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Sacramento Kings’ COVID suit can proceed

Posted On: Nov. 1, 2022 2:13 PM CST

covid litigation

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 all-risk policy that had a maximum coverage of $850 million per occurrence,

Its lawsuitSacramento Downtown Arena LLC et al. v. Factory Mutual Insurance Co. — was filed in U.S. District Court in Sacramento in March 2021.

The policy “at the center of this case can reasonably be interpreted as defining the presence of a ‘communicable disease’ as ‘physical loss or damage,’” the ruling said.

“The policy’s first sentence explains that it offers coverage only for risks of ‘physical loss or damage.” It later lists “Additional Coverages for insured physical loss or damage,” which include “’the reasonable and necessary costs incurred’ in response to government orders regulating the actual presence of a ‘communicable disease.’

“An insured could reasonably expect, given these terms, that the presence of a communicable disease such as COVID-19 fits under the ‘physical loss or damage’ umbrella for the policy as a whole,” the ruling said.

“This reasoning extends equally to the plaintiffs’ claims based on losses incurred as a result of civil and military orders,” which tied back to the physical damage provision, the ruling said. “An insured could reasonably expect the term ‘physical damage’ to 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 insurers’ favor in comparable cases, including the 9th U.S. Circuit Court of Appeals in San Francisco, to which this case may now be appealed.

The 9th Circuit has made several rulings in insurers’ favor on COVID-19. In May, for instance, 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 affirmed a ruling by the U.S. District Court in San Francisco.

Policyholder attorney Douglas C. Rawles, a partner with Reed Smith LLP in Los Angeles, who is not involved in the case, pointed to the communicable disease portion of the FM Global policy, which, he said, differs from the policies on which the 9th Circuit has previously ruled.

The Sacramento Kings ruling is “really digging into what” communicable disease may mean as it is used in the coverage part, he said. “It’s not simply a rinse and repeat” of other analyses.