A New York federal judge has refused to lower the curtain on a COVID-19 business loss claim by the owner of five Broadway theaters because the entertainment insurance policy language is ambiguous as to whether the theater suffered one loss or multiple losses.
Jujamcyn Theaters brought suit against Federal Insurance Co. and Pacific Indemnity Co., members of the Chubb group, that issued separate policies to Jujamcyn, after both insurers denied its COVID-19 business loss claims.
Jujamcyn is one of the largest Broadway theater owners in New York. It owns five prominent theaters: the St. James Theatre; the Al Hirschfeld Theatre; the Walter Kerr Theatre; the Eugene O’Neill Theatre; and the August Wilson Theatre. Each of its theaters was all closed for periods and lost business during the pandemic.
The court dismissed all claims against Federal, which issued the owner an “all-risk” property policy, because Jujamcyn failed to show its losses resulted from “direct physical loss or damage” and are “the direct result of direct physical loss or damage to property.”
However, the plot is playing out differently for claims under the Pacific policy, a “performance disruption” policy that insures “business income loss” due to the necessary cancellation, interruption or postponement of performances, including the inability to open a new production as scheduled and any “extra expense” due to the actual or potential cancellation, interruption, postponement or other impairment of one or more of performances.
The policy says the loss is covered provided it is “caused by or results from a covered occurrence,” which is defined as “any unexpected circumstances beyond the insured’s control,” except for some exclusions. The amount payable under the Pacific policy is capped by the limit of insurance for performance disruption, which is the amount Pacific will pay in any one occurrence. The limit of liability for each loss is capped at $250,000.
Pacific made a single claim payment of $250,000 to Jujamcyn based on its interpretation of “limit of liability” due under the policy. Pacific argued that Jujamcyn’s loss stemmed from one occurrence.
Jujamcyn balked, maintaining that the closure of its five theaters each represented a “loss” for which Jujamcyn was owed five payments of $250,000.
Judge Andrew Carter Jr. of the southern district of New York determined that the policy language was ambiguous. He denied Pacific’s motion for judgment on the pleadings, rejecting the argument that the Covid-19 pandemic is only a single occurrence for insurance coverage purposes.
“The court correctly held that ‘loss’ and ‘occurrence’ are ambiguous in the Pacific policy and correctly rejected Chubb’s attempt to avoid its liability,” said Jeffrey Schulman, managing partner of Pasich LLP, who represented Jujamcyn. “Simply stating that the pandemic constituted one occurrence does not make it so.”
Pacific argued that the definition of “loss” is coterminous with “occurrence” and thus because Covid-19 constitutes a single “occurrence” under the policy, Jujamcyn only suffered one “loss.” Pacific also argued that the only insured listed on the policy is Jujamcyn and that the policy does not specify that the policy covered each Jujamcyn’s five theaters individually.
But the court determined that the essential term at issue — “loss” — is undefined. The judge said one reasonable interpretation of “loss” is that Jujamcyn suffered five losses when each of its five theaters suffered performance disruptions as a result of the Covid-19 orders and were each forced to close. He indicated that this is consistent with the stated “limit of liability” which specifies that $250,000 may be paid out for “each loss” caused by a “covered occurrence.
However, the judge continued, another reasonable interpretation of “loss” is that Jujamcyn— the sole entity insured under the contract—suffered a singular loss as a result of the closures of its theaters, caused by the single “occurrence” of the COVID-19 pandemic.
“Neither interpretation is clearly compelled by the plain language of the contract,” Judge Carter concluded.
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