The Boston Red Sox and Major League Baseball (MLB) have aimed a “legal beanball” at their insurers in seeking over a billion and a half dollars in losses from COVID-19 shutdowns
The word “bean” is an older slang usage for a person’s head. In baseball, a “beanball” is a pitch intentionally thrown at a batter to intimidate, if not injure, them. The teams and companies that makeup Major League Baseball (MLB) have aimed a legal beanball at their three insurers by way of a six-hundred-and-seventy-one-page coverage complaint seeking over a billion and a half dollars in indemnity for their 2020 business interruption losses stemming from the COVID-19 shutdowns.
The suit, Oakland Athletics MLB Co. et al. vs. AIG Specialty Insurance Company et al., filed in California’s Alameda County Superior Court, seeks breach of contract damages for the policies’ shared limit of $1,635,869,608.00 for any single “occurrence,” and, according to the complaint, “potentially much more for losses involving multiple occurrences.”
The first major industry filing against insurers for business interruption insurance
Throughout the United States, the insurance industry is presently defending over fourteen hundred lawsuits seeking coverage for business interruption insurance losses caused by the COVID-19 pandemic and the resulting government shutdown orders that have caused major financial hardships to businesses all over the country.
With some minor exceptions, insurers have had the upper hand in these court proceedings by arguing that their standard policies require “physical loss or damage” as a condition precedent for business interruption or civil authority coverage to apply. See Agency Checklists’ article of March 17, 2020, “Business Interruption Coverage & The Coronavirus Pandemic.”
To date, the coverage suits filed against commercial property carriers have not involved major companies with substantial financial resources. The MLB suit brings a different type of plaintiff into the courts to contest the insurance industry’s policy conditions and exclusions. The MLB suit may also be the harbinger of other similar business or sports entities initiating copycat lawsuits that will substantially raise the legal costs and legal risks for the insurance industry.
The MLB complaint names three insurers but pleads the option to add one hundred more defendants
The defendant carriers named in the lawsuit are AIG Specialty Insurance Company (AIG), Factory Mutual Insurance Company (Factory Mutual), Interstate Fire & Casualty Company (Interstate), part of the Allianz Group (Collectively, Insurers). However, the complaint also lists in its caption as defendants “Does 1-100.” These “100 [Jane or John] Does” are sued under fictitious names because MLB and its teams state they are ignorant of their true names but “allege, that said fictitiously named defendants are responsible in some manner for the events and happenings herein referred to, and negligently or otherwise caused injuries and damages” to MLB and its teams. What types of unknown defendants might satisfy the requirement for joinder in MLB’s is completely unclear based on the lawsuit’s contractual nature.
Plaintiffs are all the MLB baseball teams, and MLB owned businesses
The plaintiffs in the MLB suit are all thirty Major League Baseball teams, including the Boston Red Sox, the Office of the Commissioner of MLB, MLB Advanced Media, Inc., its interactive media and Internet division, MLB Network, LLC, its television, and media network, and Tickets.com, LLC, its ticketing company for baseball games and other events.
The baseball teams in the suit, in alphabetical order, are the Arizona Diamondbacks, Atlanta Braves, Baltimore Orioles Limited Partnership, Boston Red Sox MLB Club Limited Partnership, Chicago Cubs MLB Club LLC, Chicago White Sox LTD, Cleveland Indians MLB Company LLC, Colorado Rockies MLB Club LTD, Detroit Tigers Inc., Houston Astros LLC, Kansas City Royals MLB Club LLC, Los Angeles Angels, Los Angeles Dodgers LLC, Miami Marlins, Milwaukee Brewers MLB Club Limited Partnership, Minnesota Twins, LLC, New York Mets, New York Mets, New York Yankees, Oakland Athletics MLB Company, Philadelphia Phillies, Pittsburgh Pirates, San Diego Padres, San Francisco Giants MLB Club LLC, Seattle Mariners, St Louis Cardinals LLC, Tampa Bay Rays, Texas Rangers, The Cincinnati Reds LLC, Toronto Blue Jays, and the Washington Nationals MLB Club.
Three different carriers sharing 10%, 30%, and 60% of the losses up to $1.6 billion
MLB’s complaint states that it had purchased “top-flight insurance—all risks business interruption coverage to protect itself against such a catastrophe” as the consequences of the COVID-19 pandemic and “paid millions of dollars in premiums year after year because it deliberately bought broad, more protective coverage.”
The MLB insurance coverage involved three “All Risks Policies” (policies) issued by three different carriers. All the policies have coverage periods from February 1, 2020, through February 1, 2021. The policies insured 248 separate scheduled locations and any location purchased, leased, or rented by the insured after the inception date of February 1, 2020, and other specified “miscellaneous properties.” as described in the policies.
