Insurer Aims To Cap Vegas Casino's COVID-19 Cover At $200K

By Jeff Sistrunk
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Law360 (November 3, 2020, 7:03 PM EST) -- Affiliated FM Insurance Co. on Monday told a Nevada federal court that a contamination exclusion in Treasure Island LLC's policy bars coverage for the bulk of its claim for coronavirus-related losses, saying the Las Vegas casino and resort should only be able to pursue up to $200,000 under a "communicable disease" provision.

Treasure Island is seeking millions in coverage under its "all risk" policy with Affiliated FM for losses it says it suffered when it was forced to temporarily close due to a statewide stay-at-home order amid the COVID-19 pandemic.

But in a motion for judgment on the pleadings filed Monday, the insurance company contended the majority of the casino's claimed losses fall under an exclusion for costs related to "contamination," which is defined in the policy to include any "virus, disease-causing or illness-causing agent." According to Affiliated FM, that definition "clearly encompasses" the novel coronavirus.

"The policy clearly and unambiguously excludes any condition of property due to the actual or suspected presence of any virus and 'any cost' due to such condition, including costs associated with the inability to use or occupy the property," Affiliated FM's attorneys wrote.

At most, the insurer argued, Treasure Island's recovery should be limited to $200,000, which is the cap on the policy's limited coverage for costs stemming from a closure tied to the actual presence of a communicable disease on the company's premises. That limit breaks down to $100,000 in coverage for cleanup, removal, disposal and "reputation management" costs, plus $100,000 in business interruption coverage, according to court documents.

"Whether the conditions of coverage under the communicable disease provisions have been met is a factual issue that may be resolved during discovery and is not before the court in this motion," Affiliated FM said.

The coverage dispute dates back to mid-March, when Gov. Steve Sisolak declared a state of emergency due to the pandemic and ordered all gambling establishments to close. Treasure Island temporarily shuttered its 2.1 million-square-foot casino and resort on March 18 in response to the order and later reopened in early June.

In its May 28 lawsuit, Treasure Island says it paid Affiliated FM almost $1 million in premiums for a one-year all risk policy running from March 2019 to March 2020, and is entitled to coverage up to $850 million in property damage and $327 million in business losses.

The casino operator had filed a claim March 19, a day before its policy expired, and received a letter from the insurer largely denying coverage in mid-April, according to the court documents. In the letter, Affiliated FM said the casino operator had not suffered requisite "direct physical loss of or damage to" property, and also cited the contamination exclusion, but acknowledged that limited coverage may be available under the communicable disease provision, documents said.

Treasure Island has argued the contamination exclusion is ambiguous and, therefore, unenforceable because it conflicts with the communicable disease provision. In the casino operator's view, Affiliated FM cannot acknowledge that the novel coronavirus may implicate the policy's communicable disease coverage while at the same time asserting the virus is subject to the contamination exclusion.

In Monday's motion, however, Affiliated FM said the contamination exclusion and communicable disease provision "are easily reconciled and in fact are complementary."

"The exclusion applies to the coronavirus, except to the extent the communicable disease coverage requirements are met, in which case Treasure Island may recover up to a total of $200,000 under the terms of those provisions," the insurer contended. "Treasure Island's suggestion that the contamination exclusion cannot apply to a 'communicable disease' would read the words 'virus, disease causing or illness causing agent' in the definition of contamination out of the policy, a result that does not give effect to the clear intention of the parties."

Affiliated FM further argued that, even if the contamination exclusion did not bar coverage for the bulk of Treasure Island's losses, a separate exclusion for "loss of market or loss of use" would.

"Treasure Island's claimed losses stem from its inability to use its properties due to governmental orders or the coronavirus, and they therefore directly implicate the 'loss of use' exclusion, which applies to bar coverage unless specific exceptions are 'otherwise stated' in the policy," the insurance company said.

Counsel for Treasure Island and Affiliated FM did not immediately respond to requests for comment Tuesday. 

Treasure Island is represented by Renee M. Finch of Messner Reeves LLP and Michael S. Levine, Kevin V. Small, Christopher Cunio and Harry L. Manion of Hunton Andrews Kurth LLP.

Affiliated FM is represented by Joyce C. Wang of Carlson Calladine & Peterson LLP and Mark J. Connot of Fox Rothschild LLP.

The case is Treasure Island LLC v. Affiliated FM Insurance Company, case number 2:20-cv-00965, in the U.S. District Court for the District of Nevada.

--Additional reporting by Daphne Zhang. Editing by Janice Carter Brown.

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