The National Hockey League (NHL) is on the verge of losing a lawsuit alleging entitlement to coverage for pandemic losses from insurance carrier, Factory Mutual.  On February 24, 2022, California Superior Court Judge Sunil R. Kulkarni ruled the NHL and its teams did not suffer a covered loss of property damage caused by COVID-19 infecting the air and surfaces of the stadium.[i]

Judge Kulkarni relied on several notable California decisions in pandemic coverage suits to support his finding.[ii]  The NHL tried to differentiate its case from the notable Inns by the Sea v. California Mutual Insurance Co., decided in November 2021 by the Fourth District Court of Appeal.  The NHL attempted to distinguish itself from Inns by the Sea by asserting the actual presence of the COVID-19 virus, not the government-ordered shutdowns, caused property damage.  Specifically, the NHL alleged COVID-19 physically changed the air and surfaces of their properties.

However, the NHL failed to successfully distinguish itself from the reasoning in Inns. Inns’ three main points were as follows: (1) strains of COVID-19 physically infect and can stay alive on surfaces for extended periods of time; (2) the Inns were forced to cease operation by government orders; and (3) closure orders were made in direct response to continued/increasing presence of coronavirus on Inns’ property and/or around its premises.[iii]

Since the case was decided in April of 2020, the CDC has subsequently released research refuting any reputable argument COVID-19 can physically infect and stay alive on surfaces long enough to cause monetary damage.  Accordingly, despite the presence of COVID-19 on its premises, there is little to no merit to support the assertion, “any direct physical damage to property caused it to suspend its operations.”[iv]

Rather, “all that [was] required for [p]laintiff to return to full working order is for the [government orders and restrictions to be lifted].”[v]  Thus, the strong reasoning in Inns by the Sea will likely overcome any argument the pandemic caused physical damage by lingering in the air.

Concurrently to the NHL action, Major League Baseball (MLB) is pursuing its insurers for astronomical pandemic-related losses.[vi]  Insurance carriers have followed the precedential reasoning which says no physical damage to the facilities exists due to the presence of COVID-19 in the air or temporarily on surfaces.  In response, in November 2021, the Angels, Dodgers, Giants, A’s, and Padres filed an amicus brief urging the 9^th Circuit to reverse its ruling which stated stay-at-home orders did not amount to physical loss or damage for insurance purposes.[vii]  Reversing this ruling would open the floodgates for litigation involving nuclear verdicts against insurance carriers throughout California.

Takeaway

The rapid development of the COVID-19 pandemic and how we understand this virus has ultimately put the NHL and the MLB in a worse position moving forward.  There is a strong likelihood insurers will be able to circumvent liability in both of these matters if these professional sports leagues are unable to prove the presence of COVID-19 on their premises resulted in direct physical damage to the property and caused it to suspend its operation.  As a result, this ruling has the potential to be a huge win for insurance carriers and potentially save them billions of dollars.

Jacklyn Hughes is a law clerk in Tyson & Mendes’ 2022 clerkship program.

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Sources

[i] San Jose Sharks LLC, et al. v. Factory Mutual Insurance Company, et al. Case No. 21CV383780 Santa Clara County Superior Court of California, not published.

[ii]See Inns-by-the-Sea v. California Mutual Ins. Co. (2021) 71 Cal.App.5th 688

[iii] Id. at p. 693–695.

[iv] Id. at p. 705.

[v] Id. at p. 704, citing First & Stewart Hotel Owner, LLC v. Fireman’s Fund Ins. Co. U.S. District Court for the Western District of Washington, not published.

[vi] Mudpie, Inc. v. Travelers Casualty Insurance Company of America (9th Cir. 2021) 15 F.4th 885

[vii] Brief for Los Angeles Dodgers LLC, et al. as Amicus Curie, Mudpie, Inc. v. Travelers Casualty Insurance Company of America (2021) 15 F.4th 885.