Hospital argues that the coronavirus causes property damage
A hospital alleged the virus 'physically altered and damaged' its facilities in a fight with the insurer for coverage.
A Connecticut hospital received a grammar lesson from a federal judge in his decision to dismiss the institution’s lawsuit against its insurer that sought coverage for property damage associated with COVID-19.
The Connecticut Children’s Medical Center and a subsidiary filed the suit in U.S. District Court in New Haven on March 5, 2021. Its property insurer, Continental Casualty Co., and its parent company, CNA Financial Corp., were the defendants.
U.S. District Judge Jeffrey A. Meyer granted the defendants’ motion to dismiss the case, saying the plaintiffs “do not explain how it is plausible to conclude that this amounts to ‘damage’ to the property.”
The judge sided with a decision from the Seventh Circuit that said “the words ‘direct physical’ are most sensibly read as modifying both ‘loss’ and ‘damage,’” meaning that simply being deprived of one’s use of property does not constitute loss.
“Because the terms ‘loss’ and ‘damage’ are not redundant, there is no reason to adopt an extravagant interpretation of the term ‘direct physical loss’ to mean a functional ‘loss of use’ of one’s property,” Meyer wrote.
In the complaint, Connecticut Children’s Center accused the defendants of breach of contract and breach of the implied covenant of good faith and fair dealing by failing to admit coverage for insurance claims the plaintiffs filed.
Starting in March 2020, the plaintiffs suspended routine operations and elective surgeries, causing them to lose business income, according to the complaint.
Their policy does not exclude or limit coverage for losses caused by viruses, pandemics or communicable diseases, the complaint said. Also, the policy stated that “reasonable and necessary extra expenses … in order to continue as nearly practicable the normal operation of the insured business” will be covered.
The plaintiffs sought a declaratory judgment that the defendants were obligated to provide coverage for business interruption loss, extra expenses and disease contamination expenses, along with compensatory damages, interest, attorney fees and punitive damages.
The defendants requested dismissal, claiming the policy does not cover the losses claimed.
Meyer wrote that Connecticut law interprets the terms of an insurance policy as it would a contract. If the terms of the policy are clear and unambiguous, the language of the policy must be enforced “in accordance with its natural and ordinary meaning.” However, if the terms are ambiguous, the policy must be construed in favor of the insured.
Because the policy does not define the term “direct physical loss or damage,” Meyer turned to Black’s Law Dictionary, which defines “physical” to mean “something that is or relates to a tangible object” and “loss” to mean “an undesirable outcome or a risk, or the disappearance or diminution of value.”
The plaintiffs claimed property damage because the virus is “spread through droplets of different sizes, which can be deposited on surfaces or objects,” which they said “physically altered and damaged” their facilities.
Meyer rejected that claim, citing Cosmetic Laser v. Twin City Fire Ins., in which Connecticut Chief U.S. District Judge Stefan R. Underhill “reasoned that the policy terms ‘direct physical loss or physical damage’ required some form of physical or structural alteration to the policyholder’s property in the form of a perceptible harm and with observable, tangible effects.”
Under the disease-contamination provision of the policy, the plaintiffs claimed coverage for costs that were a result of orders by Gov. Ned Lamont and the Centers for Disease Control and Prevention.
“But the problem is that the plaintiffs do not cite any particular order that required them to evacuate or decontaminate any of their locations,” Meyer said.
The judge entered judgment in favor of the defendants.
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