By Daphne Zhang

Law360 (June 30, 2021, 5:23 PM EDT) -- Factory Mutual Insurance Co. must disclose its underwriting history of Cinemark's insurance policy, a Texas federal judge has ruled, saying such information is relevant to the core of the theater chain's $400 million COVID-19 business interruption coverage dispute.

U.S. District Judge Amos L. Mazzant on Tuesday granted Cinemark's bid to force Factory Mutual to share how the insurer handled and investigated its claim, saying the court needs the information to determine whether the carrier acted in bad faith by not covering the theater chain's pandemic losses.

The underwriting and drafting history of the policy matters because it can reveal "Factory Mutual's intent and understanding of the policy," the judge said. "The policy's history may shed light on which interpretation of the policy is most reasonable."

Factory Mutual should also turn in information on its investigation and handling of the claim for the court to determine whether it assessed the claim in good faith and followed industry standards and guidelines, Judge Mazzant said.

"Factory Mutual's representations to state regulators about the meaning of the disputed policy are relevant because they may suggest the policy can be reasonably interpreted multiple ways," the judge added.

More than 1,700 Cinemark employees either tested positive for the coronavirus, were exposed to it or showed signs of COVID-19, according to the theater chain's November suit, which said the positive cases forced the closure of the theaters and led to the losses.

"Most of these employees were on Cinemark property just before testing positive," Judge Mazzant said Tuesday. "COVID-19 is a deadly communicable disease that spreads in several ways, including changing the content of air and the character of surfaces."

In May, the judge denied Factory Mutual's bid for a win in the business interruption suit, saying the losses to the third-largest U.S. movie theater chain from the COVID-19 pandemic are potentially covered under a communicable disease provision.

The judge said the theater chain's claims that the coronavirus damages property by changing the content of the air are distinguished from those in another business interruption case that was recently dismissed. The judge noted that Cinemark's all-risk policy "expressly covers loss and damage caused by 'communicable disease.'"

According to court records, Cinemark in February requested that Factory Mutual provide information regarding the insurer's investigation and handling of its claim, its policy underwriting history, and the insurer's representation of the policy's language to regulators. The carrier subsequently rejected the demand, calling it unreasonable.

"The court finds that the requested information is relevant to the dispute and so must be produced under the Eastern District's broad discovery rules," Judge Mazzant said Tuesday, allowing Cinemark to compel Factory Mutual to provide the demanded information.

Counsel for the parties could not be immediately reached for comment Wednesday.

Cinemark is represented by Michael S. Levine, Rachel E. Hudgins, Joseph T. Niczky and Casey L. Coffey of Hunton Andrews Kurth LLP and Melissa R. Smith of Gillam & Smith LLP.

Factory Mutual is represented by Thomas H. Cook Jr., Shannon M. O'Malley and Michael P. O'Brien of Zelle LLP and Emileigh S. Hubbard of Henry Oddo Austin & Fletcher PC.

The case is Cinemark Holdings Inc. v. Factory Mutual Insurance Co., case number 4:21-cv-00011, in the U.S. District Court for the Eastern District of Texas.

--Additional reporting by Shawn Rice. Editing by Daniel King.

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