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Xponential Fitness Latest Club Company Suing For Business Interruption Coverage

Xponential Fitness LLC, Irvine, California, is suing Arch Insurance Co. over the insurance company’s denial of business interruption insurance related to the temporary closure of their studios due to COVID-19 restrictions, the company announced last week.

Reprinted from Club Industry, May 11, 2021

The case is Xponential Fitness LLC et al., v. Arch Insurance Co., Case No. 4:21-cv-00268-BCW (W.D.Mo.), currently pending in the Western District of Missouri before Judge Brian Wimes.

Fitness Holdings Co., which owns LA Fitness, announced in April that it also has filed lawsuits against insurance companies for denying business interruption (BI) insurance claims stemming from the COVID-19 shutdowns of clubs. Life Time and Anytime Fitness filed lawsuits against their insurance companies in 2020 for denying BI insurance claims. Rather than franchisees filing their own lawsuits, Xponential used its resources to file the suit as a federal class action on behalf of its thousands of franchisees that span eight of its nine brands: Club Pilates, CycleBar, StretchLab, Pure Barre, Row House, YogaSix, AKT and STRIDE. Rumble, which Xponential recently purchased, is not included in the lawsuit.

Jay and Carol Jasunas are two Xponential franchisees. They own a Row House franchise in Denver. Like small businesses nationwide, the Jasunas’ fitness studio was required to shut down for several months with the ongoing specter of future shutdowns.

“We were devastated,” Carol Jasunas said in the media release. “We lost so much of our family’s nest egg and income. We want to protect our clients and staff, and our whole community, but this last year has been incredibly challenging and we need financial assistance to ensure we can continue to be there for our community.”

The Jasunas family filed a claim with their business interruption insurance carrier, Arch Insurance Company based in Kansas City, Missouri. The insurance policy is supposed to reimburse businesses for financial losses due to unexpected shutdowns, including those related to pandemics, according to the lawsuit.

Arch Insurance denied the claim.

“After we spent thousands of dollars on an insurance policy, a denial (let alone one without investigation) felt like a kick in the teeth,” Jay Jasunas said. “That’s why we bought insurance, to protect our small business. But Arch told us to take a hike.”

The Welder Firm, located in Kansas City, Missouri, is representing the class, along with Howard & Howard Attorneys and Sherman & Howard, each firm led respectively by Michael Fawaz and Chris Mosley, while Xponential’s efforts are being managed by Michael Abramson.

“Arch Insurance took millions of premium dollars from small businesses nationwide, promising to protect them in this kind of emergency,” said attorney Kristie Welder. “Right when hardworking families needed help the most, Arch Insurance violated its own policies to deny these claims. That decision, purely based on its own corporate greed, is illegal and immoral. We won’t stand for it.”

Xponential is just the latest club company suing their insurers related to business interruption insurance claim denials. The main point of contention in many of the lawsuits is whether the virus caused physical loss to gyms. Many gym operators contend that the inability to use their buildings created a physical loss, but insurers contend that because no property was damaged, as it would have been in a hurricane, fire or flood, that no physical loss occurred.

A recent ruling in favor of a restaurant company in the U.S. District Court for the Northern District of Illinois may help the case for gym operators. The plaintiff in that case contended that the COVID-19 shutdowns caused physical loss to their business because they were unable to access their business. In that ruling, the judge stated, “The pandemic-caused shutdown orders do impose a physical limit: the restaurants are limited from using much of their physical space.”

He added that even though the insurer, Society Insurance, claimed that the inability to use the premises does not create a physical loss because the tables, chairs, walls, floors and other parts of the restaurant still work, a “reasonable” jury could find that a direct physical loss of property did occur.

In April, Fitness International LLC, which owns LA Fitness, sued 11 of its insurers, including Zurich American Insurance, Travelers Property Casualty and AIG Specialty Insurance, for denying BI coverage. LA Fitness alleges that the virus physically damaged its properties, stating that the fact that 1,200 of its staff members tested positive for COVID-19 proved that the virus on the surfaces of its exercise equipment physically altered and transformed the surfaces into “virus-spreading fomites.” LA Fitness also contends that the virus was spread through the HVAC system and no cleaning could remove the virus in the air.

In a separate $100 million lawsuit, LA Fitness is suing Beazley Underwriting related to BI claims.

Last summer, Life Time, Chanhassen, Minnesota, filed a lawsuit against Zurich American Insurance Co. to help recoup some of its more than $200 million in lost revenue caused by temporary club closures. The company is seeking $130 million through a BI claim, alleging that its policy covers interruption to business caused by communicable diseases, but Zurich denied coverage for the full amount, instead offering $1 million in total. Life Time contends that its policy covers $1 million in coverage per facility and provides up to $350 million in coverage for all 150 locations.

Fountain Enterprises, which is a franchisee of Anytime Fitness, filed a lawsuit in June 2020 against their insurance company, Markel Insurance, for denying their BI claims. Markel insures all of the 4,500 Anytime Fitness franchisees in the United States, according to an article by Property Casualty 360, and the suit seeks to represent all of them. Fountain Enterprises filed its claim on April 18, 2020, and Markel denied the claim on April 23, 2020. The plaintiff alleges that the quick denial shows that the insurer did not thoroughly review the policy or the BI claim, causing a breach of contract and violating the duty of good faith and fair dealing.

In November, a judge in another case filed by an Anytime Fitness franchisee, Dime Fitness LLC, in the 13th Judicial Circuit Court of the State of Florida, ruled against Anytime Fitness, stating that the company did not make its case that property damage occurred because the company made the case in the lawsuit that its premises were not contaminated with COVID-19. Therefore, the judge said the losses were financial and would not meet the standards required for BI coverage.

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