Federal judge in Roanoke pointedly questions attorneys on both sides of Carilion insurance case

A federal judge put pointed questions Tuesday to an insurance company that has not paid a claim filed by Carilion Clinic, which says it lost more than $150 million to the COVID-19 pandemic.

Lawyers for American Guarantee and Liability Insurance Co. are asking Judge Michael Urbanski to dismiss the lawsuit, arguing that the deadly virus did not cause the type of physical loss or damage covered by its policy.

As evidence of that, attorney Gabriela Richeimer argued during a virtual hearing that Carilion did not close any of its nine hospitals in Southwest Virginia during the height of the outbreak.

"Isn't that asking for the impossible? You want the hospital to close? " Urbanski interjected. "Why did you even write this policy? It makes no sense."

But the judge, who will issue a written decision later, also raised questions to Carilion that went deep into a 300-plus page property insurance policy that AGLIC said was intended to cover the likes of fires, floods and hurricanes.

Carilion's attorney, Scott Greenspan of New York, argued that any confusion should benefit the health care system, which paid $874,863 a year for a policy that he described as a Rolls Royce version that turned out to be a Yugo.

"This policy is at a minimum ambiguous in this provision, and this is a policy they wrote," Greenspan said. "If it's ambiguous, the ambiguity is construed in favor of the covered. This is not our problem, it's their problem."

The pandemic has caused a flood of legal battles between insurance companies and their policyholders, and Urbanski noted that he is seeing cases from around the country.

Richeimer said that a majority of the opinions have gone AGLIC's way, and included dozens of them in legal briefs filed in U.S. District Court in Roanoke.

But in two recent cases, judges denied motions to dismiss lawsuits that were similar to the one filed by Carilion. Urbanski asked why he should not follow the example of U.S. District Judge Catherine Eagles of North Carolina, who recently ruled that a health care system had adequately alleged physical losses that were not excluded by AGLIC's policy, at least in the case's early stages.

"She's really smart," Urbanski said. "I have a great deal of respect for her opinions."

If Urbanski were to deny the motion to dismiss, it would allow parties to obtain more information through the discovery process. A trial in the case is currently set for September 2022.

Carilion filed suit in March, saying that AGLIC had failed 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 21,000.

AGLIC technically has not denied the claim, explaining that Carilion failed to submit all the information it needs to make a decision. Carilion says the insurance company is stalling, and that it was forced to go to court in order to meet a filing deadline.

In court papers, AGLIC - a U.S. subsidiary of Zurich Insurance Co. - says that its policy was never intended to cover the coronavirus.

The virus "harms people - it does not harm property," the company maintained. "A virus does not require property to be repaired, rebuilt or replaced. A virus can simply be wiped off the surface with disinfectant, so there is no physical damage."

Carilion counters that COVID-19 was an ever-present risk in its facilities, and that new patients brought the illness in faster than it could combat it. The disputed coverage expired June 30, 2020, and it was not clear Tuesday if the nonprofit was still doing business with the insurance company.

Also unknown was whether Carilion suffered financial losses from the pandemic in addition to what it is seeking from AGLIC, or whether it was covered by any other insurance policies or received aid from the state or the federal government to cover its losses.

Carilion has declined to answer those questions, saying it cannot comment on active litigation.

In asking that the lawsuit be dismissed, AGLIC argues that the harms suffered by the healthcare system - such as complying with government orders to close or limit capacity to some facilities and being forced to sanitize surfaces - do not rise to the level of actual damage to its property.

"Plaintiffs fundamentally misconstrue this property policy as an all-purpose guarantee for their business as they (and thousands of other businesses like them) weathered the COVID-19 pandemic and associated closure orders," the company wrote in court papers.

The policy excludes losses caused by contamination, which includes any "poison, toxin, pathogen or pathogenic organism, bacteria, virus, disease causing or illness causing agent, fungus, mold or mildew," AGLIC says.

However, language in the document includes coverage for an interruption in business caused by a communicable disease, which Carilion argues applies to the pandemic. But the limit for recovery under that provision is far less, according to AGLIC.

At the beginning of Tuesday's hearing, Richeimer said she was looking forward to answering any questions from Urbanski. The judge obliged, peppering both parties with inquiries for the next 2 1/2 half hours.

"You started this," he said lightheartedly to Richeimer at one point. "And all you've done is encourage me."