Insurer Won’t Honor Policy Against COVID-19 Cancellations, Says Comcast Spectacor

Factory Mutual Insurance refuses to honor the terms of the property insurance policy the Philadelphia Flyers bought to protect against the type of “catastrophic loss” the team incurred when its games were canceled or curtailed at the Wells Fargo Center in 2020 and 2021 due to the COVID-19 pandemic, alleged team owner Comcast Spectacor in a June 8 state court complaint that Factory Mutual removed Wednesday to U.S. District Court for Eastern Pennsylvania (docket 2:23-cv-02476).

The policy provides coverage of up to $500 million per occurrence “for precisely the types of losses incurred by the Flyers” and at issue in the action, said the complaint. But Factory Mutual has limited coverage to the $1 million “aggregate sublimit” for communicable disease coverage responding to the Flyers’ coverage claim, it said.

Factory Mutual failed to pay for “the physical loss or damage to property and business interruption that the Flyers have incurred and continue to incur because of the presence of and risks presented” by the pandemic, said the complaint. The policy “expressly provides coverage for such physical loss or damage to the Flyers’ property, and other covered property,” it said.

“Fans in the stands” is at the core of Comcast Spectacor’s revenue, said the complaint. The function of Comcast Spectacor’s properties “depends on their ability to house hundreds or thousands of tightly packed fans in indoor spaces who talk, cheer and scream in close proximity,” it said.

Because of the “near certain risk of physical harm” created by COVID-19, the Flyers “were forced to cancel or significantly restrict in-person attendance” at their games at the Wells Fargo Center, said the complaint. Beginning in March 2020, the Flyers “were required to cease operations entirely, or severely restrict access to their covered premises,” it said. The Flyers were prevented from using the covered facilities “not only for Flyers events, but also for multiple other high profile and high-revenue generating events, such as other sporting and gaming events and star-studded concerts,” it said.

Befitting the “top dollar” the Flyers paid for “best-in-class insurance coverage,” the Factory Mutual policy promised “to afford broad protections against the risks of pandemic-related losses,” said the complaint. The covered premises “were rendered essentially nonfunctional and unusable for the large-event gatherings for which they had at all times been used” before the pandemic, it said. The premises also suffered physical damage or the “imminent threat of physical damage” due to the impact that COVID-19 had and “imminently would have had to the airspace and other physical components,” it said.

Factory Mutual “is aware of numerous court decisions previously concluding that insureds have properly alleged or are in fact entitled to coverage” for COVID-19 “business interruption loss or damage,” said the complaint. Because numerous courts agree COVID-19 may cause direct physical loss or damage to property, the Flyers’ belief that the policy provides coverage “is at least reasonable even if Factory Mutual claims that it believes there is no coverage,” it said. “This has been the rule of law” in the 3rd Circuit for years, it said.

In other similar litigation over coverage for pandemic losses, Factory Mutual said the presence of COVID-19 at an insured location doesn’t “constitute physical loss or damage to property,” said the complaint. That assertion “is contrary to Factory Mutual’s own admissions,” it said: “Contradicting its current litigation positions, Factory Mutual set up its own claim handling system to contain a loss code specifically for the circumstance that Factory Mutual has argued could not exist.”

Factory Mutual itself “also previously affirmatively asserted in court filings that a mold infestation in the clean room of a laboratory caused physical loss or damage,” said the complaint. In that context, “in direct contravention of its arguments here,” Factory Mutual relied on “the impact of a disease-causing agent (i.e., mold) on the function and utility of the covered property as the basis for triggering coverage,” it said.