The policies cover up to $1,635,869,608.00 in losses for any single “occurrence,” and, according to MLB’s complaint, “potentially much more for losses involving multiple occurrences.”
The first policy, issued by Interstate, covers 10% of the Insurers’ total policy limits for domestic losses issued. The second policy, issued by AIG, covers 30% of the Insurers’ total limits of liability. The third policy, issued by Factory Mutual, covers the remaining 60% of the Insurers’ total limits of liability.
The policies’ extended business interruption insurance coverages
The first “named insureds” under the policies are the thirty ball teams. The MLB Entities, their subsidiaries, and related identified entities are also insureds under the policies.
The policies cover “all risks of physical loss or damage,” other than those expressly excluded, as well as express coverage for specified perils. Each policy provides both “Property Damage” and “Business Interruption” coverage.
Also, the business interruption parts of the policies provide coverage extensions, including:
- Civil or Military Authority coverage for actual loss sustained and extra expense incurred if an order of civil authority limits, restricts, or prohibits partial or total access to an insured location if the order is the direct result of physical damage of the type insured at the insured location or within ten statute miles.
- Ingress-Egress coverage for actual loss sustained and extra expense when the insured’s business is interrupted due to partial or total physical prevention of ingress to or egress from an insured location.
- Leasehold Interest coverage for continued rent payments made on property that is wholly or partially untenantable or unusable.
- Rental Insurance coverage for, among other things, lost rent and actual loss sustained with respect to rental properties.
- Extended Period of Liability coverage for lost Gross Earnings and Rental Insurance losses incurred after the end of the Period of Liability.
- Contingent Business Interruption Locations coverage for actual loss sustained and extra expense resulting from physical loss or damage at the location of any customer, supplier, contract manufacturer, or contract service provider to the MLB insureds, and of any company under a royalty, licensing fee, or commission agreement with the MLB.
The normal 2019 MLB season
In 2019, the thirty MLB teams played a total of 2,430 regular-season games. An average of 28,317 fans attended each game. Total paid attendance for the year at all the teams’ ballparks was 68,494,752 fans.
Also, in 2019, there were thirty-seven postseason games attended by more than 1.6 million fans. The 2019 World Series between the Washington Nationals and Houston Astros averaged 14 million viewers per game, and more than 27 million people tuned in to watch The Nationals win the seventh and final game.
The 2020 COVID-19 season
In 2020, the thirty teams again had 2430 regular-season games scheduled to play. Spring training games began on February 22, 2020, and the 2020 baseball season was to begin on March 26.
On March 12, MLB announced it was canceling spring training games “due to the national emergency created by the coronavirus pandemic,” and to protect the safety and well-being of fans, players, staff, and the communities that host spring training.
By March 31, 2020, all the teams’ regular ballparks and spring training ballparks were subject to civil authority orders that prohibited, impaired, or restricted normal stadium operations. After that COVID-19 outbreaks, and civil authority orders to contain the outbreaks caused the cancellation of 1500 regular-season games between March 2020 and late July 2020.
On July 23, 2020, MLB began a sixty-game season without any fans allowed into the ballparks to watch the games. Even with this restriction, COVID-19 outbreaks on various teams caused the postponement of forty games.
The World Series did take place in October under severe restrictions. The games all took place at the Globe Life Stadium in Arlington, Texas, with only twenty-five percent of the stadium’s seating capacity allowed for 11,500 fans.
COVID-19 ends MLB’s seventeen-year streak of year-over-year increases in revenue
According to Forbes Magazine, in 2019, MLB continued to grow its revenues to $10.7 billion, up $400 million from the $10.3 billion earned in 2018. 2019 was the 17th year in a row where MLB revenues had surpassed the prior year’s revenue record.
The COVID-19 pandemic and the resulting government orders prohibiting large gatherings devastated the MLB’s business model. In an October 2020 media conference, MLB Commissioner Rob Manfred projected that MLB would have a $3 Billion operating loss for 2020. However, the Chicago Cubs team’s Chairman estimated that $4 billion was the more likely operating loss number for 2020.
The MLB complaint does not give exact amounts for MLB’s claims against the three insurers. However, the complaint does show the magnitude of the losses suffered by MLB between the 2019 and the 2020 baseball season, stating:
- Income from regular-season ticket sales for 2020 games dropped by billions of dollars to almost zero;
- Income from regular-season, direct or indirect sales of in-park concessions during games, including food and beverage, dropped by hundreds of millions of dollars, to almost zero;
- Income from regular-season sales of suites and luxury seat licenses for 2020 games dropped by hundreds of millions of dollars to almost zero;
- Income from regular-season, direct or indirect sales of in-park merchandise during games dropped by tens of millions of dollars to almost zero;
- Income from regular-season spectator parking at games dropped by tens of millions of dollars to almost zero;
- Income from sales of corporate sponsorships and related publications tied to in-park events, across all Teams, dropped by hundreds of millions of dollars, with no regular-season games for approximately four months;
- Income from local and national media dropped by well over a billion dollars because of MLB having no regular-season games to broadcast for four months;
- Income generated by MLB Advanced Media’s businesses, including media and sponsorship-related revenue, and other sources, dropped by tens of millions of dollars, with no regular-season games for four months;
- When facilities could not be used, some tenants stopped paying rent, and certain teams saw rental payment drop by tens of millions of dollars;
- Hundreds of ticketed, non-MLB events scheduled for baseball stadiums were canceled and the MLB teams managing those stadiums suffered losses in the tens of millions of dollars from loss of rental income.
