across the county, including the governors of North Carolina and Washington” (where the Tourists and 7th Inning play), had “issued emergency orders” designed “to prevent the spread of the virus, which led to the cessation of the minor league baseball season” and that caused the “Plaintiffs to suffer ‘catastrophic financial loss” (Id.). “Plaintiffs seek to recover under commercial property insurance” which provided coverage for “direct physical loss to covered property at a ‘covered location’ caused by a covered loss”; for “lost earnings and expenses ‘during the restoration period’” when the business “is necessarily wholly or partially interrupted by direct physical loss of or damage to property at a covered location”; and for “coverage for earnings and extra expense to include loss sustained while access to ‘covered locations’ or a ‘dependent location’ is specifically denied by an order of civil authority.” The seasons were shut down by civil authorities, but to be covered this “order must be a result of direct physical loss of or damage to property” and that is not what happened to the ballparks as a result of COVID-19. That, however, was just the beginning of the Court’s coup de grace.
The policies specifically excluded “coverage for any ‘loss, cost or expense caused by, resulting from or relating to any virus, bacterium or other microorganism that cases diseases, illness or physical distress that is capable of causing disease, illness or physical distress’” (Id. at 2/3). The plaintiffs therefore had “failed to meet their burden to show that the claims fall ‘within the basic terms’” of the policies (Id. at 3). The policies “unambiguously limit their coverage to physical loss or damage to Plaintiffs’ commercial property” and they had “not alleged any facts that support a showing that their properties were physically damaged.” The plaintiffs asserted that the Stay-At-Home orders and the “resultant actions by the government forced the cessation” of the minor league season and this “caused Plaintiffs to lose income and incur expenses. This is not enough.” Furthermore, the Stay-At-Home “orders were issued to mitigate the spread of the highly contagious novel virus. Plaintiff’s losses are tied inextricable to that virus and are not covered by the Policies” (Id. at 4).
The plaintiffs argued that the virus exclusion was “unavailing” because the defendant “obtained the exclusion ‘through misrepresentation to regulators.’” That was a “New Jersey State law defense” that “has not been adopted by either North Carolina or Washington” (Id. at 3, FN 6). The Court also cited fourteen decisions from “other federal courts” that “have reached the same conclusion in suits involving similar policy terms” (Id. at 4, FN 7). Though the Court “was sympathetic to the very real losses business have suffered during this pandemic, it cannot grant Plaintiffs the relief they seek” (Id. at 4). The Court dismissed “Counts Two and Three of the First Amended Complaint” “with Prejudice” (Id.).
Two weeks later two of plaintiffs’ counsel filed a motion to withdraw on February 2, 2021. The Court granted their motions the following day. Federal then sought leave to file a motion for judgment on the pleadings. The motion was granted on February 19, 2021. Federal was given one week to file its me-too motion. The plaintiffs have until March 4, 2021 to file an opposition, and Federal can reply by March 11, 2021 (Order (2-19-21)).
The Court’s opinion was cited with approval soon after it was issued by New Jersey federal District Court Chief Judge Wolfson in Causeway Automotive, LLC, et al v. Zurich American Insurance Company, et al, Case No. 20-8393 (FLW (DEA) at 13 (2-10-21)). It also cited another minor league baseball case that came to the same conclusion, Chattanooga Prof. Baseball LLC v. Nat’l Cas. Co, No. 20-1312 2020 WLL 6699480 at 3 (D. Ariz. (11-13-20). Judge Wolfson noted that in Chattanooga there was “no allegation” that “absent the pandemic, the government would have been prompted to issue stay-at-home orders or otherwise inhibit access to the ballparks” (Id. at 13).
Conclusion
The Court will likely grant Federal’s motion for judgment on the pleadings, so the plaintiffs will soon be in the Third Circuit should they appeal. One wonders if any of the minor league team/plaintiffs ever read their insurance policies before they filed the lawsuits, or, if they ever asked for virus-related coverage. It is also interesting to speculate if they knew that their claims were dubious but hoped for a settlement or some other deus ex machina relief. The losses are substantial but that does not mean their carriers are financially responsible.
The lesson may be that ballclubs should carefully read their insurance policies before they purchase the policy and make sure that they have the coverage they need; recognizing that although no one in sports could have predicted the COVID-19 pandemic and what it has done to sports across the world, that does not mean that insurance policies that exclude virus-related coverage will be retroactively re-written to provide coverage.
As always, I must thank David Stern, Esq., of Blaney McMurtry of Toronto, Canada for his constant assistance.
