By Melissa Angell

Law360 (April 29, 2021, 9:59 PM EDT) -- A Chubb Ltd. unit told a California federal judge Thursday that the Los Angeles Lakers overshot with their suit seeking COVID-19 business interruption coverage, arguing that the NBA team failed to allege any physical loss or damage that resulted from the coronavirus pandemic.

In a 32-page bid vying to dismiss the suit, Chubb subsidiary Federal Insurance Co. argued that it correctly denied the basketball team's coverage claim since the presence of a substance such as the coronavirus does not constitute a physical loss.

The insurer added that though the pandemic "is extraordinary," the "contract interpretation required here is not."

"Under California law, there is no direct physical loss or damage to property unless the property itself has been physically altered," the insurer wrote in its memo. "The mere temporary presence of an unwanted substance on the property is not enough."

The Lakers sued the Chubb Ltd. unit in March, accusing the insurer of raking in profits while wrongfully refusing to cover the team's losses amid the COVID-19 pandemic.

According to their suit, the Staples Center remains closed to the public per California and Los Angeles regulations. Over the last year, the Lakers' arena has undergone "extensive physical alterations, disinfection, sanitizing and other safety protocols," the Lakers said.

And the coronavirus was physically present at the Staples Center and caused physical loss and damage to the arena and its surrounding properties, the team added.

The Lakers have an "all-risk" policy from Chubb subsidiary Federal Insurance Co. that does not include a virus exclusion, meaning that their policy covers losses stemming from pandemics, according to court documents. But Chubb has refused to cover the team's losses, the team said in the suit.

The Lakers did not say how much they believe Chubb owes the team.

But the insurer argued on Thursday that the Lakers are not entitled to coverage under the policy and that the team only "vaguely" alleges that the virus might have been on the premises of the insured properties.

The insurer added that the Lakers did not allege that the virus changed the insured properties in any physical way.

In its memo, Federal explained that there are four types of relevant coverage within the policy that are only triggered when there is "direct physical harm to property caused by or resulting from a 'covered peril.'"

And in the Lakers instance, the alleged presence of coronavirus is not sufficient to sustain the team's insurance-coverage claims, it said.

"Plaintiff does not allege that the coronavirus was present on its properties, let alone that the virus tangibly altered those properties in any way," the insurer wrote. "Even if plaintiff had alleged the virus was present, moreover, the mere presence of the virus would be insufficient to constitute direct physical loss or damage to property under California law.

The insurer further pointed out that the lack of a virus exclusion does not change the analysis of the team's claim.

The question of whether businesses are incurring physical damage from the pandemic and worthy of loss coverage has fueled debate as business owners face off with insurers in court over pandemic-related loss claims.

Federal joins a group of insurers that have been fighting back as they are taken to court over coronavirus-related coverage claims. Trial courts have largely favored insurers over policyholders, finding that the virus and related government-mandated shutdowns don't amount to the "physical loss or damage" required by most policies in the suits.

A group of insurance companies in April urged a California federal judge to nix a proposed class action filed by the Menominee Indian Tribe of Wisconsin seeking COVID-19 business interruption coverage, arguing that their insurance policies clearly include virus exclusions that foreclose the tribe's bid for coverage.

Representatives for the parties did not immediately respond to Law360's requests for comment on Thursday.

The Lakers are represented by Manuel Cachán of Proskauer Rose LLP.

Federal Insurance is represented by Daniel M. Petrocelli, Richard B. Goetz and Zoheb P. Noorani of O'Melveny & Myers LLP.

The case is The Los Angeles Lakers Inc. v. Federal Insurance Co., case number 2:21-cv-02281, in the U.S. District Court for the Central District of California.

--Additional reporting by Hailey Konnath. Editing by Peter Rozovsky.

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