Minor League Teams Fight Insurer's Bid To Toss Virus Suit

By Mike Curley
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Law360 (November 3, 2020, 1:27 PM EST) -- A group of Minor League Baseball teams is striking back against a bid by Arch Insurance Co. to throw out their claims that they were wrongly denied business interruption coverage after their season was canceled, saying a growing body of case law supports the notion that COVID-19 can cause physical loss.

In a response brief filed Monday, the owners of Washington's Everett AquaSox and North Carolina's Asheville Tourists said Arch's motion ignores a number of recent cases that have rejected bids to dismiss similar suits with findings that COVID-19 can trigger coverage for physical loss and damage.

Those courts have found that the loss of intended use fits the policy heading of "physical loss," the teams said, arguing that their canceled season and government orders to close down nonessential businesses deprived them of the use of their stadiums and the ability to hold baseball games, which are their main source of income.

The teams argued that in at least one case, North State Deli LLC et al. v. The Cincinnati Insurance Co. et al. in North Carolina state court, the court granted summary judgment, finding that the insurer does owe coverage on similar claims.

The suit came amid a wave of litigation concerning Major League Baseball's decision not to send any players to the Minor League due to the pandemic. Minor League Baseball teams have claimed that their canceled season harmed their income and their ability to pay fixed costs, such as stadium leases and administrative employee salaries.

The parties in the present complaint, filed in July, also include the owner of the West Michigan Whitecaps as a plaintiff and that team's insurer, Federal Insurance Co., as a defendant.

Three weeks ago, Arch aimed to have the suit struck, arguing the coverage is only triggered by physical loss or damage, but the teams never actually claimed their properties were contaminated by the virus or a person infected with it. Nor did the teams allege that they took any efforts to decontaminate their properties, the brief said. Federal did not join in that motion.

In Monday's brief, the teams argued that the complaint cited a number of potential causes of loss besides the virus, including MLB's decision not to send players to the minors, and the government orders, such that whether or not the virus was the direct cause of loss is a question of fact that can't be decided on a motion to dismiss.

They further argued that Arch cannot lean on its virus exclusion for the same reason, saying it cannot be presumed at this stage that the virus caused the loss, calling it a "quintessential factual question" that must be decided against Arch on a motion to dismiss.

The teams added that there is "latent ambiguity" in the exclusion, saying that some courts, like the Middle District of Florida in another COVID-19 suit, have found that the virus exclusion may not apply to the "unique" circumstances of the pandemic.

Arch also offers a separate exclusion, not included in the teams' policy, that specifically bars coverage for pandemics, the teams argued, saying this shows that the exclusion for viruses is more narrowly tailored to isolated incidents, or at least that there is ambiguity for the court to decide on.

Finally, the team argued that even if the exclusion applies, it should not be enforced because the insurer misled state regulators when it applied for the exclusion. According to the brief, Arch told state regulators that the exclusion only clarified its policy limits, but did not actually affect the scope of the policy, which the teams said was false, as Arch is now leaning on the exclusion to bar coverage.

Attorneys for the teams and Federal declined to comment.

A representative for Arch could not immediately be reached for comment Tuesday.

The teams are represented by Andrew L. Sandler, Stephen M. LeBlanc and Rebecca Guiterman of Mitchell Sandler LLC and Robin Cohen, Orrie A. Levy and Patrick Pijls of McKool Smith PC.

Arch is represented by Eric S. Aronson, Laura Besvinick and Julie Nevins of Stroock & Stroock & Lavan LLP.

Federal is represented by Daren S. McNally, Barbara M. Almeida and Meghan C. Goodwin of Clyde & Co. US LLP.

The case is 7th Inning Stretch LLC dba Everett AquaSox et al. v. Arch Insurance Co. et al., case number 2:20-cv-08161, in the U.S. District Court for the District of New Jersey.

--Additional reporting by Jeannie O'Sullivan. Editing by Alyssa Miller.

For a reprint of this article, please contact reprints@law360.com.

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