Sport Business Taking a Different Type of Court
Sports leagues are in a challenging position like any other industry. The financial fallout of lockdowns has left them with billions in lost revenue. In order to stage a 4th quarter comeback, leagues are turning on their insurance providers.
Why Do Sports Teams Need Insurance?
Sports are business just like FedEx, Walmart, and your local pizzeria. A business will deploy a number of risk management strategies to mitigate the exposure from lawsuits that pure risks present. Risk management strategies can be employee training courses, high-quality hiring searches, and, most importantly, buying insurance.
Insurance is vital for a business for a couple of reasons. First, it transfers risk from the business to the insurance company. Suppose a fan is hurt at a stadium or as a result of another fan’s actions. In that case, the insurance company will defend that particular stadium ownership, but only relative to the coverage limits.
Another reason insurance is important is the fall back it offers the insured. This type of insurance is known as a general commercial liability. This will protect the business from financial loss in case of fire, natural disasters, and possibly closure due to unsafe conditions.
Most people think insurance companies are enormous evil corporations that do little but pull from your wallet. That’s true, but on the off chance you may have to use that insurance coverage, your insurer is suddenly your best friend.
A prime example of a company utilizing their coverage to recover losses as well as having good foresight is Wimbledon. In 2003 the Tennis tournament bought $1.9 million worth of pandemic insurance coverage. Through 17 years, they paid $31.7 million in insurance premiums.
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Then it finally paid off in a huge way.
In 2020 COVID-19 was declared a pandemic, and public spaces were closed for lockdowns to slow the spread of the virus. Sports teams and leagues across the globe faced billions in lost revenue. Wimbledon was one of the only sports leagues to own pandemic specific coverage through their insurer.
Wimbledon is set to receive an insurance payout of around $142 million for this year’s canceled tournament, “making it a very sensible investment,” said Ben Carey-Evans, insurance analyst at GlobalData, a London-based platform that provides data analytics and expert analysis about the world’s largest industries.
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Fallout of Wimbledon Insurance Payout
Wimbledon having pandemic insurance and it paying off after 17 years is more right time and right place than anything else. Good for their risk management council to see the cost versus return value. But most leagues can’t afford such lofty and niche insurance coverage.
This is where commercial general liability insurance comes in. Each policy is different depending on the insurance company issuing the policy. But in general, CGL insurance is an umbrella policy that tries to catch almost all possible liabilities for a business.
Recently, corporations have been trying to claim the broad language in their contracts allows for them to reap the insurance coverage. As a general rule in insurance ambiguity in the policy language is construed against the drafter in favor of coverage for the insured. Some are having success with this argument.
These lawsuits typically seek payments under either business interruption or civil authority coverage in connection with COVID-19. Both of which will typically fall under the CGL umbrella. Most claims articulate a breach of contract, and some claim bad faith insurance practices.
In August, a federal judge in the Western District of Missouri ruled in favor of a group of hair salons and restaurants by concluding that allegations of the presence of physical particles of the COVID-19 virus within their businesses satisfied the requirement for physical loss or damage under their insurance policies. Studio 417, Inc. v. Cincinnati Insurance Co.
Sports teams are seeing the value these cases are presenting to them and are filing lawsuits themselves. The owners of Mercedes Benz Stadium, which hosts the NFL’s Atlanta Falcons, as well as MLS Atlanta United have filed a breach of contract lawsuit against two insurance companies. The claims are alleging failure by the insurers to follow the policy and cover financial losses caused by business interruption due to the coronavirus.
Major League Baseball and all 30 of its teams are suing their insurance providers for the same reason, citing billions of dollars in losses during the 2020 season. Insurers in all these lawsuits have insisted that financial losses caused by the coronavirus do not constitute physical loss or property damage as outlined in the policies.
“The presence of the coronavirus and COVID-19, including but not limited to coronavirus droplets or nuclei on solid surfaces and in the air at insured property, has caused and will continue to cause direct physical damage to physical property and ambient air at the premises,” the MLB suit says.
It will take years for these cases to be settled. But the filing of over 1,500 similar lawsuits against insurance companies will shake the insurance industry for years to come. The high number of these lawsuits, large amounts of money at stake, and judges’ varying decisions will very likely bring the supreme court in to set a national precedent.