Cinemark Sues Insurer for $400 Million in Covid-Related Losses

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Movie theater operator Cinemark Holdings Inc. sued its insurer for refusing to cover $400 million in losses and legal expenses linked to the coronavirus pandemic.

The third-biggest U.S. movie theater chain claims in a complaint filed Tuesday in Texas federal court that Factory Mutual Insurance Co. adopted a strategy that was designed to limit or altogether deny Cinemark the recovery it was entitled to under its insurance contract.

The movie theater business has been brutalized by the pandemic. Almost all U.S. theaters went dark in March and about two-thirds of them remain closed. Where they have reopened, theaters must cap ticket sales to ensure social distancing for the few new movies they have to show. Studios delayed almost all of their potential blockbusters until 2021.

“The governmental orders, the damage caused by Covid-19, and the transmission of Covid-19 have had a devastating effect on Cinemark’s business,” its lawyers said in the complaint.

The largest U.S. theater chain, AMC Entertainment Holdings Inc., warned it could run out of cash as soon as January. Cinemark, with 332 theaters and 4,522 screens in 42 states, is relatively better capitalized and has said it has enough money to survive most of 2021, even if conditions remain difficult. Still, it’s not clear how popular theaters will be when the economy reopens, as streaming services continue to gain viewers and higher quality movies and shows.

There are more than 1,300 other lawsuits against insurers who refused to pay claims on business-interruption policies, saying they don’t cover pandemic-related losses, Tom Baker, a University of Pennsylvania law professor who is tracking the cases, said last week.

Lawsuits over lost-revenue claims have been filed by all sorts of businesses, from the National Football League’s Atlanta Falcons and the National Basketball Association’s Houston Rockets to hair salons and doctor’s practices. The stakes for the insurance industry have escalated as more cases are filed.

Cinemark said it paid $3,785,253 in premiums for a one-year, all-risk policy, which expired April 20. The insurer was expected to cover up to $500 million in unforseen losses, damage and resulting lost income under the policy, according to the complaint.

Factory Mutual “chose to insure against loss caused by communicable disease, both at and away from Cinemark’s property,” the theater chain’s lawyers said in the complaint, which was originally filed in Texas state court last month.

Steven Zenofsky, a spokesman for the insurer, didn’t immediately return an email or a call seeking comment on the suit Tuesday.

But Factory Mutual defended its denial of Cinemark’s claims in a brief filing Tuesday in federal court.

The movie chain “cannot show the actual, not suspected, presence of communicable disease” at its locations, the insurer’s lawyers said. Cinemark’s policy also excludes virus coverage in general and caps losses related to communicable diseases at $1 million per year, they said.

Cinemark said almost 500 employees were exposed to the virus or exhibited Covid-19 symptoms between June and the end of November, collectively recording a total of more than 5,562 sick days.

“Additionally, during the period of March 17 to November 3, 2020, Cinemark locations had 3,690,952 registered guests from all over the world,” its lawyers said. “Even without actual detection, Covid-19 also is statistically certain to be present.”

The case is Cinemark Holdings Inc. v. Factory Mutual Insurance Co., 2:20-392, U.S. District Court, Eastern District of Texas (Marshall).

©2020 Bloomberg L.P.

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