The COVID-19 pandemic might seem like a bad memory from a distant era, but sports litigation over the pandemic’s insurance fallout continues. This week the U.S. Court of Appeals for the Ninth Circuit ruled against the Sacramento Kings and affiliated companies in their case against Family Mutual Insurance Company.
The Kings have sought coverage under their Family Mutual property insurance policy for losses sustained at the Golden 1 Center, the Sacramento arena where the Kings play their home games, as well as hotel and retail spaces during the pandemic. The complaint explained that “the inability to host events at the Golden 1 Center” was “devastating” for the arena and the businesses around it, as “foot traffic, retail sales and parking revenues . . . dropped to near zero.” At the Kimpton Sawyer Hotel, which is adjacent to the arena, occupancy “dropped to near zero” and suspended operations for months before opening to only partial operations.
The policy at issue covers costs to repair or replace damaged property up to $850 million. Family Mutual has mostly denied that coverage, save for a $1 million payment under a provision related to communicable diseases.
As worded, the policy covers property “against all risks of physical loss or damage.” The Kings maintain that “the presence” of COVID-19, as a virus, counts as “physical loss or damage.”
There are a couple of problems with that interpretation, the Ninth Circuit reasoned in an opinion on behalf of Judges Michelle Friedland, Jennifer Sung and P. Casey Pitts that affirmed a trial judge’s ruling.
First, the California Supreme Court recently held that the presence of COVID-19 “does not constitute direct physical loss or damage to property within the meaning of a commercial property insurance policy under California law.”
In Another Planet Entertainment v. Vigilant Insurance, the California Supreme Court reasoned loss or damage to property “requires a distinct, demonstrable, physical alteration.” While COVID-19 might alter property “by bonding or interacting with it on a microscopic level,” that alteration doesn’t appear to result in “injury or impairment of the property itself.” The Ninth Circuit pointed out, however, that the California Supreme Court’s ruling involves a “different policy with different terms” and is thus not fully on point.
Second, even if COVID-19 counts as physical loss or damage, coverage is still negated by the policy’s contamination exclusion which excludes coverage “for any condition of property due to the actual or suspected presence of any … virus.”
To that point, the Ninth Circuit cited a 2023 decision by the California Court of Appeal concerning the San Jose Sharks, which sought coverage from an insurance policy that contained a “provision identical” to the Kings’ contamination exclusion for losses sustained during the pandemic. The court disagreed with the Sharks, reasoning the clause “unambiguously excludes physical loss or damage in the form of viral contamination.”
While the pandemic has been over for a couple of years, litigation concerning the pandemic, particularly cases involving interpretation of insurance provisions, could remain on the docket for years to come.