San Manuel Seeks $300M Insurance Payout For Gaming Revenue Loss From COVID Closures

The impact of the novel coronavirus on the local gaming industry has resulted in a novel lawsuit, one that carries with it the possibility of creating a legal precedent of breathtaking scope, as the San Manuel Band of Mission Indians is suing Lloyds of London and a coterie of other insurance companies for $300 million over lost revenue from the three-month long suspension of gambling at its casino that came in reaction to the COVID-19 pandemic last year.
Represented by the law firm of Latham & Watkins, the tribe filed the suit on March 9, 2021 in San Bernardino County Superior Court, naming Westport Insurance Corporation, Crum Forster Specialty Insurance Company, Western World Insurance Company, Ironshore Specialty Insurance Company, QBE Specialty Insurance Company, Starr Surplus Lines Insurance Company, Ategrity Specialty Insurance Company, Tokio Marine America Insurance Company, Landmark American Insurance Company, The Princeton Excess and Surplus Lines Insurance Company, Homeland Insurance Company of New York, Allied World National Assurance Company, Empire Indemnity Insurance Company and a coffeehouse chock full of underwriters and syndicates with Lloyds of London, claiming the lot of them had reneged on what is termed “all risk” coverage of the tribe’s casino and related operations by not making up for the proceeds the tribe would have realized from the gaming and other moneymaking operations at the San Manuel Casino while the gaming tables were shut down.
“This suit concerns the refusal by certain insurance companies to comply with their obligations to plaintiffs, the San Manuel Band of Mission Indians and the San Manuel Entertainment Authority,” the complaint reads. “In exchange for substantial premiums, the defendant all risk insurers issued insurance policies that provided ‘all risk’ coverage for the tribe and its insured locations, including the San Manuel Casino. This is the broadest form of first-party insurance coverage available in the marketplace. Under these all risk policies, the insurers pledged to cover risks ‘except those excluded under the terms of the insuring contract.’ Repudiating the broad coverage promised to the tribe, the defendant all risk insurers have refused to pay for the business interruption at the casino caused by the imminent or actual property damage from the ubiquitous presence of the novel coronavirus formally known as SARS14 CoV-2 and the disease it causes: COVID-19. While damage from the spread of SARS-CoV-2 and the COVID-l9 pandemic have ravaged every aspect of the economy, perhaps no sector has been hit harder than gaming and hospitality, which requires the very type of indoor, in-person congregation and interaction that closure orders and other limitations prohibit. As [a] result, the tribe has suffered significant business interruption losses at the casino and its related properties, which through the course of the pandemic have mounted to more than $300 million and are continuing. Coverage at this amount and under such broad policy is very expensive: the tribe paid over $6 million in premiums for the policy year of April 1, 2019 to April 1, 2020, and over $43 million for coverage over the last ten years. Yet despite the tribe paying more than $6 million in premiums to secure [a] top of the line, all-risk policy portfolio affording more than $1.6 billion in coverage limits, the defendant all risk insurers refused to honor their obligations when the tribe needed its insurers the most.”
The insurance companies skipped out on their responsibilities, clearly and simply, the suit maintains.
“The purpose and nature of the business interruption coverage provided in ‘all risk’ property policies is to protect policyholders (like the tribe) against losses arising from an inability to continue normal business operations due to circumstances precisely like those presented by the COVID-19 pandemic, unless this type of peril is expressly excluded,” the suit states. “To date, the insurers have not paid [a] single penny of the tribe’s losses. This failure has had significant financial ramifications for the tribe, as casino gaming revenue represents the tribe’s most valuable business asset and the primary means to meet the objectives for the tribal government and its citizens.”
The suit notes, “The casino includes thousands of the latest slot machines, live Vegas-style table games, high-limit gaming, unique shopping, and award-winning dining, and the tribe also owns, directly or indirectly, other businesses such as the Bear Springs Hotel. Casino operations are located on tribal land at the San Manuel Reservation near the city of Highland, in San Bernardino County. Despite plaintiffs’ best efforts to safely navigate its gaming operations amid the unprecedented challenges presented by the pandemic, their businesses have suffered physical loss or damage caused by the SARS-CoV-2 virus and COVID-19, including substantial losses resulting from the related suspensions and interruptions to the business. In this regard, the casino gaming and hospitality operations were shut down in March 2020 pursuant to orders from the tribe’s duly authorized governing body and guidance from the San Manuel Tribal Gaming Commission, which regulates all gaming activities within the tribe’s jurisdiction consistent with tribal, federal, and state regulations. The closure resulted from… the ubiquitous presence of SARS-CoV-Z and COVID-19. To help mitigate these impacts and ensure the casino did not become [a] vector for the spread 0f SARS-CoV-Z, the casino remained closed for three months until June 9, 2020 (opening to the general public on June 15), during which time the property was unfit for its intended purposes until safe occupancy and limited operation could be assured through the undertaking of extraordinary remedial and preventive measures.”
