By Eli Flesch

Law360 (May 12, 2021, 9:57 PM EDT ) The Continental Casualty Co. won't have to pay a Texas hospital for pandemic losses after a federal judge found that the hospital didn't suffer the kind of physical loss or damage required for coverage under its policy.

Government orders forcing the Saint Camillus Medical Center to cancel elective surgeries didn't result in insurable damage to the Dallas-Fort Worth-area hospital, U.S. District Judge Ada Brown said Tuesday. Her decision to dismiss the case is one of the latest losses for a Texas business seeking to recoup pandemic losses from its insurer.

Noting that "physical loss" and "damage" were not terms defined in Saint Camillus' policy, Judge Brown relied on Fifth Circuit interpretations, which have held that the terms suggest the distinct and demonstrable physical alteration of a property.

"The policy term 'physical loss of or damage to' is unambiguous," Judge Brown wrote in her opinion. "That the provision contemplates property damage requiring rebuilding, repair, or replacement indicates the damage must be tangible," she added.

In its petition for coverage, Saint Camillus accused Continental of having no intent to fairly judge its claim for coverage. The hospital argued that government orders made it lose the use of its property, putting Continental on the hook for lost business income.

Medical centers like Saint Camillus were ordered to suspend surgeries deemed not immediately necessary under a state order last March. The order was designed to make sure hospitals could meet COVID-19 capacity and equipment needs.

"Governmental restrictions do not constitute a direct physical loss of or damage to property," Continental said in its bid to toss the suit. "The plain, ordinary meaning of the word 'physical' is that the loss or damage at issue must be 'tangible' or 'material.'"

In finding that Saint Camillus was not entitled to coverage, Judge Brown also cleared the insurer of denying the hospital's claim in bad faith, namely its contention that the insurer misrepresented what was covered under its policy.

Policyholders in Texas have been fighting uphill battles in pandemic coverage cases, reflecting the trend of the nation at large. The majority of such cases have been tossed, according to judicial data from the University of Pennsylvania Carey School of Law.

In January, a Texas federal judge threw out a dentist's suit seeking coverage for losses she said she sustained because of COVID-19 shutdown orders. And in April, a federal magistrate judge recommended tossing a lighting company's suit against Cincinnati Insurance Co., saying its policy didn't cover economic losses without property damage.

That same month, in another win for Continental, a Texas federal judge dismissed a local spice and tea room's suit against it, saying the shop couldn't show a physical loss was caused by shutdown orders to curb the coronavirus pandemic.

Counsel for the parties did not immediately respond to requests for comment.

Continental is represented by David H. Timmins and Catherine A. Curtis of Husch Blackwell LLP.

Saint Camillus is represented by Clay Miller, Josh Birmingham and Alexandra V. Boone of Miller Weisbrod LLP.

The case is PSG-Mid Cities Medical Center LLC v. Jarrell et al., case number 3:20-cv-02477, before the U.S. District Court for the Northern District of Texas.

--Additional reporting by Shawn Rice, Daphne Zhang, and Mike Curley.

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