MLB claim reports followed by coverage denials lead to a quick filing of MLB’s lawsuit
On March 18, 2020, MLB provided its First Report of Loss to each of the Insurers and its broker, Marsh, and the Insurers’ designated adjuster, Sedgwick.
This First Report of Loss, on behalf of all the plaintiffs, listed the date of loss as of March 13, 2020, and the losses occurring because of COVID-19 at the New York Yankees’ Spring Training Camp and Minor League Spring Training Camp in Tampa, FL.
On March 27, 2020, MLB amended the First Report of Loss to include all MLB’s teams, entities, and locations.
By April 17, 2020, MLB had notified the Insurers of at least six additional occurrences involving discrete events of physical loss or damage at insured locations of the Cincinnati Reds, the St. Louis Cardinals, the Chicago Cubs, the Oakland Athletics, the New York Mets, and the Washington Nationals.
On April 23, 2020, MLB sent the Insurers a letter stating its business interruption insurance claims on behalf of all the insureds under the policies. On May 1, 2020, the Insurers’ adjuster, Sedgwick, responded to the MLB that “several issues” existed regarding the claim and the policies’ terms and conditions. Sedgwick advised that the Insurers would reserve their rights to deny coverage. Following the Sedgwick advice of a reservation of rights, each insurer confirmed in writing their reservations of rights.
On June 10, 2020, Factory Mutual wrote to MLB that:
“The presence of COVID-19 at an insured location does not constitute ‘physical damage of the type insured’….” and that “the Policy’s Civil or Military Authority provision (and other Policy provisions requiring physical loss or damage of the type insured) do not respond based on the information presented” [in MLB’s claim].
Factory Mutual’s letter, however, did advise that “based on the limited information provided at this time, the coverage that appears potentially available under our Policy for losses arising from COVID-19 is found in our communicable disease coverages.”
However, this communicable disease coverage that Factory Mutual acknowledged might apply only had a sub-limit of $4 million.
On October 7, 2020, Interstate sent a letter to MLB asserting its policy’s physical damage requirement barred any coverage other than the communicable disease coverage with its sub-limit.
AIG communicated its similar no-coverage position informally to MLB. However, before AIG’s need to respond formally arose, MLB and its teams filed their coverage suit in the Alameda Superior Court.
Six causes of action against the three insurers
The MLB filed its complaint in California because that state had the greatest number of insured teams, including the Oakland Athletics, the San Francisco Giants, the Los Angeles Angels, the Los Angeles Dodgers, and the San Diego Padres. Also, California had more locations insured under the policies than any other state (26).
The complaint alleges that each of the insureds under the policies, including the thirty MLB teams, the Office of the Commissioner of Baseball, its subsidiaries, and affiliates suffered physical loss and damage of property insured by the policies and have sustained actual losses and incurred extra expenses because of cases of COVID-19, the coronavirus, and related government orders.
The first three counts of the six counts in the complaint seek declaratory judgments against each insurer that there is coverage under the Insurers’ respective policies for the MLB and its teams for their real property losses, business interruption insurance losses, extra expenses, and costs resulting from:
(i) physical loss and damage caused by the coronavirus and COVID-19.
(ii) civil authority orders.
(iii) obstruction of ingress and egress.
(iv) communicable disease response and business interruption.
(v) contingent time element losses.
(vi) extra expense losses; and,
(vii) claims preparation costs.
For AIG alone, the declaratory judgment seeks additional coverage for that policy’s crisis management coverage.
The remaining three counts of the complaint separately allege breach of contract claims against each insurer for failing to honor its insurance agreement with MLB and its teams.
The first hearing on the MLB suit scheduled for December 15, 2020
Soon after filing its complaint, MLB served legal summonses on the three insurers and filed the service returns with the Superior Court. The Court has now scheduled an initial conference concerning the complaint on December 15, 2020.
How to obtain a copy of the MLB complaint
For a free copy of the MLB complaint, without attachments, as filed with Alameda Superior Court, send your request to scotter [at] agencychecklists.com. In making this request, if you are not a subscriber, you agree to allow us to add your email to our free subscriber list. We do not share your email address with anyone else.
Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
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