24-Hour Fitness Worldwide, Inc. Sues Insurance Companies For Alleged Losses Incurred Due to COVID-19 Pandemic.

January 12, 2021, Delaware – Last month, 24-Hour Fitness Worldwide, Inc. and its 10 affiliated debtors (collectively, the “Debtors” or the “Plaintiff”) brought an adversary proceeding against nine insurance companies asking for a declaratory judgment from the Court, alleging that the insurance companies are liable to cover the losses Debtors incurred in their business due to COVID-19 pandemic.

By way of background, Defendants Continental Casualty, Endurance, Starr, Allianz, Liberty Mutual, Beazley, Allied World, QBE, General Security, Starr, and Allianz issued insurance to the Debtors providing coverage for business losses, allegedly including losses associated with the COVID- 19 outbreak. According to the papers filed with the court, the property insurance program provided insurance coverage for a total of $50 million, and the pollution policy provided $25 million coverage to the Debtors. 

The Debtors argued that the Debtors’ losses are covered in whole or in part under the business interruption, civil authority, ingress/egress, and communicable disease coverage provisions of the property policies and there are no exclusions that apply. Further, the Debtor claims that the term “pollution incident” in the policy includes the presence of a virus on, at, or within buildings or structures.” “Business interruption” means “the necessary suspension” of the insured’s operations. Thus, the Debtors alleged that they are entitled to declaratory relief as the losses suffered are covered by the property policies and the pollution policy.

The complaint does not specifically mention the amount of losses that the Plaintiff incurs. However,  if the court directs the Defendant insurance companies to cover the losses, the total that the Defendants may have to pay could be in the neighbourhood of $75 million (assuming the losses equal the amount of full insurance coverage). 

24 Hour Fitness is one of the nation’s leading operators of health and fitness clubs. The Debtors filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code on June 15, 2020, after its gyms shut down amid efforts to contain the coronavirus pandemic. The cases are pending before the Honorable Karen B. Owens and are jointly administered under Case No. 20-11558 in United States Bankruptcy Court for the District of Delaware

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