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Law360 (March 19, 2021, 9:59 PM EDT ) Carilion Clinic and a slew of affiliated hospitals in Virginia, West Virginia, Tennessee and North Carolina have sued a Zurich unit, saying the insurer should pay for their over $150 million in pandemic losses under their $1.3 billion policy after more than 1,300 of its employees were diagnosed with COVID-19.
The health system told a Virginia federal court Thursday that it paid almost $1 million in premiums for its $1.3 billion property damage and business interruption coverage, but American Guarantee & Liability Insurance Co. refused to honor its obligation to provide coverage after over 10% of its employees contracted the virus.
The Roanoke, Virginia-based health organization said its policy does not preclude losses caused by viruses or pandemics, and with its employees infected with COVID-19 spreading airborne droplets containing the virus onto its premise, there is no question that its properties suffered damage covered by the policy. So there is no reason why it should not get coverage, it maintained.
Carilion said it is the largest health system in Virginia's Blue Ridge and Southwest regions, providing care to 1 million individuals annually. The system operates seven hospitals, employs over 13,000 people and contributed more than $3.2 billion and nearly 24,000 jobs to Virginia's economy in 2018, according to a University of Virginia study
The health system said it paused all non-emergency procedures from March to May last year, incurring more than $150 million in losses. After it filed an insurance claim last March, the system said AGLIC never visited or sent an adjuster to properly investigate its assertion of loss as required by the policy. Instead, the complaint alleges, the insurer told the company the coronavirus does not cause "a direct physical loss or damage," which AGLIC called a precondition for coverage.
"Over 1,300 Carilion Clinic employees have reported that they contracted COVID-19 since March of 2020," the system said. "This is direct proof that the Coronavirus and COVID-19 were and are present in Carilion Clinic's facilities and caused Carilion Clinic to sustain a direct physical loss of or damage to its property."
Given the high percentage of asymptomatic cases and the shortage of testing kits at the beginning of the pandemic, the clinic said, "it is certain" that the actual number of infected employees was far greater than the known cases.
Carilion alleged its property experienced direct physical loss or damage through the virus's actual presence on the premises of its hospitals and practices, its losing use of property due to limited operation ordered by state-mandated closures, and the extra costs to ensure social distancing and disinfect property surfaces.
In the complaint, the system said it specifically bought an "all-risk" Zurich EDGE policy to cover unexpected risks, claiming Zurich has marketed its EDGE policy as providing wide-range coverages for all kinds of losses.
According to the suit, Zurich told California and Oregon insurance regulators in 2008 in an explanatory memorandum that the EDGE policy offers "our Insured's [sic] a very broad and flexible policy," but the insurer said in a press release in May 2020 that its policies issued in the U.S. exclude virus losses.
Zurich has been slammed with policyholders' lawsuits seeking coverage under their hundreds of millions of dollars worth of policies. Earlier this month, Detroit Entertainment LLC, the owner of Motor City Casino Hotel, told Michigan state court that its Zurich affiliate insurer owes it $270 million for COVID-19-related losses which have triggered its $750 million policy. The hotel, like Carilion, is represented by Pillsbury Winthrop Shaw Pittman LLP.
In late February, over a dozen health care service companies told an Illinois federal judge that Zurich must cover their pandemic-related losses. Seven health care companies said they hold total policy limits of $450 million per occurrence, and five said their overall per occurrence policy limits are $250 million with Zurich.
On Thursday, Carilion said its insurance also covers revenue loss resulting from "interruption by communicable disease," exactly what it experienced in its network hospitals and health practices. Although the policy contains a contamination exclusion, the policy's "Virus Deletion Endorsement" specifically removed "viruses and disease or illness-causing agents" from the exclusion, it contended.
The clinic is alleging breach of the insurance contract, seeking a declaration that its losses are covered under the policy and demanding damages to be determined in a jury trial.
Representatives for the parties could not be immediately reached for comment.
Carilion is represented by Joseph D. Jean, Scott D. Greenspan and Janine M. Stanisz of Pillsbury Winthrop Shaw Pittman LLP.
Counsel information for the insurer was not immediately available.
The case is Carilion Clinic et al. v. American Guarantee & Liability Insurance Co., case number 7:21-cv-00168, in the U.S. District for the Western District of Virginia.
--Additional reporting by Shawn Rice. Editing by Michael Watanabe.
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