The lawsuits against Johnston-based FM Global started to pile up shortly after the COVID-19 pandemic took hold in the U.S., shutting down large sectors of the economy and causing tremendous losses for commercial properties.
First came Thor Equities LLC, which owns hotels and large residential properties throughout the country, filing a federal lawsuit against FM Global in April 2020, claiming that the commercial property insurer failed to pay up on its $750 million policy for $20 million in lost rental income due to the coronavirus outbreak.
The next month it was casinos, starting with the Monarch Casino & Resort in Colorado and Treasure Island in Las Vegas. The casinos filed lawsuits in federal courts that claimed FM Global failed to honor policies covering property damage and business interruptions – Monarch said its policy was supposed to cover losses of up to $350 million per occurrence, and Treasure Island’s policy was for up to $1.2 billion.
After that came the professional sports venues, including Madison Square Garden Sports Corp. in New York, Philadelphia Eagles LP, the Atlanta Falcons Stadium Co. LLC, and Clutch City Sports & Entertainment LP, formed by the Houston Rockets to operate its basketball arena.
About 60 lawsuits have been filed against FM Global and its affiliates since April 2020, both in state and federal courts, according to data collected by the COVID Coverage Litigation Tracker at the University of Pennsylvania Carey Law School. The company is one of 15 U.S. insurers hit with an avalanche of coronavirus-related litigation by corporate policyholders, totaling 1,563 lawsuits.
‘We strongly believe our insurance policies are clear on the coverage provided.’
STEVEN ZENOFSKY, FM Global assistant vice president of public relations
The onslaught of multimillion-dollar lawsuits against FM Global, one of the world’s largest commercial property insurers, has continued for more than 16 months, with the latest actions filed by restaurant chain California Pizza Kitchen in a Rhode Island state court in late July, followed by another from Washington State University filed on Aug. 12 in federal court in the state of Washington.
In court filings responding to these lawsuits, FM Global and other insurers have cited policy exclusions for viruses, contamination and communicable disease, which an insurance industry trade group said is standard in modern business interruption and property damage policies.
“It is unfortunate when legal matters arise because we strongly believe our insurance policies are clear on the coverage provided,” said Steven Zenofsky, FM Global assistant vice president of public relations, in a statement to PBN.
So far, courts have mostly agreed. None of the 1,563 cases have gone to trial yet, and many have been dismissed outright by judges, including 388 in federal courts and 105 in state courts, following motions to dismiss filed by the insurance companies.
So why do these lawsuits keep getting filed?
One insurance industry expert said the losses to many businesses from the pandemic were so massive that it’s financially inconsequential to file a lawsuit. Also, litigators for the policyholders have argued that COVID-19 caused physical damage to buildings, which would bypass the virus exclusion that became standard industrywide following the global SARS outbreak in 2004.
“The cost of filing a case is not very large,” said Lars Powell, director of the Center for Insurance Information and Research based in the Culverhouse College of Business at the University of Alabama. “If a law firm files one for one company, they can very easily almost just replace the plaintiff’s name and some figures to file a new claim. And there’s always the possibility that an insurance company will settle some of these claims to make them go away.”
In some of these lawsuits, policyholders said they bought extra coverage from FM Global that specifically addresses damages that resulted from communicable disease, but the insurance company still has not paid out. That was the case for Foxwoods Resort Casino and its owners, the Mashantucket Pequot Tribal Nation, which sued in Connecticut state court in January over an all-risk insurance policy with limits up to $1.65 billion. The tribe, which said it has paid FM Global $23.9 million over the past decade, including $2 million on an all-risk policy, argued that the insurer should cover $76 million in COVID-19-related losses and expenses that continue to pile up.
In August, a judge allowed the Foxwoods case to continue but narrowed the tribe’s claims to two subpolicies, each providing just $1 million in additional coverage for communicable-disease response and business interruption.
Donald Griffin, vice president for policy and research at the American Property Casualty Insurers Association, said he’s confident the standard virus exclusions will hold up. Otherwise, the commercial insurance industry would be in danger of going insolvent.
“We as an industry would be unable to pay [COVID-19] claims in a very short period had we covered this anyways. We can’t do that,” Griffin said. “So far, legally, it’s been pretty well-established this isn’t physical damage. When you add the exclusion on top of that, it’s a pretty high threshold for the courts to consider.”
Marc Larocque is a PBN staff writer. Contact him at Larocque@PBN.com.