A federal judge has sided with Novant Health Inc. in a lawsuit that addresses reimbursement claims for COVID-19 expenses.
Judge Catherine Eagles of the Middle District of N.C. issued an opinion Thursday in the complaint involving Novant and American Guarantee and Liability Insurance Co.
Much of the lawsuit focuses on a dispute between Novant and the insurer over what should be considered as legitimate damages from COVID-19.
Novant claims the insurer, a U.S. subsidiary of Zurich Insurance Group Ltd., has breached the COVID-19-related insurance policy that the health system took out to cover expected and unexpected expenses and losses.
There was a liability limit of $1.5 billion, and Novant said it paid $2.21 million in premium costs during the coverage period of Feb. 1, 2020, to Feb. 1, 2021.
Novant has reported at least $470 million in pandemic-related expenses and losses just from March through June 2020. Novant said all of its 15 hospitals and 700 operations have been affected directly by COVID-19.
Following months of inaction and claim denials by American Guarantee, Novant filed a lawsuit March 10 in Forsyth Superior Court. The lawsuit was transferred to federal court at American Guarantee's request on April 16.
Eagles ruled that Novant "has adequately alleged physical losses and (American Guarantee) has not established at this stage that the virus exclusion applies."
Novant declined comment Monday on Eagles' ruling.
According to the 198-page lawsuit, Novant alleges "Zurich failed to satisfy numerous obligations to Novant" and "failed to fully investigate Novant's claim."
"It is one thing to disagree about how policy terms should be interpreted, but mispresenting what the terms are is quite another," Novant's lawsuit said.
The insurer responded by claiming that the policy Novant acquired "provides no coverage for these alleged losses under the relevant coverage provisions that require 'direct physical losses of or damage' to property.
"Through this lawsuit, plaintiff seeks to use the devastating COVID-19 pandemic to retroactively re-write this insurance contact, so as to manufacture enhanced benefits for which the parties did not bargain.
"The COVID-19 virus is a force which affects and infects the human body, not property."
The insurer claimed it "has not yet received the requested information from Novant necessary for (it) to determine coverage. As (it) has not yet accepted or denied (interruption by communicable disease) coverage, there is no ripe controversy."
Eagles denied American Guarantee's motion to dismiss Novant's claim. writing that the insurer "cannot complain when an insured complied with policy language requiring an insured to bring suit within one year of a loss."
"The court is not ruling that the virus exclusion does not apply, but in view of the contradictory language in the policy, (the insurer) has not met its burden at this stage of the proceedings."
Following months of inaction and claim denials by American Guarantee, Novant filed its lawsuit in which it claims the insurer "acted in bad faith" and violated North Carolina's Unfair and Deceptive Trade Practices Act.
Novant is requesting the federal court to triple the amount of compensatory and punitive damages.
Novant said the insurer's "investigation solely consisted of excessive and repetitive document requests at a time when Novant's operations were under an unparalleled strain due to the urgent challenges of COVID-19 patient care."
The result, according to Novant, was sending the system "down a path of futile pursuit when Novant - and the employees and patients which rely on it - could least afford it."
Novant said its losses were impacted by the state-mandated suspension of "thousands of elective surgeries" in the March-May 2020 time period in order to reserve inpatient beds for those infected with COVID-19. Novant said it still has not resumed full offerings of those services.
There was at times up to an 80% decline in people seeking care at its emergency departments and urgent-care clinics.
Novant has sought reimbursement for physical infrastructure expenses, such as creating physical barriers to screen patients, adding vacuum shrouds during surgical procedures likely to generate aerosols, establishing remote triage and respiratory assessment stations, and optimizing air-handing and ventilation systems.
"Due to the risks associated with COVID-19, physical alteration of property is necessary to render the property safe from COVID-19 and to return the property to a safe and usable state," Novant said in the lawsuit.
"Plaintiff also alleges that it has incurred expenses over and above its normal operating costs related to medical equipment and supplies, staffing and staff support, work-from-home technology, and measures taken to support social distancing at its locations," according to the lawsuit.
Novant claims that the all-encompassing impact of COVID-19 on its facilities should have triggered the policy's "all risks" coverage, and that it continues to experience what it calls a "time element loss" from not being able to return to full operations.
Novant cited as examples "increases in patients seeking care for respiratory illnesses that could be COVID-19, deferring and delaying non-COVID-19 care, disruptions in supply chains, fluctuations in facilities' occupancy, absenteeism among staff because of illness or caregiving responsibilities, and increases in mental health concerns."