The suit maintains the tribe undertook efforts and precautions to “maintain the health and safety of its employees and patrons. The casino continues to take [a] vigilant stance on providing [a] safe physical environment for its guests and team members by implementing health checks, incorporating [a] team of hundreds of health screeners, and employing guest safety concierges to enforce mask wearing and social distancing. Other steps, including closing restaurants for in-service dining (or altogether in some cases), closing or reducing occupancy in retail stores, converting the casino to [a] non-smoking facility, reducing the number of available gaming spaces in both slots and table games, and reducing overall occupancy of the casino, greatly affected casino operations. Yet even operating with these significant limitations and adopting world-class mitigation techniques, the risk and impact of SARS-CoV-2 and COVID-19 persists.”
The suit propounds that “As of this filing, plaintiffs’ estimated losses stemming from the presence of SARS-CoV-2 and COVID-l9 – first from the compulsory closure of the casino and then the subsequent implementation of restricted and limited operations – exceed $300 million (along with related mitigation expenses), and will continue to mount until the casino can resume its normal business activity.”
According to the suit, the all risk policies were secured by the tribe “to preserve the continuity of the tribe’s business. Yet [the] defendants have steadfastly refused to pay for these devastating losses.”
There is no loophole for the companies being sued to slip through, the suit maintains.
“These risks associated with viruses, communicable diseases, and pandemics have been known to the insurance industry for [a] century and have been evident in recent decades through outbreaks and pandemics,” the suit states. “Because these risks are well known, there are exclusions in common usage in the insurance industry that specifically reference losses caused by viruses, communicable diseases and pandemics. In fact, many of the most common ‘boilerplate’ insurance policies covering businesses include this exclusionary language, which largely prevent recovery due to losses incurred by pandemics. Here, however, the tribe’s ‘all risk’ policy wording is [a] unique or ‘manuscripted’ program designed specifically for the risks associated with the tribe’s property. The policy form includes no such virus or communicable disease exclusion. All of the highly sophisticated insurance companies issuing the all risk policies had multiple opportunities to review the policy form. Each insurance company could either sign on to cover plaintiffs under the policy form wording or make changes, including carving out coverage through exclusions, creating policy sublimits, or adding, editing, or eliminating endorsements. Indeed, anticipating the type of risk, loss, and damages posed by virus such as SARS-CoV-2 or the COVID-19 pandemic, two of the tribe’s all risk insurers added endorsements – modifying the policy form – to exclude losses caused by virus or communicable disease. Those two all risk insurers are not named here as defendants. All of the tribe’s other all risk insurers did not include such exclusions and, therefore, expressly agreed to cover such losses as part of their insurance policies. The tribe bought $1.6 billion of insurance for business income losses precisely to cover catastrophic situations at its properties. Defendant all risk insurers have refused to honor their obligations and pay for the tribe’s devastating losses. This ongoing failure has compelled plaintiffs to commence this lawsuit.”
Covered under the insurance policies were the casino, a separate hotel, nearly 5,000 gaming machines, approximately 150 table games, over 100 hotel rooms, food service facilities and restaurants, three retail establishments, bars, and four service bars and more than 4,000 individuals or employees, according to the suit.
“Under normal circumstances, the tribe welcomes on average tens of thousands of guests onto the casino property per day,” suit states. “Most of the tribe’s revenue derives from gaming, with [a] smaller portion generated by hotel, dining, retail, concessions, and certain other ancillary activities. However, all of these revenue streams depend on the volume of customers physically present at the casino and affiliated properties.”
According to the suit, “As [a] direct and proximate result of the defendant all risk insurers’ breach, plaintiffs have sustained losses, including interest thereon, and reasonable attorneys’ fees and costs [of] more than $300 million with the exact amount to be proven at trial.”
The Sentinel was unable to get any corporate officers with the Westport Insurance Corporation to offer a reaction to the lawsuit.
-Mark Gutglueck

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