Huntington Ingalls lost millions because of COVID. So it filed a lawsuit. [Daily Press]

Huntington Ingalls Industries is suing some of the world’s biggest financial firms to recover losses due to COVID-19 at its shipyards, including Newport News Shipbuilding.

The insurers maintain that, because the shipyards didn’t suffer physical damage, their coverage won’t kick in.

The company is suing in Vermont because that’s where its risk management subsidiary is located, and where all 33 of the insurers it is suing do business. Superior Court Judge Robert Mello ruled a workplace hit by COVID-19 could be said to suffer physical damage, but he concluded that the insurers don’t have to pay HII because its Newport News and Mississippi shipyards didn’t close.

Huntington Ingalls appealed to the Vermont Supreme Court.

“This holding puts (HII) in a classic ‘heads you win, tails we lose’ scenario,” the company argued in its appeal.

“Because HII was able to continue operations, although at a reduced capacity, by spending large sums to mitigate its (and its insurers’) losses and protect its employees, the continued operations establish that there is no loss or damage and thus no coverage,” HII said.

“Had HII closed its doors, there would have been no insured loss or damage because, with no employees or customers present, there is no pervasive, long-term presence of the virus. In both cases, there is no coverage for the losses that HII paid to insure.”

The company last year estimated the impact of delay and disruption just for 2020 at $61 million. Its lawsuit said the aftershocks from the pandemic caused delays and disruptions could be felt for years.

The pandemic kept thousands of HII’s 42,000 employees away from work, threw off schedules for construction and overhaul of aircraft carriers and submarines at Newport News and led the company to spend millions on cleaning and equipment, tools and materials to maintain as much social distancing as possible. More than 8,300 HII employees tested positive for the virus since March 2020.

Insurance companies, and their trade associations have stated from the start of the pandemic that COVID-19 related losses are not intended to be covered under their business interruption policies – the coverage that kicks in when a business can’t operate normally, the National Association of Insurance Commissioners, an association of insurance regulators, has said,

“The insurance industry has asserted that the BIEE (business interruption) coverage does not apply to COVID-19 related losses because the slowdown or cessation of business operations has not been the result of direct physical loss,” the NAIC said.

Within days of the first reported US cases in January 2020, insurance brokers and claims management firms were advising that claims for losses due to outbreaks of disease or disruption to supply chains were seldom paid.

“The presence of an infectious agent or communicable disease at a location where there is covered property generally will not mean that property has suffered “physical loss or damage” under your policy,” said a March 2020 notice from Chubb Ltd, one of the firms named in the lawsuit.

Insurers have taken that position whether policies specifically exclude coverage when the interruption is caused by a virus, language that became a standard addition about 15 years ago.

Huntington Ingalls said its policies provided “all risk” coverage, and so do not exclude disruption caused by an outbreak of virus.

In rejecting HII’s claim, Judge Mello cited six recent cases from federal courts in Vermont, New York, Pennsylvania, Missouri and Texas as well as a Pennsylvania state court ruling holding with insurers that COVID-19 did not cause the kind of loss that triggered claims payments.

“At all times the Plaintiffs (HII) have remained in operation, albeit at reduced capacity. This fact indicates that Plaintiffs did not suffer a loss of property as that term is commonly understood, but instead suffered a non-covered loss of income,” Mello wrote.

Last month, a Connecticut state judge declined to dismiss a hotel chain’s lawsuit demanding that Zurich Insurance Group, another of the firms named in HII’s lawsuit, pay out for pandemic-caused losses, the journal Business Insurance reported.

Zurich “claims that there is nothing ‘physical’ about the loss or damage flowing from the COVID-19 virus,” the ruling said. “But can this merely be asserted to become true?”

In August, the same judge ruled that Mashantucket Pequot Tribal Nation could recover up to $2 million in pandemic-rated losses, out of more than $76 million of losses and cleanup costs at its casino, Business Insurance reported.

Dave Ress, 757-247-4535, [email protected]

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