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Law360 (July 12, 2021, 5:52 PM EDT) -- The Ninth Circuit should back a lower court's decision to toss a Las Vegas casino's suit over pandemic-related losses, AIG Specialty Insurance Co. said, arguing there was no physical loss or damage to trigger coverage.
The insurer argued in a brief filed Friday that Circus Circus LV LP's interpretation of physical loss "defies common sense" because it could still access the property when Nevada's governor implemented prophylactic stay-at-home orders and because the presence of the virus did not physically alter the building.
AIG also contended that U.S. District Judge Jennifer A. Dorsey's February ruling should stand because the policy's contaminant exclusion applies to bar coverage.
Circus Circus sought coverage from AIG for businesses losses that occurred after it was forced to close the doors of the 2.8 million-square-foot casino as a result of a stay-at-home order issued in March 2020.
The casino filed suit in Nevada federal court in July 2020, seeking a declaratory judgment and accusing AIG of breach of contract, bad faith and violating Nevada's unfair claims practices law. AIG told Judge Dorsey that the suit was a bust because the casino did not sufficiently allege that it suffered a physical loss or damage to the property and that the virus fits within the policy's contaminant exclusion.
The judge axed Circus Circus' breach of contract and declaratory judgment claims but allowed the casino to amend its allegation that the insurer violated Nevada law.
Circus Circus told the Ninth Circuit in May that Judge Dorsey's ruling was "wrong from the very first sentence" because its suit has never been about the property policy's coverage for economic losses, but rather the coverage for physical loss and damage to the casino. The casino wants the Nevada Supreme Court address its questions about the applicability of the contaminant exclusion as well as what constitutes physical loss and damage.
AIG said Friday that the casino's reliance on rulings issued before the pandemic that found that a property is physically altered when a substance is physically embedded in it are not relatable. AIG argued that Circus Circus was not required to undertake repairs or remediate the property before reopening.
The insurer pointed out that COVID-19 is not perceptible through the senses like the cat urine, smoke and gas fumes in Circus Circus' cited cases.
"Circus does not allege COVID imbeds in property such that it must be repaired or replaced; rather, Circus concedes COVID-19 has temporal limitations and will not be 'detectable' after a matter of hours or days," AIG said.
Circus Circus is also wrong to argue that the policy's contaminant exclusion is limited to "traditional environmental pollution," the insurer contended.
The casino's arguments are supported by United Policyholders, a nonprofit group that serves as a source of information for insurance customers nationwide, which filed an amicus curiae brief in May. The group said that as of March 2020, judges in 35 out of 43 coverage disputes involving circumstances other than fire, hurricane or collapse had found in favor of policyholders and held that the events caused physical loss or damage.
JC Hospitality LLC, the owner of the Virgin Hotels Las Vegas and Casino, which was formerly known as the Hard Rock Hotel & Casino Las Vegas, and Boyd Gaming Corp., one of the nation's largest casino entertainment companies, also support the casino's request for reversal of Judge Dorsey's ruling. JCH and Boyd each operate venues 1 mile from the Las Vegas Strip and say they also incurred substantial losses as a result of the pandemic that their insurers have refused to cover.
JCH, which is appealing a state court ruling in favor of its insurer, and Boyd contend that the allegations in Circus Circus' complaint satisfy the pleading requirements of Nevada law.
Christopher J. Cunio from Hunton Andrews Kurth LLP, who represents the casino, told Law360 that AIG cannot refute that the allegations in the suit satisfy the pleading requirements established by the seminal rulings in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal, and that the complaint "plausibly states a claim for direct physical loss and direct physical damage under the AIG policy."
Cunio also said that the "allegations of persistent and pervasive physical alteration of the content of the indoor air and the characteristics of the surfaces" at the casino because of COVID-19 meet the policy's terms for physical loss and damage and satisfy Nevada law's requirements for construing those terms.
Attorneys for AIG did not immediately respond to requests for comment Monday.
Circus Circus is represented by Christopher J. Cunio, Harry L. Manion III, Nicholas D. Stellakis and Michal S. Levine of Hunton Andrews Kurth LLP.
AIG is represented by Erin Bradham, Douglas D. Janicik and Keith Moskowitz of Dentons and Kristen T. Gallagher of McDonald Carano LLP.
United Policyholders is represented by Amber S. Finch, John N. Nelson and Richard P. Lewis of Reed Smith LLP.
Boyd Gaming and JC Hospitality are represented by Jad H. Khazem and David B. Goodwin of Covington & Burling LLP.
The case is Circus Circus LV LP v. AIG Specialty Insurance Co., case number 21-15367, in the U.S. Court of Appeals for the Ninth Circuit.
--Additional reporting by Daphne Zhang. Editing by Vincent Sherry.
Update: A previous version of this story misnamed one of the insurer's attorneys at Dentons. The error has been corrected.
For a reprint of this article, please contact reprints@law360.com.
