Jujamcyn Theaters, the operator of five Broadway houses, has sued its insurers for denying it millions of dollars that the theater company says it deserves as payment for the losses suffered during the monthslong coronavirus pandemic shutdown.
The theater company said that one of the insurance companies, Federal Insurance Company, denied it “even a penny” of pandemic-related coverage, while the other company, Pacific Indemnity Company, paid it a fraction of what the Broadway operator believes it should be paid.
The lawsuit, filed in the U.S. District Court for the Southern District of New York on Tuesday, is the latest challenge to the insurance industry’s refusal of coverage for the deluge of business losses experienced during the pandemic.
After Gov. Andrew M. Cuomo of New York shut down theaters in March and then closed all nonessential businesses, arts institutions of all kinds filed insurance claims for business income loss. But the insurance industry has issued a torrent of denials, arguing that its policies never promised this kind of coverage in the first place and that fulfilling all of these requests would bankrupt the industry.
On March 12, when Mr. Cuomo ordered an end to all gatherings of more than 500 people — effectively shuttering all 41 Broadway theaters — Jujamcyn was forced to cancel the hit musical “Hadestown” at the Walter Kerr Theater, as well as four other shows, including “The Book of Mormon” and “Frozen.”
The theater company submitted its business income loss claim to Federal Insurance, but the insurer denied coverage, saying that there was no “direct physical loss or damage,” which is needed to trigger payments. Such policies are designed to replace lost income in cases of building damage or when a civil authority has shut down the surrounding area. In its lawsuit, Jujamcyn argues that the coronavirus pandemic does cause physical loss or damage, explaining that the virus can adhere to surfaces for days and linger in the air inside buildings for hours.
In a July letter to the insurer’s parent company, Chubb, Jujamcyn’s lawyer requested that the insurer withdraw its denial, writing that its theaters might not generate box office revenue for the rest of the year and that its business income losses may exceed $29 million.
“Chubb has seized upon excuses to abandon its insured in its time of need,” the lawyer, Jeffrey L. Schulman, wrote.
Chubb, which is also the parent company of Pacific Indemnity, is a common insurer of arts organizations. Weeks into the pandemic, the company’s chief executive, Evan Greenberg, caused a stir among clients when he said in an earnings call that business interruption insurance “doesn’t cover Covid-19” and that “the industry will fight this tooth and nail.”
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In a statement responding to Jujamcyn’s lawsuit, Chubb said that it had paid out millions of dollars this year for the pandemic-related disruption of Broadway performances but that most standard property insurance policies do not cover pandemic risk when it comes to business interruption.
“Creating false expectations about coverage that does not exist, including filing baseless lawsuits, will not solve this crisis,” it said.
Jujamcyn said in its lawsuit that it should also be granted insurance payments based on the fact that state and local government had shut its theaters down. The state’s phased reopening does not yet include indoor theaters.
According to the lawsuit, which accuses both Federal Insurance and Pacific Indemnity of a breach of contract, part of the reason that Jujamcyn’s business income insurance claim was denied was because the governmental orders did not prohibit access to the theaters, meaning theater employees were not barred from entering and checking on the buildings. Mr. Schulman called that a “ludicrous position.”
The second part of the lawsuit argues that Pacific Indemnity, which provides Jujamcyn with performance disruption coverage, was wrong in its decision to only grant the theater company one payment of $250,000 for its five theaters. The insurance company said that the pandemic qualified as a single “occurrence,” requiring only one performance disruption payout. Jujamcyn countered that the insurer was suffering from a “serious case of seller’s remorse” and actually owed it more than $1 million.