Ruling: Carilion can't claim COVID losses Carilion's property insurance policy does not cover COVID losses, Roanoke-based judge rules

Carilion Clinic cannot recover nearly all of its losses from the COVID-19 pandemic, which exceed $150 million, from its property insurance carrier, a federal judge has ruled.

In a decision Friday, 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.

In oral arguments last October, attorney Scott Greenspan of New York described the insurance plan as a Rolls Royce model that turned out to be a Yugo.

Efforts to reach AGLIC through its parent company, Zurich Insurance Co., were unsuccessful.

In court papers, the company has argued that its policy was never intended to cover something like 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."

AGLIC had asked Urbanski to dismiss the lawsuit in its entirety But the judge let stand a claim that the company failed to honor part if its policy that provided up to $1 million for interruption of Carilion's business due to a communicable disease.

Maintaining that it never denied a claim, AGLIC says it was waiting on Carilion to provide the information it needed to make a decision. Carilion countered that the insurance company was deliberately stalling, and that it had to sue when it did to meet a filing deadline.

A September trial is scheduled for that part of the case.

It was not known Monday whether Carilion will appeal Urbanski's ruling. Such an appeal would go to the Richmond-based 4th U.S. Circuit Court of Appeals, which has yet to decide a COVID insurance claim.

Previously, Carilion has declined to say whether it was covered by any other insurance policies or received aid from the state or federal governments to offset the pandemic's toll.

The nonprofit has also declined to say, citing the pending litigation, whether it is still doing business with AGLIC. According to court documents, the disputed coverage expired June 30, 2020.