By Jeff Sistrunk

Law360 (August 25, 2020, 5:41 PM EDT) -- The operator of five Broadway theaters sued a pair of Chubb Ltd. subsidiaries in New York federal court, accusing the insurers of wrongfully denying or underpaying its claims for losses because of the government-mandated closures of the venues amid the COVID-19 pandemic.

Jujamcyn Theaters LLC on Monday claimed it has suffered "substantial losses" since executive orders issued in March by New York City Mayor Bill de Blasio and New York Gov. Andrew Cuomo forced it to completely and indefinitely shutter its five theaters. Prior to the pandemic-related closures, Jujamcyn said its theaters, which exhibited popular musicals including "Hadestown," "The Book of Mormon" and "Frozen," could expect up to 48,000 patrons per week.

Jujamcyn sought coverage under specialized entertainment insurance and performance disruption policies issued by Chubb units Federal Insurance Co. and Pacific Indemnity Co., respectively. But Jujamcyn said Federal has denied coverage outright, on the grounds that its losses did not result from covered "direct physical loss or damage" to the theaters or nearby property, while Pacific has tried to cap the company's recovery at $250,000.

The theater operator alleged that the Chubb units' efforts to deny or limit coverage are groundless, emphasizing that the insurers could have inserted a common exclusion for losses relating to viruses, communicable diseases or pandemics into their policies but chose not to do so.

"Simply put, because these perils are not excluded, they expressly are insured 'covered perils,'" Jujamcyn argued.

Jujamcyn asserted that Chubb adopted its core stance — that the presence of the novel coronavirus, also known as SARS-CoV-2, does not cause direct physical loss or damage to property — shortly after state and local governments began issuing stay-at-home orders, and has applied that interpretation to reject many businesses' insurance claims.

Here, the Federal entertainment insurance policy's lost business income coverage is contingent on direct physical loss or damage to Jujamcyn's theaters. The policy also extends coverage for losses the theater operator sustains if an order by a "civil authority" — such as a government official — prohibits access to Jujamcyn's theaters or other "dependent" properties located within 10 miles from the theaters.

According to Jujamcyn, case law in both New York and other jurisdictions supports the notion that the presence of the coronavirus "in a building's airspace and on or around property" constitutes a direct physical loss or damage to that property.

Jujamcyn pointed out that Mayor de Blasio's March 12 order mandating the closure of indoor theaters was directly preceded by news reports indicating that an usher who worked at two Broadway theaters close to Jujamcyn's venues had tested positive for COVID-19. And since the closure order, seven performers or support staff at Jujamcyn's theaters have tested positive for the coronavirus or its antibodies, the company said.

"Because the SARS-CoV-2 virus can adhere to surfaces of property for several days and can linger in the air in buildings for several hours, the presence of the SARS-CoV-2 virus on or around property amounts to 'direct physical loss or damage' as that phrase is used in the Federal policy," Jujamcyn contended.

The Pacific performance disruption policy, meanwhile, insured Jujamcyn for lost income because of the cancellation of shows at the five theaters, with a $250,000 limit for "each loss."

According to the complaint, while Pacific does not dispute that Jujamcyn has suffered a covered disruption, it argued that the losses across all five theaters are subject to a single $250,000 per-loss limit, which it offered to pay. But Jujamcyn noted the terms "loss" and "occurrence" are not defined in the policy, and Pacific did not insert clearer language that could have supported its stance.

"In fact, each loss at one theater is separate and distinct from the losses at the other theaters, was suffered with respect to different productions, and is in an amount different from the loss suffered at each other theater," Jujamcyn said.

Counsel for Jujamcyn and a Chubb spokeswoman did not immediately respond to requests for comment Tuesday. 

Jujamcyn is represented by Jeffrey L. Schulman and Kirk Pasich of Pasich LLP.

Counsel information for the Chubb units was not immediately available.

The case is Jujamcyn Theaters LLC v. Federal Ins. Co. et al., case number 1:20-cv-06781, in the U.S. District Court for the Southern District of New York.

--Editing by Amy Rowe.

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