Sports

Houston Rockets sue insurance company for denying its coronavirus business-interruption claim

Key Points
  • The Houston Rockets team, owned by Tilman Fertitta, is suing Affiliated FM Insurance for denying its coronavirus-related claim on a business-interruption policy, according to Bloomberg Law.
  • The Rockets became the first National Basketball Association team publicly known to file a lawsuit to recover losses due to Covid-19.
  • Other sports franchises have been able to recover some losses.
Tilman Fertitta, CEO of Landry's, stars in CNBC's "Billion Dollar Buyer"
Nick Valinote | CNBC

The Houston Rockets team is suing its insurance company, Affiliated FM Insurance, for denial of its claim on a $400 million business-interruption policy related to losses suffered by the coronavirus outbreak, according to Bloomberg Law.

Rockets owner Tilman Fertitta's Rocket Ball and Clutch City Sports & Entertainment, the holding company for the team and the Toyota Center, paid more than $700,000 in annual premiums on a policy worth approximately $400 million, according to the report.

The suit was filed in Rhode Island.

The Rockets became the first National Basketball Association team publicly known to file a lawsuit to recover losses due to Covid-19. Insurance executives tell CBNC companies are not offering Covid-19 coverage. They stopped covering viruses following the 2016 Summer Olympic Games in Brazil during the Zika outbreak.

Other sports franchises have been able to recover some losses.

Wimbledon and the NCAA had their insurance policies triggered once coronavirus became a pandemic, Wimbledon receiving an estimated $141 million payout and the NCAA $270 million. That allowed the organizations to cancel events and recover lost expenses. But insurance plans similar to those are no longer available.

"The NCAA was able to stay afloat despite that lack of revenue (from the NCAA Tournaments) based upon the fact that it had insurance for something unforeseeable and in my life has never occurred," said Alan Taylor, the co-chair of law firm Segal McCambridge Singer & Mahoney's professional liability unit.

James Harden #13 of the Houston Rockets speaks to Official Mark Lindsay during the second half of an NBA game against the Toronto Raptors at Scotiabank Arena on December 05, 2019 in Toronto, Canada.
Vaughn Ridley | Getty Images Sport | Getty Images

Still, some companies are attempting to use business-interruption insurance via government-forced shutdowns to recover some of the lost revenue, experts tell CNBC.

Insurance firms counter those claims and argue business-interruption policies were intended for physical property damage, not "communicable diseases," David A. Sampson, president and CEO of the American Property Casualty Insurance Association, or APCIA, said in a statement on April 6.

"Any action to fundamentally alter business interruption provisions specifically, or property insurance generally, to retroactively mandate insurance coverage for viruses by voiding those exclusions, would immediately subject insurers to claim payment liability that threatens solvency and the ability to make good on the actual promises made in existing insurance policies," Sampson said in the statement.

The APCIA estimated losses for "small businesses with 100 or fewer employees" could reach $431 billion per month.

"These numbers dwarf the annual premiums for all commercial property risks in the key insurance lines of $71 billion per year, or about $6 billion a month," Sampson said.

In 2017, Fertitta purchased the Rockets for $2.2 billion. The team is currently worth roughly $2.4 billion and ranked eighth on Forbes' 2020 most valuable NBA franchises list.

The Rockets did not immediately respond to a request for comment on the lawsuit. 

"AFM is unable to discuss the topic in the news media because of the legal nature of the matter," Affiliated FM Insurance, on behalf of an FM Global spokesperson, told CNBC.

Correction: This story has been updated to reflect that the Houston Rockets team is suing its insurance company for denying a claim on its policy.

VIDEO6:2306:23
Tilman Fertitta says reopening rules need to be 'federally mandated'