COVID-19 lockdowns have hit New York Broadway productions and distribution companies particularly hard.  Loss of jobs, complete shutdowns, and an inability to conduct business safely has hindered organizations’ business.  Many theater production organizations had to shut down completely during the first 16 months of COVID-19.

In John Gore Organization Inc. (“JGO”) v. Federal Insurance Co. (“Federal”), plaintiff is seeking financial compensation from their interruption insurer for business interruptions.^[i]  Like other theaters, plaintiff was forced to shut down completely during the first 16 months of COVID-19.  Plaintiff’s insurer denied coverage given no physical loss was proven.  A magistrate judge reviewed the case and recommended granting the insurer’s motion to dismiss.^[ii]  Plaintiff moved for a federal judge to deny the magistrate’s recommendation for dismissal.^[iii]  According to plaintiff, the judge made several errors, including:

(1) misapplying the First Department’s holding in Roundabout Theatre Co. v. Continental Casualty Co., 302 A.D.2d 1 (1st Dep’t 2002);

(2) improperly resolving disputed factual issues in favor of Federal rather than accepting JGO’s allegations as true and construing all reasonable inferences in its favor, and measuring JGO’s allegations against trial courts’ subjective views of the facts and science without receiving or considering scientific evidence; and

(3) reading in requirements not found in the Policy to hold that JGO’s losses do not trigger the Policy.^[iv]

Defendants agreed with the magistrate’s ruling for the most part but suggested it would have been more appropriate for the magistrate not to allow plaintiff to amend stating: “[a]ny leave to amend would only result in the court addressing [the organization’s] redundant arguments for what would be a third time and would only further delay the inevitable conclusion of a dismissal.”^[v]

Takeaway:

During COVID-19, many insurers and insureds have taken their cases to court over pandemic related business interruptions.  These cases are resolving in favor of the insurer across the country.^[vi]  According to Westlaw’s Key COVID-19 Cases Tracker:

On January 5, 2022, the 5th Circuit joined the 2nd, 6th, 7th, 8th, 9th, 10th, and 11th Circuits in holding that when used in commercial property policies, the phrase “physical loss of property” requires a tangible alteration or deprivation of property, and “cannot mean something as broad as the ‘loss of use of property for its intended purpose…’”^[vii]

While the Broadway community may have experienced more severe business interruptions than restaurants because they have fewer ways to pivot, it is no surprise the magistrate ruled this way.   Insurers are likely to see this trend continue.

[i] John Gore Organization Inc. v. Federal Insurance Co., U.S. District Ct. for the Southern District of New York, Case No. 1:21-cv-02200.

[ii] REPORT & RECOMMENDATION ON MOTION TO DISMISS, John Gore Organization Inc. v. Federal Insurance Co., U.S. District Ct. for the Southern District of New York, Case No. 1:21-cv-02200, filed Dec. 8, 2021.

[iii]PLAINTIFF’S OBJECTIONS TO THE REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE KATHARINE H. PARKER ON DEFENDANT’S MOTION TO DISMISS, John Gore Organization Inc. v. Federal Insurance Co., U.S. District Ct. for the Southern District of New York, Case No. 1:21-cv-02200, filed Dec. 22, 2021.

[iv] Id. at 1-2.

[v] Hope Patti, Chubb Unit Aims To Sink Broadway Co.’s Virus Loss Suit, Law360 (Jan. 7, 2022), https://www.law360.com/articles/1453429.

[vi] https://www.claimsjournal.com/news/west/2021/06/03/304078.htm; https://www.nrn.com/news/landmark-covid-19-business-interruption-lawsuit-defeated-jury-trial

[vii] Practical Law Commercial Transactions, Key COVID-19 Insurance Coverage Cases Tracker (US), Thomson Reuters Practical Law, last updated January 6, 2022 (discussing Terry Blacks’s Barbecue, LLC, et. al. v. State Auto. Ins. Co., No. 21-50078 (5th Cir. Jan. 5, 2022)).

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