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Best of Howard Stutz

Gaming Guru

Howard Stutz

Pinnacle Reopens New Orleans Casino; Sets for Battle with Insurance Company

3 October 2005

Las Vegas-based Pinnacle Entertainment on Friday became the first gaming operator to reopen a hurricane damaged casino in New Orleans, but a dispute with its primary insurance carrier could affect redevelopment plans for the company's destroyed casino in Biloxi, Miss.

Pinnacle, which had three of the company's eight casinos closed because of Gulf Coast hurricanes over the past month, said its primary insurance carrier believes damage at the Casino Magic in Biloxi caused by Hurricane Katrina on Aug. 29 was the result of flooding rather than a weather catastrophe. The company, Westport Indemnity Corp., plans to limit payments as a result.

Hurricane Katrina destroyed or damaged 16 casinos along the Gulf Coast when the storm washed ashore carrying 145-mph winds and an estimated 30-foot storm surge. Last weekend, Hurricane Rita shut down operations at six casinos in Lake Charles, La., including Pinnacle's L'Auberge du Lac, a $365 million hotel-casino that opened in May. The property suffered minimal damage and the company hopes to reopen the resort once power and other services are restored.

Casino operators, including MGM Mirage, Harrah's Entertainment and Boyd Gaming Corp., have said they are expecting insurance to cover nearly all the costs of property damaged by the hurricanes.

Pinnacle executives have said the company wants to rebuild its Biloxi casino, which had a 49,000-square-foot casino and about 1,000 employees.

In Biloxi, the casino barge from Pinnacle's Casino Magic was lifted from its moorings and washed across Highway 90 while the property's other amenities were heavily damaged.

In a form 8-K filing with the Securities and Exchange Commission, Pinnacle said its insurance policies provide for $400 million of property damage and business interruption coverage for each of the recent hurricanes, Katrina and Rita, which should be considered "weather catastrophe occurrences."

Under those claims, coverage is subject to a 3 percent deductible.

Westport, a unit of GE Insurance Solutions that has the first $25 million layer of coverage on Pinnacle's property, has advised the company it believes Hurricane Katrina was a "flood occurrence," which is subject to a 5 percent deductible. The company said flood claims under the policy are limited to $25 million a year.

Pinnacle said its policy provides for $100 million of flood coverage with an additional $50 million of excess flood coverage.

Analysts said the filing represents the first public disagreement between casino operators and insurance carriers following the hurricane.

Pinnacle's insurance contains multiple layers of coverage underwritten by 11 carriers or syndicates.

In its filing, the company said it did not know whether the other carriers would take the same position as Westport. But Pinnacle said it "intends to vigorously oppose any effort by any of its insurance carriers to limit their obligations under the policies by improperly characterizing the losses sustained by the company."

Pinnacle reopened its Boomtown New Orleans casino, which is in the West Bank area across the Mississippi River from downtown and approximately 15 minutes from the French Quarter.

Hurricane Katrina shut down four New Orleans-area casinos, including Harrah's New Orleans and the Treasure Chest, which is operated by Boyd Gaming. Boomtown is the first to reopen.

The riverboat-style casino, which has a 30,000 square-foot casino and three restaurants, received minimal damage from Hurricane Katrina and the surrounding area suffered very little in the way of flooding. However, the evacuation of New Orleans caused business to be disrupted.

In the aftermath of Hurricane Katrina, Boomtown was used as a base for utility crews working to restore electricity to the area. The company has been providing food and shelter to the crews, as well to law-enforcement and relief workers in the area.

"We have great faith in the future of New Orleans, and we're pleased to be able to open our doors again to our employees, our customers and our neighbors," Pinnacle Chairman Dan Lee said in a statement. "We're determined to do everything we can to help the region and our employees rebuild."