Fifteen minor league baseball teams have filed a lawsuit alleging breach of contract by insurance providers after being denied claims for business-interruption insurance due to the coronavirus pandemic.
Major League Baseball announced Monday that it will attempt to play a 60-game regular season, but its minor league clubs - many under threat of losing affiliations amid negotiations with MLB - are unlikely to play until at least 2021.
Minor league franchises said in the suit filed Tuesday that even though they continue to pay yearly premiums to insurance providers for business-interruption insurance, they have been denied coverage after Baseball Commissioner Rob Manfred indefinitely suspended their seasons in March.
Minor league teams are mostly small, independently owned businesses, and their model depends on affiliates receiving players, coaches and other team personnel provided by major league clubs.
Government restrictions on mass gatherings are also precluding minor league teams from hosting fans at their ballparks, by far the greatest source of revenues for those franchises. Over 40 million fans attended minor league games involving 176 affiliates last season.
The suit claims teams are stuck with over $2 million in expenses on average, including as much as $1 million in ballpark lease payments, marketing costs, food and beverage supplies, and salaries and benefits for permanent employees.
Teams say providers are citing two reasons for denying claims - because losses are not resulting from direct physical loss or damage to property, or because policies include language excluding coverage for loss or damage caused by viruses.
Teams say the loss of use of their ballparks due to government restrictions on fan gatherings and their inability to obtain players qualifies as physical loss. They allege the latter clause is void because it’s unenforceable and inapplicable.
The likely loss of the 2020 season comes at an already challenging time for the minors. The Professional Baseball Agreement between MLB and minor league team owners is set to expire after this season, and MLB proposed reducing the guarantee minimum of affiliates from 160 to 120.
The suit, filed in U.S. District Court in Philadelphia, names Philadelphia Indemnity Insurance Co., Acadia Insurance Co., National Casualty Co., Scottsdale Indemnity Co., and Scottsdale Insurance Co. as defendants. Acadia Insurance declined to comment. Scottsdale Indemnity and Scottsdale Insurance are in the Nationwide network, and Nationwide said in a statement “we are committed to doing all we can within the coverage our members have purchased” to help businesses navigate the pandemic.
“We have implemented a process to address and assess coronavirus related claims and we will evaluate any reported claim based on the relevant facts and individual merits of the claim,” the statement said. “Business interruption coverage due to a virus outbreak has been excluded from standard policies issued to business owners across the insurance industry for quite some time. The risk for such an event is so vast, including it in standard coverage would make such coverage unaffordable or even unavailable.”
The minor league clubs listed in the suit are the Chattanooga Lookouts, Augusta GreenJackets, Boise Hawks, Columbia Fireflies, Eugene Emeralds, Binghamton Rumble Ponies, Fort Wayne TinCaps, Frederick Keys, Greenville Drive, Idaho Falls Chukars, Inland Empire 66ers, Amarillo Sod Poodles, San Antonio Missions, Stockton Ports and Delmarva Shorebirds.
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