Judge Tosses Philadelphia Eagles and 76ers Covid Loss Cases

Two Philadelphia professional sports team have lost their appeals over denied business interruption insurance claims tied to the COVID-19 pandemic.

U.S. District Judge Michael Baylson this week dismissed lawsuits by the Philadelphia 76ers basketball team and the Philadelphia Eagles football team, citing a Pennsylvania Supreme Court decision in October that shut down a dentist’s similar bid for insurance coverage.

In late 2022, Judge Baylson decided to wait before ruling on two insurers’ motions to dismiss their sports team insureds’ complaints to see if the state’s high court might weigh in on whether Pennsylvania law would allow similar claims to proceed. In October, the state’s high court answered that question “in the negative” and his court “must follow this decision,” the judge wrote in dismissing the two suits.

The Supreme Court, reversing lower courts, ruled in a case involving CNA Insurance Co. that dentist Timothy A. Ungarean was “not entitled to insurance coverage under the plain and unambiguous language of the CNA Policy because his business properties covered thereunder did not sustain any physical loss or damage.”

Ungarean closed his dental practice in compliance with the state’s Covid-19 shutdown orders. He claimed he suffered a drastic loss in business income, the furloughing of employees, and other harmful consequences. Ungarean filed a claim with CNA to recoup his losses, arguing he was entitled to coverage because he physically lost the ability to use the properties. CNA denied coverage on the basis that the covered properties did not suffer any physical damage or harm.

The Supreme Court sided with CNA, finding that “the sole reason Ungarean’s business suffered financial losses during the period in question was due to the government-ordered shutdown, not any alleged physical condition.”

The Supreme Court noted that its decision was in accord with the prevailing view of other courts from varying jurisdictions. However, the court stressed, its decision rested “solely on the language of the CNA policy and not the conclusions of other courts interpreting separate, albeit similar, insurance policy language.”

In dismissing both federal district court suits, Judge Baylson dd not comment on whether the language in the different policies sold to the Eagles and 76ers made a difference.

The Philadelphia Eagles purchased a $1 billion insurance policy for coverage relating to “physical loss or damage of property.” In 2022, after suffering a large loss of revenue, which the Eagles allege was due to Covid-19, the Eagles sought payment from Factory Mutual Insurance Co., which denied coverage. The Eagles sued.

Similarly, the Philadelphia 76ers purchased a comparable policy, but with different coverage terms, from Hartford Fire Insurance Co. After the 76ers incurred losses which it alleges were due to Covid-19, Hartford denied coverage and the 76ers sued.

Both insurers sought to have the suits dismissed. Although they were separate cases, with separate policy language, Judge Baylson said they presented similar issues.

Both teams were required to close or restrict access to their insured properties due to the pandemic for several months. They claim that Covid-19 viral droplets could have been present in the air on the properties, and landed on and adhered to surfaces, thereby physically changing the airspace and surfaces of the properties. The properties therefore “could not fulfill their essential purpose and function.”

The Eagles claimed they were entitled to coverage under two distinct coverages: (1) for property loss under the Time Element (business interruption) loss, and Extra Expenses resulting from the risks associated with the pandemic and (2) for “specified amounts incurred under the “Communicable Disease Response” and “Interruption by Communicable Disease” coverages.

The 76ers’ properties were insured by Hartford under four similarly-worded policies. The 76ers seek coverage for their loss of business income due to the “physical loss of or physical damage to” the 76ers’ properties. Among the 76ers’ arguments is that case law supports interpreting “physical loss” to trigger when a property is no longer usable or functional. The 76ers maintained that physical loss exists where the property’s use is reduced “to a substantial degree.”

FM contended that the terms of the Eagles’ policy limited coverage to the $1 million Communicable Disease Response, which it has paid. FM asserted it had no duty to pay for the “physical loss or damage to property and business interruption” because of an exclusion for losses caused by “contamination.” FM further argued that loss of use does not constitute physical loss because the latter requires a change to some physical condition of the property.

Hartford denied coverage for the 76ers, relying on its virus exclusion that states it “will not pay for loss or damage caused directly or indirectly by” the “presence, growth, proliferation, spread, or any activity of virus.” Hartford further argued that the 76ers failed to allege any facts that would establish “physical loss of or physical damage to” the insured property, that economic loss is not the same as physical damage, and that the properties were useable.