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Casinos, Insurers Gear Up for Virus-Linked Coverage Fight

July 16, 2020, 10:30 AM

Casinos are starting to sue their insurers over coverage for pandemic-linked losses, setting the stage for what could be a high-profile legal battle.

Circus Circus, following Treasure Island, recently became the second Las Vegas casino to sue its insurer after the coronavirus effectively halted the city’s gaming and tourism industries.

The casinos, both owned by billionaire Phil Ruffin, are among the most notable businesses to drag their insurers to court for denied claims stemming from the pandemic, standing in sharp contrast to the numerous neighborhood restaurants and retailers flooding state and federal courts with lawsuits. Gaming industry players outside of Nevada have taken notice, and could follow suit.

Hunton Andrews Kurth LLP, which represents policyholders and is involved in both the Circus Circus and Treasure Island cases, has at least one lawsuit from an East Coast casino in the pipeline, according to partner Michael Levine.

Other casinos are likely watching to see how current plaintiffs fare, attorneys say. While claims in the casino cases are similar to other business interruption lawsuits, the nature of gaming operations gives them a slightly different argument than other industries.

“Casinos —particularly those in Las Vegas— have been impacted more severely” than restaurants and other businesses, Levine told Bloomberg Law.

Nevada Gov. Steve Sisolak (D) ordered casinos and other non-essential businesses in March to close their doors for about a month. They’ve since reopened, but travel restrictions and stay-at-home orders throughout the country have slowed the number of tourists and gamblers flocking to Sin City.

Michigan Case

Insurance companies have broadly denied payouts for business losses suffered during the pandemic, arguing that the absence of physical property damage means coverage isn’t required. Insurers also have argued that there’s no need for coverage if the virus isn’t there to cause damage.

Earlier this month, Michigan Insurance Co. convinced a Michigan trial court judge to toss a lawsuit brought by a restaurant owner whose claims were denied. Judge Joyce Draganchuk shot down the policyholder’s argument that a civil order limiting customers to delivery and takeout service resulted in damage covered under business loss provisions of its policy.

The judge pointed to a lack of alleged physical loss or damage and emphasized the fact that the virus wasn’t found at the owner’s two restaurants.

Insurers, especially those facing lawsuits from businesses that can offer services during mandatory closures, are expected to lean on the Michigan ruling’s focus on an absence of the virus to bolster their case. The same is true for business that may have experienced confirmed cases.

“Where it’s possible to plead such a thing, I think it’s going to be plead,” Tom Baker, a University of Pennsylvania Law School professor, told Bloomberg Law. State courts are incredibly influential only in their own states, but multiple written opinions in different state courts favoring insurers could add weight to their arguments.

A federal judge might not put much stock in one favorable state-court ruling, “but if there are a bunch of them then yes, they probably would,” said Baker, who helped develop a website to track the progress of pandemic-related insurance coverage cases. More than 650 of these lawsuits were filed as of June 29, according to the UPenn tracker.

Casino Claims

Circus Circus, in its July 2 complaint against AIG Specialty Insurance Co., said guests or employees with Covid-19 were at its facilities before it shut down on March 18. The casino has more than 2,000 employees and typically sees more than 5,800 people on its property every day, according to the complaint.

Because they completely shut down, casinos can largely avoid the challenge faced by restaurants and others seeking business loss coverage while still operating in some form. And by claiming virus-infected individuals were present on their property, casinos might also sidestep some skepticism shown in the decision favoring Michigan Insurance Co.

Casinos will still need to survive scrutiny as to whether any physical evidence of the virus was found, and whether that constitutes actual damage.

And until federal courts —where insurers are pushing many of these cases— offer definitive answers as to whether a mandatory business closure triggers business loss and business interruption coverage, casinos must still convince judges that it does.

Kenneth Abraham, a law professor at the University of Virginia, said the casinos have “no better shot” than restaurants —including those involved in the Michigan Insurance case— at victory. The underlying issue facing both industries in their litigation “is basically the same problem.”

Physical loss and damage caused by the virus and the threat of “further” damage by Covid-19 has had a devastating effect on Circus Circus’s business, the casino’s complaint said. And various stay-at-home orders still in effect “have caused and continue to cause a total or partial prohibition of access to Circus Circus” and the partial or total interruption of its business operations.

AIG Specialty hasn’t filed a response to the casino’s complaint.

But Affiliated FM Insurance Co. —in its answer to Treasure Island’s lawsuit— pushed back on allegations that it acted in bad faith by denying coverage claims. It denied Treasure Island’s statement that the virus triggered business interruption provisions of the casino’s policy and its “extra expense coverage.”

The gaming industry, along with most policyholders, is battling against an invisible shot clock. Some cases are being pushed through the courts that could yield unfavorable rulings and make things tougher for casinos, Levine said.

“We keep advising our clients that you need to move quickly,” he said.

—With assistance from Evan Weinberger.

To contact the reporter on this story: Jacob Rund in Washington at

To contact the editors responsible for this story: Roger Yu at; Michael Ferullo at