Property Insurance Policy Does Not Cover COVID Losses, Federal Judge Rules

In a Feb. 4 decision, U.S. District Judge Michael Urbanski dismissed the bulk of a lawsuit the Roanoke-based heath care system had filed against American Guarantee and Liability Insurance Co.

At issue was whether the virus — which has killed more than 900,000 people nationwide and caused untold financial losses for households and businesses — inflicted the kind of harm covered by Carilion's policy.

Urbanski granted a motion to dismiss the lawsuit filed by AGLIC, which argued that its insurance was meant for damage caused by the likes of fires, floods and hurricanes.

"While the virus and COVID-19 have undoubtedly caused Carilion Clinic to suffer losses in terms of facility shutdown, reduction of medical procedures, and increased costs, the losses are not direct physical losses covered under the property insurance policy," the judge wrote.

Although the 40-page opinion kept one part of the disputed policy alive, a clause that pays for interruption of business by communicable disease, that provision is limited to a $1 million payout.

Carilion spokeswoman Hannah Curtis issued a statement Monday evening. "We are aware of the ruling and are reviewing it. Because this remains an active legal matter, Carilion is unable to comment further on the proceedings."

The pandemic has unleashed a flood of legal battles between property insurance companies and their policyholders — from hospitals to restaurants to fitness clubs — in state and federal courtrooms across the country.

Most courts have ruled in favor of the insurance companies, Urbanski wrote. On appeal, eight of the 12 federal appellate courts have held that COVID is not applicable to insurance policies that cover direct physical loss or damage to buildings or other property.

In urging the judge "not to follow the herd," attorneys for Carilion have argued that the health care system's experiences were more in line with decisions that have gone the other way.

But there was some physical loss of property in those cases, "whether it be methamphetamine, gasoline, ammonia, or asbestos contamination, a rock fall or failed drainpipe," Urbanski wrote.

"Here, in contrast, Carilion claims no infirmity associated with its property. Rather, the claimed cause of loss is the global pandemic."

Carilion filed suit last March, saying that AGLIC had "turned its back" and refused to cover losses amounting to more than $150 million, much of it from elective surgeries that were postponed and patients who stayed home for months rather than seek treatment for more minor ailments.

The health care system, which treats nearly 1 million people in Southwest Virginia, was also forced to impose costly safety measures against a virus that infected more than 1,300 employees in a workforce of about 13,000, it said when the suit was filed.

Carilion says it paid $874,863 a year for a policy that failed to deliver.