Homesick for Home Games: Plaintiffs File Class-Action Suit Against MLB Demanding Refunds for TicketsCOVID-19 has changed the daily lives for all Americans, and this includes a spring with no baseball. Fans across the nation had tickets in hand for the 15 games set for Opening Day on March 26, 2020. However, on March 12, 2020, Major League Baseball (MLB) announced that Opening Day would be postponed.  Now, seven weeks into the original MLB schedule and no games played, fans are beginning to see the season as cancelled, despite MLB’s attempt to come to an agreement with the players to begin the season in July.

On April 20, 2020, fans in California filed a class-action in federal court against MLB, StubHub, Ticketmaster, Live Nation, and Last Minute Transactions demanding refunds for their tickets to now indefinitely postponed games. The plaintiffs argue that it is very unlikely that the 2020 season will proceed and, if it does, it will likely be without fans in attendance.

People aren’t just demanding refunds for baseball tickets. Class-action suits have been filed against American Airlines and Delta for failure to refund plane tickets, against SXSW for failure to refund tickets to the cancelled music festival, and against StubHub for a variety of tickets sold to now cancelled events. Class-action suits have been filed against 24 Hour Fitness, New York Sports Club, and Town Sports International for continuing to charge gym members their membership fees despite the gyms being closed due to COVID-19. There have also been class-action suits against colleges and universities, including Columbia, Pace University, Long Island University, University of California, California State University, Drexel, and the University of Miami, demanding a refund for tuition and fees because of campus closures due to COVID-19.

Courts will examine the terms of the tickets or fees to determine refundability.  Contractual terms about the ticket or fee rolling over or some other alternative remedy other than a direct refund may come into play. Expect more class-action suits in a broader variety of industries as people continue to pay for services and goods they can no longer use or attend.

Business Interruption Coverage for COVID-19 Losses: You Can Satisfy the “Physical Loss or Damage” Requirement in Your Commercial Property Policy

Although your insurance company undoubtedly will try to convince you that you have no coverage for your business interruption losses from COVID-19, do not be so quick to accept the insurer’s position. In its simplest terms, the business interruption coverage in most commercial property policies provides coverage for a covered cause of loss if (1) a suspension of operations has occurred for a certain period of time; and (2) the suspension is caused by direct physical loss or damage to property. In light of states’ business-shutdown orders due to COVID-19, policyholders have met the first requirement – a suspension of its operations.

The central question becomes whether businesses and organizations can meet the “direct physical loss or damage” requirement typically found in property policies. We discussed in a previous blog that numerous court decisions in which microscopic and non-visible property damage, including permeated odors, E. coli bacteria, and similar contaminants, constituted “physical loss or damage.” But courts have gone even further than simply holding that non-visible and molecular-level property damage satisfied the “physical loss” requirement for business interruption coverage.

Courts have held that the key consideration is not whether property damage exists, however microscopic that damage may be, but rather whether property has become unsafe or uninhabitable for use. The Supreme Court of Colorado equated the loss of use of property to physical loss or damage in the 1968 decision Western Fire Insurance Company v. First Presbyterian Church. The church sustained physical loss of its property when gasoline accumulation around the church building made its premises uninhabitable and its continued use dangerous. Numerous courts have followed and held that physical loss or damage does not necessitate physical alteration (see Dundee Mutual Insurance Co. v. Martifer, 587 N.W.2d 191, 194 (N.D. 1998) (“Clearly, without qualification, the term “damage” encompasses more than physical or tangible damage.”); American Guarantee & Liability Insurance Co. v. Ingram Micro, Inc., 2000 WL 726789 (D. Ariz. 2000) (finding that “physical damage” includes “loss of access, loss of use, and loss of functionality”); Matzner v. Seaco Insurance Co., 1998 WL 566658 (Mass. Super. Ct. 1998) (adopting the interpretation of “direct physical loss or damage” to include “more than tangible damage to the structure of insured property”)).

