The health care company said that it sufficiently alleges in its suit that coverage under a policy issued by Zurich insurance subsidiary American Guarantee and Liability Insurance Co. is warranted because it incurred losses after suspending its operations during the pandemic, and that the policy does not require it to show that the virus caused a tangible, physical alteration to its property.
Winston Salem, North Carolina-based Novant said that the insurer wrongfully attempts to isolate the key phrase "direct physical loss or damage to" in an effort to limit coverage and that the court should not be persuaded by American Guarantee's reliance on four COVID-related cases that backed its interpretation of the phrase. Novant said that the insurer's interpretation is just one reading of the phrase and that ambiguity should be construed in favor of coverage.
"In sum, wherever one looks to determine what 'direct physical loss or damage to' means — the policy, dictionary, North Carolina law, or legal decisions in other jurisdictions — the answer is clear: The policy covers loss or inability to use property for its intended use that is caused by an external substance regardless of any visible structural change," Novant said.
The Zurich subsidiary asked the court to toss Novant's suit on June 7, arguing that COVID-19 does not cause the type of property damage covered by the policy.
"The COVID-19 virus is a force which affects and infects the human body, not property," the insurer said.
In addition, the insurer said it properly denied coverage under the policy's contamination exclusion.
Novant alleged in its April lawsuit that it suffered hundreds of millions of dollars in pandemic-related losses because it was required to cancel elective procedures and implement expensive preventative measures to curb the spread of the virus. The health care company contended that the Zurich subsidiary's refusal to provide coverage breached the terms of a policy that contains a $1.5 billion cap for property damage and time element loss.
Novant maintained in Monday's opposition brief that its properties were damaged by the virus and that the presence of COVID-19 at its properties is not theoretical because some patients, vendors, visitors and employees tested positive for the virus. The company also said there was a "continuous reintroduction" of the virus at its locations based on the nature of its business.
The health care company said that American Guarantee's attempt to refute its allegations "violates Motion to Dismiss 101."
As for the contamination exclusion, Novant argued that it is not applicable because the Zurich subsidiary removed the word "virus" from the exclusion's scope via an endorsement. In any event, the health care company said, that provision excludes coverage only for costs stemming from contamination — such as money spent to clean and disinfect a surface — and not financial losses like Novant's.
Counsel for Novant did not immediately respond to a request for comment on Tuesday.
Counsel for the insurer said they do not comment on pending litigation.
Novant is represented by Syed S. Ahmad, A. Todd Brown Sr., Lawrence J. Bracken II, Rachel E. Hudgins and Casey L. Coffey of Hunton Andrews Kurth LLP.
The insurer is represented by William A. Bulfer and Daniel T. Strong of Teague Campbell Dennis & Gorham LLP.
The case is Novant Health Inc. v. American Guarantee And Liability Insurance Co., case number 1:21-cv-00309, in the U.S. District Court for the Middle District of North Carolina.
Additional reporting by Melissa Angell. Editing by Rich Mills.
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