Foul!? Madison Square Garden fights insurers to cover Covid-related losses and, like everyone else, loses

The Garden’s experience isn’t unusual, though. In fact, it’s the norm.

More than 2,100 lawsuits have been filed by companies and nonprofits alleging they were wrongly denied coverage for Covid-related losses, making it one of the largest disputes ever between policyholders and insurance companies. New York-based plaintiffs include Major League Baseball, the National Hockey League, the American Museum of Natural History, New York Botanical Garden, Thor Equities, plus numerous Broadway producers and retailers.

Insurers have prevailed, at least so far.

It’s a startling development, considering that insurers feared at the pandemic’s onset that they could be bankrupted by waves of claims.

Yet the “impact of Covid-19 [has been] less negative than expected” for insurance-company bottom lines, analysts at research firm A.M. Best said last month, when they raised their outlook for commercial insurers to “stable” from “negative.”

More than 520 federal Covid-loss related cases have been fully or partially dismissed, according to the litigation tracking service at the University of Pennsylvania’s Carey School of Law. More than 130 state court cases have met the same fate.

In the first case to go to trial, a jury ruled in favor of the insurer instead of a Kansas City restaurant.

In nearly every instance, insurers are winning because business-interruption policies kick in only when physical damage must be repaired, such as after a fire or storm. Some companies have argued that the coronavirus causes physical damage because it spreads through air droplets, but judges aren’t buying that line of reasoning.

“The virus damages humans, not physical structures,” a federal magistrate judge in Manhattan wrote in a ruling last month against the John Gore Organization, a producer of Broadway shows. “Plaintiff cannot fit a square peg in a round hole.”

The John Gore Organization didn’t respond to a request for comment.

A key precedent was set by the Roundabout Theatre, which lost a lawsuit filed in 2002 after construction of the Conde Nast Building forced West 43rd Street to be closed, causing the cancellation of several performances of Cabaret.

“The relevant provisions at issue in Roundabout Theatre and the provisions at issue… before us are not materially different,” a federal appeals court in Manhattan said last month in a ruling against the Guy Hepner art gallery in Chelsea.

An attorney for Guy Hepner didn’t respond to a request for comment.

In MSG’s case, insurers pointed out that executives understood the arena’s $1.8 billion in business-interruption coverage wouldn’t help in certain situations, so they bought a separate $1 million policy to cover damage done by communicable diseases.

“That’s the policy that they purchased,” Kurzweil, the lawyer for Factory Mutual, said in court. “That’s the bargain that they made.”

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