Can’t Pay? Won’t Pay!: Five Broadway Theaters Seeking Insurance Coverage Due to COVID-19 Losses
Since Broadway’s closure in March, Broadway theaters have not been able to operate or generate revenue in any capacity. Jujamcyn Theaters, LLC, which owns five Broadway theaters that had, prior to the shutdown, been presenting “Hadestown,” “The Book of Mormon,” “Mean Girls,” “Moulin Rouge,” and “Frozen,” filed a lawsuit in federal court seeking to enforce insurance coverage payments for tens of millions of dollars of coverage from COVID-19 related losses from Federal Insurance Company and Pacific Indemnity Company, subsidiaries of Chubb Ltd., a global insurance provider.
Jujamcyn has specialized entertainment insurance and performance disruption policies with Chubb that they believe cover business income losses. Notably, unlike many standard insurance agreements, the specialized policy does not contain any exclusions for losses caused by or resulting from the spread of viruses, communicable diseases or pandemics. Despite this and the closure of the theaters due to New York’s COVID-19 closure mandate, Chubb has not paid Jujamcyn on the business income loss policy. Jujamcyn believes the theaters are experiencing property loss and damage as a result of the forced closures. However, Chubb claimed 10 days after Broadway’s closure that theaters suffered no physical loss or damage. Specifically, Chubb stated on its website notice that “the presence of an infectious agent or communicable disease at a location where there is covered property generally will not mean that property has suffered ‘physical loss or damage.’”
As I detailed at the beginning of the pandemic, in my article, “Force Majeure and Insurance Provisions for Business Losses Sustained by COVID-19”, co-authored with my colleague Mark Moore, insurance coverage for varieties of business interruption insurance often have a requirement that there be “physical loss” or “physical damage” to warrant the enforcement of the coverage. To date, courts have produced inconsistent interpretations of what is required to meet these terms. For example, some cases suggest that “physical loss” must be tangible in nature, such as caused by fire or flood. Other cases have held that gasses or bacteria in an insured’s property may qualify as “physical loss.” Jujamcyn and Chubb’s subsidiaries are fighting about the same interpretation and have asked a federal New York court to rule thereon.
Jujamcyn has stated that the shutdown orders issued by New York State and New York City prevented the theaters for being used for their essential functions and constituted direct physical loss or damage to those properties. Jujamcyn relies on cases where contamination of the environment has satisfied property damage insurance provision requirements. In contrast, Chubb has relied on many cases that hold otherwise, and finds support in a case that denied coverage to the Roundabout Theater Company when its Broadway production of Cabaret was forced to cancel 35 performances due to a New York City order prohibiting access to the theater as a result of a scaffolding collapse nearby. In that case, a New York State court held that the losses did not involve physical damage to the insured’s property such that it invoked business interruption coverage.
However, the court ruling on Jujamcyn’s present dispute comes out on the “physical damage or loss” requirement and whether it was met or not may impact other entertainment venues and institutions that are similarly seeking insurance coverage enforcement of losses due to COVID-19 as well.
In addition to the business income loss claims discussed above, Chubb’s subsidiary, Pacific Indemnity Company, is already paying Jujamcyn coverage of $250,000 for lost income in accordance to their separate performance disruption policy for “each loss.” However, Jujamycn in its lawsuit against Pacific Indemnity Co. alleges that each of its five theaters are subject to distinct $250,000 payments as each theater has suffered its own losses. As Pacific Indemnity Company opposes this contractual interpretation it will be up to the court to parse through the policy and reach a determination.