If you've ever had to argue your case to an insurance company's loss adjuster before, you might have some sympathy for Caesars Entertainment right now.
On Friday, Caesars filed a case against their insurers for non-coverage of losses. The filing went to the Clark County District Court in Las Vegas. But the case will also involve a Securities and Exchange Commission investigation.
Caesars' filing states that it took out wide-ranging property insurance. This policy was supposed to protect the company from "all risk of physical loss or damage."
It paid its insurance company $25 million in premiums. Then it got stiffed. The insurance payout has a cap of $3.4 billion, so Caesars' claim could be far worse for their insurers.
The argument is that COVID caused Caesars' tangible losses. Since their coverage does not explicitly exclude pandemics, Caesars claims the insurance company should cough up.
"Even though the vast majority of the company’s insurance policies do not exclude loss or damage caused by a virus or pandemic," the filing reads. "The company’s insurance carriers have refused to pay the company’s losses which are estimated to exceed $2 billion."
The bigger issue
Caesars is one of the big players in the U.S. casino industry. It owns its flagship, Caesars Palace, along with Bally's Las Vegas (to be rebranded soon). It also owns The Paris and Planet Hollywood on the strip.
Caesars even owns the WSOP brand since it merged with Harrah's a few years ago. As part of this, the company leases the Rio, though the owners of the Rio aren't planning to renew the lease after it expires this year.
The filing in Clark County focuses on Caesars' fifteen Nevada properties, but the implications of the case could extend much further.
In fact, all in all, Caesars and its subsidiaries own something in the region of fifty brick-and-mortar gambling sites. These sites are located across sixteen states.
Caesars want their losses covered for the "Government orders [that] have required, at various times, in various degrees and in various locations, shutdowns, lockdowns, facility closures, quarantines, travel restrictions, and operation restrictions, all of which substantially impacted Caesars’ properties and businesses."
The figure for Caesars' losses goes beyond the profits it missed out on during shutdowns. In addition to this, Caesars had to pay for furloughed workers. It also hired crisis management teams and epidemiological experts to advise their businesses.
Caesars claim it drew down $1.6 billion on loans it already had in place. And it set up a further $0.73 billion in additional loans. The interest on that alone must make an insurance company blanche.
The company's lawyers also mention that Caesars donated $1 million during the period. That feels a little nickel-and-dime-ish in context.
Insurance reassurance
Caesars is not the only company to have struggled to get their insurance companies to pay out. Circus Circus took AIG to court in July 2020 over non-payment on its policy.
Renee M. Finch, an attorney for Circus Circus wrote in the company's delightfully sassy complaint that "AIG relies on sleight-of-hand, distortions of fact and contortions of law to escape from Circus Circus’s covered claim. But no illusion or death-defying feat can alter the plain language of AIG’s policy and the broad 'all risks' coverage that it provides."
The casino's problems go beyond the usual insurance rigamarole. Loss adjusters will fight claims however they can. But here they have serious backup from outside sources. An influential statement issued by the American Property Casualty Insurance Association ruled pandemic outbreaks to be uninsurable. This has been a factor in the stonewalling tactics used by insurers.
Circus Circus lost their suit last month. So did Treasure Island, their sister casino, which sued AFM for similar COVID-related losses.
These precedents don't bode well for Caesars' suit.
Insurance companies should be worried about overplaying their hands though. A reputation for non-payment is going to hit business from the casino sector hard. In Caesars case, the company needs to calculate whether that hit will amount to $2 billion. Then it has to decide how likely it is to have to pay it anyway. Caesars is hoping for an "amicable settlement." This means the ball is in the insurer's metaphorical court. If not, Caesars will meet the insurer in a literal one.
With the exception of Caesars' filings, which are public, the company is not passing comment to the press on this matter at this time.
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