Minor League Clubs Strike Out Again in COVID Insurance Appeal

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Last Friday, a three-judge panel on the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of a lawsuit brought by the Chattanooga Lookouts and 18 other minor league baseball teams. The teams, which are from 10 states, have sued three insurance companies for refusing to pay business interruption policies during the COVID-19 pandemic.

National Casualty, Scottsdale Indemnity and Scottsdale Insurance invoked a virus exclusion clause to deny payments. The clause explicitly excluded coverage for “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”

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Minor league teams suffered substantial losses on account of the pandemic. The 2020 minor league season was canceled, causing an absence of anticipated revenue for gate receipts, parking, concessions, merchandise and advertising.

The teams contend their losses reflect causes beyond the virus itself—and thus fall outside the exclusion’s scope. Alleged “other” causes include federal and state government pandemic policies, struggles by government officials to control the pandemic and MLB teams not supplying players to minor league clubs.

Last November, these arguments failed before Arizona’s federal district court. Judge Douglas Rayes dismissed the lawsuit, reasoning the COVID-19 virus constituted the root cause.

The Ninth Circuit’s panel, which consisted of Judges Morgan Christen, Danielle Forrest and Michael Anello, agreed.

“The teams,” the panel wrote in its order, “have not plausibly alleged that the need for the government to act in the first place—i.e., the context in which any alleged governmental inaction or action arose—was something other than the COVID-19 virus.”

The panel also rejected the teams’ argument that MLB clubs refusing to supply players constituted a different cause. In fact, the panel found the argument undermined the case. The lost season was the first year in more than 100 years that minor league baseball wasn’t played, a point suggesting the virus caused the anomaly.

The panel conceded that governmental responses and other aspects of the pandemic might have worsened teams’ losses. Yet it stressed that the virus and its spread set the situation in motion.

The teams can petition the Ninth Circuit for an “rehearing en banc,” where a panel of 11 judges would rehear the case. Those petitions are rarely granted. If a rehearing fails, the teams could petition the U.S. Supreme Court, which cautions that it only grants and hears arguments about 1% of the time.

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