Temporary loss of use and loss of functionality alone may satisfy the physical loss or damage requirement in a property policy. For example, when problems with the North American electrical grid caused a four-day electrical blackout to the Northeastern United States and parts of Canada, which closed the plaintiff’s supermarkets, a New Jersey court reversed the trial court’s grant of summary judgment to the insurer (see Wakefern Food Corporation v. Liberty Mutual Fire Insurance Co., 406 N.J. Super. 524 (2009)). The Wakefern court rejected the trial court’s conclusion that “the definition of ‘physical damage’ cannot be extended in this case to include the temporary loss of use due to a power interruption, because the property resumed its former use or function as soon as the power was restored, and its value was not diminished.”

Likewise, property owners who were required to leave their homes due to large boulders and rocks that had fallen on nearby property sustained a physical loss under their homeowners’ policy even though the boulders had not damaged their property (see Murray v. State Farm Fire & Casualty Co., 509 S.E.2d 1 (W. Va. 1998)). Although they had sustained no structural damage to their homes, the plaintiffs’ homes had become “unsafe for habitation, and therefore suffered real damage,” covered by the policy because the boulders could come crashing down at any time.

The law in various jurisdictions may vary, as will particular policy language, but do not be persuaded that your COVID-19 losses are not covered under your property policy without first seeking a legal opinion on your specific policy language and the applicable law for potential recovery.

Check Your Commercial Property Policy for Potential Coverage for COVID-19If your organization sustains COVID-19 losses, carefully examine your commercial property insurance policy for coverage. Although your insurer may deny coverage by claiming that your policy requires physical loss or property damage, do not accept that assertion. Adhesion or attachment of the coronavirus onto an insured’s property may constitute “direct physical loss” and trigger coverage under many property policies. A close reading of your policy and understanding of the law in your jurisdiction is essential to ensure that you do not forfeit coverage to which your organization may be entitled.

Despite the insurance industry’s mantra that the coronavirus cannot constitute physical loss, numerous courts have found that businesses suffered a “direct physical loss,” even when their properties sustained no visible damage. Indeed, a physical loss or damage “can occur at the molecular level and can be undetectable in a cursory inspection” (see Columbiaknit, Inc. v. Affiliated FM Insurance Company).

For example, damages caused by odors may constitute “direct physical loss.” Even cat urine odor – which presumably does not cause bodily injury or death like COVID-19 – could constitute “direct physical loss.” In Mellin v. Northern Security Insurance Company, the New Hampshire Supreme Court vacated the trial court’s holding in favor of the insurer, explaining that “physical loss may include not only tangible changes to the insured property, but also changes that are perceived by the sense of smell and that exist in the absence of structural damage.” The odor from cooking methamphetamine also physically damaged an insured’s house in Farmers Insurance Company v. Trutanich.

As we discussed in a previous post, whether E.coli bacteria on an insured’s property constituted “direct physical loss” in a homeowner’s policy raised a factual issue. In Motorists Mutual Insurance Company v. Hardinger, the Third Circuit focused on the reduced use of the property – even though the changes were “unnoticeable to the naked eye” – which made the property useless or uninhabitable. The court held a genuine issue of material fact existed as to whether the policy’s requirement of “physical loss” had been satisfied.

Likewise, numerous courts have held that other contaminants that are not visible or tangible, such as asbestos, mold, ammonia, smoke, and gasoline accumulation may constitute “physical loss.”

Even hail damage to a roof that was not visible to the naked eye was determined to be “direct physical loss” in Advance Cable Company, LLC v. Cincinnati Insurance Company. Contending that any damage was purely cosmetic and did not affect the roof’s performance, Cincinnati refused coverage for Advance’s losses. The Seventh Circuit, applying Wisconsin law, disagreed, explaining that non-visible physical alteration to the roof constituted “direct physical loss” as well.

Although policy language and governing law vary, do not assume that COVID-19 losses will not constitute “physical loss” and do not accept your insurer’s assertions to the contrary without professional advice.