Endeavor’s Appeal Denied in COVID-19 Insurance Lawsuit
A California appellate judge last week affirmed the dismissal of a lawsuit brought by Endeavor against an insurance company over COVID-19-related economic losses.
At the heart of the case is whether COVID-19 particles damage property in a way an insurance policy ought to cover. The judge stressed that the case centers on a “poorly drafted” policy and two companies arguing over what they intended to do about a future global pandemic “that was most assuredly outside [their] contemplation.”
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In 2021, Endeavor sued HDI Global Insurance for breach of contract after the company denied its claims. According to Justice Brian Hoffstadt of California’s Court of Appeal, HDI initially issued Endeavor a commercial property policy for 2019. The policy provided coverage up to $175 million per occurrence of property damage, with Endeavor paying a $665K annual premium. The policy provides recovery for “all risk of direct physical loss or damage to property,” a phrase the policy doesn’t define.
Endeavor—which through Endeavor Group Holdings is the parent of TKO (UFC and WWE), IMG and other top sports properties—contends the virus bonding to surfaces and in turn causing “adverse physical alteration of property” at facilities meets the applicable standard. Endeavor also reasons it suffered a recoverable economic loss even when the virus was “neither actually present or suspected” because of pandemic-induced government shut-downs.
Hoffstadt, joined by two other appellate judges, disagreed.
One major problem, the judge wrote, is that virus particles are easily removed “with a simple cleaning of the surface.” Even those left undisturbed will not permanently pose a threat since the virus will die. Additionally, it’s worth noting that COVID-19 is an airborne disease, spread by droplets landing in the eyes, nose or mouth.
Hoffstadt also noted that every California court decision, with the exception of one case, has held that direct physical loss or damage necessitates physical alteration to the property, and that loss of use, without accompanying damage, is insufficient.
The judge acknowledged that courts assessing insurance claims for economic losses connected to COVID-19 without a finding of direct physical loss or damage to property have led to conflicting court rulings in California and elsewhere. He also emphasized that the California Supreme Court is currently considering a case on the topic. Until the state Supreme Court indicates otherwise, Hoffstadt reasoned, he “side[s[ with those cases holding that the ephemeral existence of COVID-19 or its predecessor virus on property does not constitute ‘direct physical loss or damage to property’ as a matter of law.”
There have been a number of insurance cases involving teams, leagues and COVID-19 over the last few years, including those involving Major League Baseball, the Los Angeles Lakers and the Atlanta Falcons.
