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Law360 (July 16, 2020, 1:54 PM EDT ) The NBA's Houston Rockets and their home arena are suing their insurance company, alleging it denied them coverage for losses stemming from the COVID-19 pandemic in an act of bad faith as part of a companywide policy to deny coverage for similar claims.
In a complaint filed in Rhode Island state court Wednesday, Clutch City Sports & Entertainment LP, which owns the Toyota Center, and Rocket Ball Ltd., which owns the Rockets, say Affiliated FM Insurance Co. owes them coverage under the team's $412 million property insurance policy.
According to the Rockets, the arena was forced to shut down after the COVID-19 pandemic hit Houston and the NBA suspended the remainder of its season, saying the presence of the virus in Houston and the arena constitutes physical loss and damage under the policy.
"The loss of functionality is no less physical than the impact of a property having lost its roof to a tornado or hurricane," the team wrote. "Where once the property could carry on its business function, the property with a blown away and crumbling roof cannot operate in that way. Where once the property could seat patrons away from the elements, it can no longer do so. That is physical damage, as is the loss of function at Toyota Center caused by COVID-19."
As a result of the pandemic, the arena says it had to cancel 29 events, including nine Rockets games, plus an unknown number of playoff games. While the NBA has announced plans to resume its season, the team and arena say, none of the games are set to be played at the Toyota Center.
According to the complaint, the team's policy with Affiliated FM, which is a subsidiary of FM Global Group, expressly considers a communicable disease like COVID-19 as physical loss and damage, as the policy specifically covers "cleanup, removal and disposal" of communicable disease.
The team further alleges that the governor's shutdown orders, which closed the doors on nonessential businesses, also trigger the policy under the civil authority clause, which grants coverage for business interruption caused by government orders prohibiting access.
According to the complaint, the policy's exclusion for contamination does not apply, as it does not include communicable disease like COVID-19 among its list of contaminants. In addition, the team argues that the policy's sublimits for communicable disease coverage don't limit coverage of the business interruption and physical damage claims, and should not apply.
The complaint also cites an internal "talking points" memo from FM Global, which the team claims informs insurance adjusters that the virus doesn't count as physical damage, nor does a communicable disease. According to the team, this memo is the basis for FM Global and its affiliates' bad faith effort to deny coverage for COVID-19-related claims, as adjusters are not instructed to take into account the policy language or local law when denying the claims.
A spokesperson for FM Global declined to comment Thursday.
Attorneys for the Toyota Center and the Rockets referred questions to the Toyota Center. A spokesperson for the team declined to comment.
The suit comes after Minor League Baseball teams began suing their insurers over coverage after the cancellation of their season, including the farm team for the New York Yankees.
The arena and the team are represented by Stephen M. Prignano of McIntyre Tate LLP; W. Mark Lanier, Alex J. Brown, Ralph D. McBride and Matthew D. Przywara of The Lanier Law Firm PC; Denman H. Heard of Heard Law Firm PLLC; Adam J. Levitt, Mark A. DiCello and Kenneth P. Abbarno of DiCello Levitt Gutzler LLC; Timothy W. Burns, Jeff J. Bowen, Jesse J. Bair and Freya K. Bowen of Burns Bowen Bair LLP; and Douglas Daniels of Daniels & Tredennick.
Counsel information for Affiliated FM was not available.
The case is Clutch City Sports & Entertainment LP et al. v. Affiliated FM Insurance Co., case number PC-2020-05137, in the Providence/Bristol County Superior Court, Rhode Island.
--Editing by Abbie Sarfo.
Update: This story has been updated with the Rockets' response to a request for comment.
For a reprint of this article, please contact reprints@law360.com.
