Theater Owner Seeks $1M Payout Under 'Pandemic' Clause

By Mike Curley
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Law360 (April 6, 2020, 3:50 PM EDT) -- A Texas theater owner is taking a group of underwriters at Lloyd's of London to court after the insurers said they would not pay out on a $1 million policy for shutdowns resulting from COVID-19, claiming the denial flies in the face of a "pandemic event endorsement" in the policy that specifically covers coronavirus-related disease.

SCGM Inc., which owns a group of theaters including Star Cinema Grill and Hollywood Palms Cinema, said in its complaint Friday that it went out of its way to get the endorsement in the policy, and paid a premium for it, because of the "catastrophic" effect a pandemic would have on its business.

According to the complaint, Lloyd's marketed the pandemic event endorsement following the 2014 Ebola outbreak, advertising it as filling the gaps that other insurers wouldn't after other companies created exclusions in their policies to avoid paying out in the event of another outbreak.

But when SCGM contacted Lloyd's after local and state officials ordered business shutdowns and social distancing measures, Lloyd's told the theater chain COVID-19 is not covered under the endorsement because it is not a named disease under the endorsement.

According to the complaint, however, the endorsement specifically lists "mutations or variations" of "Severe Acute Respiratory Syndrome-associated coronavirus [SARS-CoV]" among the pathogens it covers.

The world scientific community has made it clear that the virus causing COVID-19 is a variation of SARS-CoV, sometimes known as SARS-CoV-2, according to the complaint.

SCGM wrote that Lloyd's refusal of coverage is a "knee-jerk reaction" that is unreasonable, and the speed at which it told SCGM the disease isn't covered — only days after SCGM made the request — shows the insurer did not adequately investigate the claim.

"On its face, Lloyd's conduct appears to be nothing more than an attempt to put insureds in a position where they will be forced to accept lowball settlement offers simply from the fear that their insurer will drag out proceedings well past the insured's ability to remain financially viable," SCGM said in the complaint.

Michael A. Hawash of Hawash Cicack & Gaston LLP, representing SCGM, said Monday he believes this is the first suit against Lloyd's over the pandemic event endorsement, but said he expects more to come as other companies seek reimbursement under the endorsement.

He said Lloyd's interpretation — that COVID-19 is not a named disease covered by the policy — is a very narrow view of the clause since it states that it does cover variations on SARS-CoV.

Hawash added he's looking forward to getting the case to a judge to interpret how the policy should be read.

A spokesperson for Lloyd's declined to comment.

Underwriters at Lloyd's have come under fire from a number of policyholders in the weeks since U.S. businesses began closing in efforts to stem the spread of COVID-19.

In Florida federal court last week, Prime Time Sports Grill Inc., which operates Prime Time Sports Bar in Tampa, sued Lloyd's for its denial of coverage after the state governor ordered nonessential businesses to shut down. And in March, Lloyd's was hit with a suit over the COVID-19 shutdown by a restaurant in New Orleans.

SCGM is represented by Michael A. Hawash, Walter J. Cicack, Jeremy Gaston and Jeremy M. Masten of Hawash Cicack & Gaston LLP.

Counsel information for Lloyd's was not available Monday.

The case is SCGM Inc. v. Certain Underwriters at Lloyd's, case number 4:20-cv-01199, in the U.S. District Court for the Southern District of Texas.

--Additional reporting by Jeff Sistrunk. Editing by Janice Carter Brown.

Update: This story has been updated with Lloyd's London's response to a request for comment.

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Case Information

Case Title

SCGM, Inc. et al v. Certain Underwriters at Lloyd's

Case Number



Texas Southern

Nature of Suit



Judge David Hittner

Date Filed

April 03, 2020

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