5th Circuit: Chubb Must Cover SXSW in Suit Over Cancelled 2020 Festival

The 5th Circuit Court of Appeals ruled that Chubb must cover restitution claims paid to ticket holders of the 2020 South by Southwest film festival cancelled due to COVID-19.

A three-judge panel reversed a summary judgment in favor of Federal Insurance Company (Chubb), finding that its policy exclusions did not preclude coverage to SXSW Ltd. over a class action lawsuit brought by festival pass holders.

The 2020 edition of SXSW was cancelled on March 6 by the city of Austin amidst the spread of the coronavirus. In April, two ticket holders, the Bromley Plaintiffs, filed a class action lawsuit against SXSW on behalf of themselves and all other people who purchased wristbands, tickets, passes, and badges to the festival. The Bromley Plaintiffs asserted claims for breach of contract, unjust enrichment, and conversion.

SXSW settled the case in February 2022. The festival offered class members $30 in addition to benefits from its prior deferral offer. In total, SXSW paid more than $1 million to settle the litigation.

SXSW sought to shift the cost on to its insurer. Chubb notified SXSW in May 2020 it would not defend or indemnify for the Bromley litigation. SXSW sued Chubb in October 2021 in federal court, alleging breach of contract, breach of implied covenant of good faith and fair dealing, and violations of the Texas Insurance Code. SXSW sought a declaratory judgment that Chubb owed the festival duties to defend and indemnify the Bromley suit.

A magistrate ruled that exclusions under SXSW’s policy with Chubb excused the insurer from the litigation, to which a district court agreed.

On appeal, the 5th Circuit found that the policy’s contract exclusion under entity liability coverage does not apply, nor does the professional services exclusion.

Though the policy clears Chubb of liability that arises out of a contract, the plaintiffs’ claims were not limited to breach-of-contract. Because the claims for unjust enrichment and conversion not arise from contracts, at least one claim in the lawsuit survives the contract exclusion, the panel found.

The court also rejected the professional services exclusion, finding that “professional services” does not extend to the action of SXSW providing refunds to ticket holders. The panel said it was persuaded by the Texas Supreme Court’s repeated instructions to “strictly” construe exclusions against the insurer.

The panel also dismissed Chubb’s contention that a restitution claim is not a covered loss.

“Texas state courts have never held that restitution is per se uninsurable,” the panel’s opinion says. “Restitution might be uninsurable when the receipt of funds was unlawful … but there is no suggestion that SXSW acquired the plaintiffs’ money unlawfully. Accordingly, Federal’s argument about covered loss fails.”

The court remanded the case for further proceedings consistent with its opinion.

Photo: Attendees crowd the Austin Convention Center during the South by Southwest Film and Interactive Festivals on Saturday, March 11, 2023, in Austin, Texas. (Photo by Jack Plunkett/Invision/AP)