MLB Sues for Billions as Pandemic Lawsuits Parse the Meaning of ‘Or’

Major League Baseball and its 30 franchises recently joined the list of sports organizations to sue their insurance companies over refusals to pay out policies for property damage and business interruption.

In a lawsuit filed on Oct. 16 in Alameda County (Calif.) Superior Court, MLB sued AIG, Factory Mutual, and Interstate and Casualty for breach of contract and related claims. MLB is represented by attorneys from Covington & Burling, a prominent Washington D.C.-based firm that has long counseled the NFL on litigation matters—including in Washington Football Team’s limited partners ongoing case against majority owner Daniel Snyder.

MLB’s lawsuit, titled Oakland Athletics v. AIG, tracks other coronavirus pandemic-related insurance cases analyzed by Sportico.

Baseball maintains that it has paid many millions of dollars in premiums to secure “top flight” policies that are supposedly “all risk” in design. The policies, at least as described by MLB in the complaint, “specifically insure against physical loss or damage arising from communicable disease caused by a virus.” They also guarantee recovery for losses stemming from government stay-at-home orders, gathering restrictions and other civil authority measures.

In response to the pandemic, MLB reduced each team’s 2020 schedule from 162 games to 60 games—a 63% drop reflecting a total of more than 1,500 cancelled games. The league and its teams also denied entry to fans during the regular season.

MLB cites unspecified “billions of dollars” in losses stemming from the abbreviated 2020 season. This enormous figure underscores the league’s revenue model. The complaint offers a lengthy list of revenue sources depleted by the cancellation of games and the absence of ticketholders. MLB lost revenue ordinarily attached to gate receipts, suites and group packages, luxury seat licenses, corporate sponsorships, food and beverage sales, spectator parking, and—for cancelled games—television, radio and Internet streaming.

The complaint also emphasizes that teams lost profits for non-baseball usages of ballparks. Cancelled rock concerts—including those headlined by Paul McCartney, Bill Joel, The Who and other high-profile acts—as well scratched festivals, meetings, camps and special events would have generated lucrative sales. MLB claims “tens of millions of dollars” were generated from these types of events in 2019.

Attorneys for MLB portray their legal argument as irrefutable. The relevant insurance policies allegedly compel the insurance companies to pay for “all risks of physical loss or damage.” The use of “or” rather than “and” is significant.

In July, insurance recovery expert and Pillsbury attorney Richard Giller told Sportico that case law “repeatedly stands for the proposition that the disjunctive ‘or’ means physical loss is different from damage, otherwise there would not be an ‘or.” Consequently, policy holders—such as MLB and its teams—can credibly argue that structural damage to their properties isn’t a prerequisite to collection.

The policies at stake in MLB’s case contemplate potentially massive payouts. They cover up to $1.636 billion in losses for any qualified “occurrence,” a term expansively defined as “the sum total of all loss or damage of the type insured, including any insured [business interruption] loss, arising out of or caused by one discrete event of physical loss or damage.”

MLB’s 69-page complaint expends considerable energy detailing how coronavirus (SARS-CoV-2) has caused wide-ranging harms to physical property and business operations. For as long as a month, coronavirus sticks on plastic, stainless steel, glass and wood surfaces often found throughout and around ballparks. It also spreads through the air and can be circulated through a ballpark’s heating and ventilation system. While these hazards can be mitigated through regular cleaning of surfaces and compulsory mask-wearing, they make the playing of games risky to spectators.

MLB’s attorneys repeatedly stress that coronavirus is rare in its destructive power. They note that “not all viruses cause communicable diseases” and that many neither infect humans nor transmit from human to human. SARS-CoV-2, in contrast, causes the communicable disease COVID-19. In turn, the attorneys highlight, COVID-19 triggers “physical loss and damage” that then brings about government shutdowns and “enormous financial loses.”

MLB’s depiction of the insurance policies should be taken with a grain of salt. The fact that the insurance companies haven’t paid—after being sued, no less—is itself a meaningful fact. Their behavior suggests they’re armed with legal justifications that will become known as their pretrial briefs are filed and made available.

In similar litigation, insurance companies have relied on the defense of applicable exclusions. While MLB’s attorneys insist no exclusions apply, their complaint acknowledges that “the policies [at issue] contain an exclusion for ‘contamination’.” The word “contamination” is defined in as “any condition of property due to the actual or suspected presence of any foreign substance . . . bacteria, virus, disease causing or illness causing agent . . . “

MLB’s attorneys assert this exclusion is only for property damage, and not for business interruption. They also argue even where it “could” apply to this context, it’s badly misplaced. MLB’s attorneys insist that because COVID-19 is a “communicable disease” it doesn’t fall under the exclusion for “virus” or “disease causing or illness causing agent.” The attorneys also contend exclusion for “costs” doesn’t cover revenue “losses” suffered by MLB. It stands to reason the insurance companies take issue with these and other portrayals.

As the MLB’s insurance case progresses, others like it will come and go. According to the University of Pennsylvania Carey Law School’s “COVID Coverage Litigation Tracker” (CCLT), there have been more than 1,300 COVID-related cases brought concerning business income and related insurance complaints. CCLT, which is led by Penn Law Professor Tom Baker, was first in spotting MLB’s case.

MLB’s suit follows a group of 19 minor league baseball teams recently losing their case against insurance companies due to policy exclusions. Last week, the Atlanta Falcons brought a case against Rhode Island-based insurance companies arguing they should absorb the team’s pandemic-related loses.

Given the enormity of MLB claims, it’s possible the parties find common ground and will work out a settlement. A settlement could take a time to figure out—especially given that individual MLB clubs’ financial losses likely vary and each party’s desire and urgency to settle could vary as well. MLB’s litigation and any settlement talks will also take place as the 2021 regular season nears and as the pandemic continues to wreak havoc.

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