NBA insurance dispute: Did COVID create a direct physical loss?
The 76ers and the owner of its training complex want compensation for income they lost due to the limits the pandemic put on the use of their facilities.
Could the loss of use of a property due to the COVID-19 pandemic be considered “direct physical loss or damage?” An NBA team’s dispute over denied insurance coverage is exploring the question.
The Philadelphia 76ers and SPF Owner LLC, which owns a 76ers training complex and office building in New Jersey, say the term should apply to damage caused by the pandemic. They are seeking declaratory judgment to reflect that interpretation after the Hartford Fire Insurance Co. declined to compensate them for lost income under the reasoning that the disease “does not constitute direct physical loss or damage.”
The complaint, authored by lawyers from Saltz Mongeluzzi & Bendesky, says that the term “physical loss” is undefined in Hartford Fire’s Property Choice Business Income and Extra Expense Coverage Form, and should be interpreted to consider COVID as a force that creates observable changes in the environment.
“This issue is particularly novel,” the plaintiffs wrote in the complaint, which said federal courts have in the past abstained from taking on cases seeking declaratory judgment related to COVID-19 business interruption losses.
The complaint dedicates significant space to discussing the physical attributes of the virus, its means of transmission and the damage that it can cause.
COVID-19 “entered the air and surfaces of the covered properties when infected persons were present, and the properties became unusable in the way that they had been used before the COVID-19 pandemic,” the complaint said. “The physical space underwent physical alterations to mitigate the risks posed by the fact that COVID-19 was present.”
According to the complaint, COVID-related closure orders in Pennsylvania, Delaware and New Jersey caused the plaintiffs to lose ticket sales and other kinds of revenue, and the facilities then made costly investments to implement disease-prevention measures like air filtrations systems and Plexiglas dividers.
The plaintiffs sought compensation for business income they lost due to the limits the pandemic put on their ability to use their facilities.
The suit, captioned SPF Owner v. Hartford Fire Insurance, was surfaced by Law.com Radar when Hartford Fire’s Butler Weihmuller Katz Craig attorneys removed it to the U.S. District Court for the Eastern District of Pennsylvania on April 6. It was initially filed in the Philadelphia Court of Common Pleas in March.
Attorneys with Saltz Mongeluzzi did not respond to requests for comment.
Richard Gable Jr. of Butler Weihmuller, representing Hartford Fire, did not respond to requests for comment.