Caesars sues insurers for $2B in COVID losses

Gaming and hotel giant Caesars Entertainment Inc. is the latest hospitality company to sue its insurers over denied business interruption coverage, claiming more than 36 insurance companies owe $2 billion in pandemic-related losses.

Attorneys for Caesars filed the lawsuit Friday, claiming it gave COVID-19 sick pay to more than 15,000 employees and had more than 2 million customer reservation cancellations. The company is represented by San Diego attorneys Brook Roberts and John M. Wilson of Latham & Watkins LLP, and Las Vegas attorney Frank M. Flansburg III of Brownstein Hyatt Farber Schreck.

Caesar's action against ACE American Insurance Co., Lloyd's of London, and Hallmark Specialty Insurance Co., among many other insurers, is one of, if not the largest pandemic-related insurance suit yet.

"Yet despite Caesars paying more than $25 million in premiums (in addition to the millions more paid for coverage in prior years) to secure a top of the line, all risk policy portfolio providing more than $3.4 billion in coverage limits, the defendant all risk Insurers have failed to pay a single penny for the business interruption at Caesars' properties caused by the imminent or actual property damage from the ubiquitous presence of the novel coronavirus known as SARS-CoV-2 and the disease it causes, COVID-19," the complaint, filed in a Nevada federal court reads.

Thousands of pandemic-related business interruption insurance suits were filed by restaurant and business owners during the pandemic when state and county governments forced businesses to close a year ago.

A common factor in many of the lawsuits is whether or not the policy in question includes a virus exclusion that would theoretically preclude a policyholder from coverage in the event of a virus induced business closure. Caesars' policy at the heart of its lawsuit, does not, according to the complaint. Caesars Entertainment Inc. v. ACE American Insurance Co., (NV. filed March 19, 2021).

As with Caesars, the central argument in many pandemic-related insurance suits boils down to a debate over the language included in business interruption policies which state insurers must cover "physical loss or damage."

Carriers argue, since the virus does not cause any physical or tangible damage to the insured property, such as a fire or flood might, it does not constitute "physical loss or damage."

However, Caesars argues COVID-19 does cause physical damage to the property by its presence on surfaces and in the air.

"The presence of SARS-CoV-2 causes physical loss and damage because, among other things, the virus can live on the surfaces of the covered properties or attach itself to micro droplets expelled by an infected person that are so light they float in the air and can fill an enclosed space," the complaint reads. "The tangible, physical presence of SARS-CoV-2 on surfaces or suspended in the air of the covered properties thus alters, damages, and renders the physical property unfit and unsafe for its intended use."

While a majority of judges have ruled in favor of insurance carriers on motions to dismiss or on summary judgment, restaurants and businesses owners have won a handful of significant victories during the pleading stage.

A notable plaintiff victory came late last month in a multidistrict litigation when U.S. District Judge Edmond Chang in Chicago found that the word "or" in the policy term "physical loss or damage," implied that "physical loss," covers something other than "physical damage."

Caesars is the largest casino-entertainment company in the U.S. with numerous casino complexes, hotels, riverboats, race tracks, arenas, and event spaces. Its properties include 65,000 gaming machines, 3,400 table games, and 47,000 hotel rooms, serving over 110,000 daily guests. Since the majority of Caesars' revenue derives from gaming, which is highly dependent upon the volume of customers at its properties, the Las Vegas establishment said its business interruption loss during the pandemic is over $2 billion and counting, according to the complaint.

"While damage from the spread of SARS-CoV-2 and the COVID-19 pandemic have ravaged every aspect of the economy, perhaps no sector, and no city, has been hit harder than gaming and hospitality and Las Vegas, Nevada, which requires the very type of indoor, in-person congregation and interaction that government closure orders and other limitations prohibit," the complaint reads.

Of the 1,542 business interruption suits filed thus far, policyholders have survived 41 dismissal or summary judgment motions, while insurers have succeeded in dismissing 204 suits, according to Penn Law's COVID litigation tracker.

Attorneys for Caesars did not respond to a request for comment.