Court dismisses most of Madison Square Garden’s business interruption suits
The lawsuit alleges that the 35 linked MSG companies paid "millions of dollars in premiums," but "instead of honoring their obligations, the insurers have paid nothing for the MSG Insureds’ losses."
A state appeals court on Thursday tossed out the bulk of a major insurance lawsuit lodged by 35 related Madison Square Garden companies against four major insurers that allegedly didn’t pay out for COVID-19-driven closures.
The lawsuit, filed in March 2021 in Manhattan Supreme Court, alleges that “the MSG insureds turned to the insurers for the insurance the insurers promised to provide” after the Madison Square Garden-linked companies paid “millions of dollars in premiums,” but that “instead of honoring their obligations, the insurers have paid nothing for the MSG insureds’ losses, thereby depriving the MSG insureds of the coverage to which they are entitled.”
The 51-page complaint also states that “the MSG insureds suffered, and continue to suffer, substantial financial losses because of SARS-CoV-2, COVID-19,” and that “all told, the seats were completely empty for almost one year and the MSG insureds are only [in 2021] now permitted to welcome back a limited number of fans.”
“In addition to their ongoing revenue loss,” the complaint further says, “the MSG insureds have incurred and will continue to incur significant costs to ensure the health and safety of their employees, fans, and everyone associated with or who walks into an insured location” via “mitigation efforts [that] are necessary, expensive, and should be covered by the broad insurance sold by the insurers.”
But in a terse opinion on Thursday, the Appellate Division, First Department court rejected much of the lawsuit’s basis for claiming breach of contract, breach of the implied covenant of good faith and fair dealing, and requesting declaratory against the four defendant insurers: Factory Mutual Insurance Company, AIG Specialty Insurance Company, Allianz Global Corporate and Specialty S.E., and Assicurazioni Generali S.P.A (U.K. Branch).
A unanimous, five-justice appellate panel said it came down to the fact that, with regard to physical loss or damage covered by the various insurance policies in play, the MSG companies had failed to allege actual physical damage when they laid out the closures and loss of business caused by the worldwide pandemic.
The First Department panel affirmed the January 2022 opinion from Manhattan Supreme Court Justice Joel Cohen, in which the judge granted pretrial dismissal of the MSG companies’ detailed complaint, except as to the claims for coverage under the relevant policies’ communicable disease and claims preparation costs provisions.
Wrote the First Department panel in its decision, “The [Cohen] court correctly granted defendants’ motion for partial dismissal of the complaint. As we recently affirmed in Consolidated Rest. Operations, Inc. v Westport Ins. Corp. (205 AD3d 76 … to recover under the terms of policies that insure against physical loss or damage, the plaintiffs must allege actual physical damage,” while citing Roundabout Theatre Co. v Continental Cas.
Then the panel added, “Accordingly, alleging loss based on COVID-19-related closures is insufficient to state a cause of action for breach of contract and insufficient to warrant coverage under plaintiffs’ policies with defendant insurance companies.”
The underlying, 2022 opinion from Cohen was even shorter than the First Department’s terse opinion Thursday. But Cohen referred in his decision to his “reasons stated on the record following oral argument” for the motion to dismiss.
In the complaint, the MSG companies, which include Madison Square Garden Sports Corp. and Madison Square Garden Entertainment Corp., have also alleged that they “purchased broad, ‘all risk’ property insurance from the insurers against losses in the event one or more occurrences interfered with their operations or precluded or disrupted the sports and entertainment events scheduled at their locations.”
And they contend that “even though a standard-form ‘Exclusion Of Loss Due To Virus Or Bacteria’ has been utilized by the insurance industry for nearly 15 years, and various forms of pandemic exclusions exist, the insurers elected not to include any of these exclusions in the policies they sold to the MSG insureds.”
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