Century 21 Sells $175 Million Covid Claim Insurers Won’t Pay

There’s an unusual asset up for grabs in Century 21 Stores’ going-out-of-business sale: a stake in its long-shot legal fight against insurers.

The New York department store company, which filed for bankruptcy in September, claims it’s owed more than $175 million from business interruption policies because Covid-19 devastated its operations, according to court papers. The claim is the most valuable possession that the doomed chain has left, and proceeds from selling it would help repay creditors after Century 21 closes for good.

Thousands of businesses across the U.S. — including more than a dozen professional baseball teams and an iconic Hollywood restaurant — began similar legal battles against insurers after the virus crushed the global economy this year. But insurance companies have mostly prevailed, arguing that diseases can’t cause the physical damage needed to trigger a payout, or pointing to clauses that exclude viruses.

Still, Century 21’s legal claim has found a buyer. Precisely who isn’t clear — lawyers for the chain have asked the bankruptcy judge to keep the identity a secret. The exact sale price wasn’t disclosed either, but the proceeds would be at least enough to pay off Century 21’s secured debt, which totaled more than $50 million at the time of the bankruptcy filing. A hearing is scheduled for Tuesday in New York.

Targets of Century 21’s lawsuit include units of Allianz SE, Great American Fidelity Insurance Co. and Liberty Mutual Insurance Co. Representatives for the companies either declined to comment or didn’t respond to messages.

“Insurers have been prevailing because the policy language is very clear,” Mark Friedlander, a spokesperson for the Insurance Information Institute, said in emailed comments. “Global pandemics are largely uninsurable. Business interruption insurance policies are intended to cover direct physical damage such as property losses caused by windstorms and fires.”

Policy writers in the industry got wind of the potential for losses after the SARS outbreak in 2003, which prompted many carriers to add specific virus waivers to their contracts.

Century 21 said in court papers that the company had planned its insurance coverage carefully, paying more than $1.4 million a year in premiums to about a dozen insurers for protection such as property damage, business interruption “and other situations in which access to the vicinity of the debtors’ stores is restricted.”

One carrier actually paid the company’s pandemic claim. The rest refused, and Century 21 blamed them for its September bankruptcy filing. It’s seeking payment of more than $175 million covering March through May 31, and it might ask for more to cover later months as well as consequential damages.

The bankruptcy case is Century 21 Department Stores LLC, 20-12097, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).