COVID-19 Hospital Seeks Coverage Under Health Care Endorsement in Property Policy

BOSTON, MA – A recent ruling by the 1st U.S. Circuit Court of Appeals has significant implications for hospitals seeking coverage for losses incurred while complying with government decontamination orders during the COVID-19 outbreak. Lawrence General Hospital, a nonprofit community hospital in northeastern Massachusetts, sought coverage under a health care endorsement in its property policy for losses allegedly stemming from the pandemic. The Court’s decision could impact insurers that include communicable disease coverage as a rider to their property insurance policies.

At the peak of the pandemic, Lawrence General had an “all risk” policy with Continental Casualty Co. that provided up to $563 million in primary coverage for “direct physical loss of or damage to property,” which included business interruption losses. The hospital also purchased a health care endorsement that included “disease contamination coverage” triggered by a government decontamination order for up to $1 million per occurrence.

The hospital made claims under both provisions, contending that chemical bonding of SARS-CoV-2 particles with various surfaces amounted to property damage requiring costly and intense remediation efforts falling within its primary coverage. However, the insurer denied both claims, leading to a subsequent lawsuit that was ultimately decided by the 1st Circuit Court of Appeals.

The court ultimately ruled in favor of Lawrence General in part, rejecting the insurer’s argument that the state of emergency did not amount to a mandatory “decontamination order.” The ruling highlighted the importance of purchasing coverage tailored to the particular risks facing a business, and of carefully studying a policy to make coverage arguments based on specific policy wording.

The hospital’s main campus is in Lawrence, but it operates various other ambulatory surgery centers, family outpatient centers, outpatient rehabilitation centers, and laboratories. As the coronavirus spread across the United States in early 2020, Lawrence experienced among the highest rates of COVID infection in the commonwealth, and Lawrence General served as the main treatment facility in the region.

According to the hospital, it suffered physical loss of and damage to its property due to the process of “adsorption,” which allegedly entailed “continuous reintroduction” of SARS-CoV-2 particles that created a chemical bond with the surface of objects they landed on, causing structural changes to the objects. The contamination forced the hospital to undertake multiple remediation efforts, including enhanced cleaning, extensive testing, cleaning, and maintenance of HVAC systems, and sterilization or disposal of various items.

The court’s decision is likely to have broader implications for insurers and policyholders in similar coverage disputes, as it provides clarity on the interpretation of policy language and specific policy endorsements. It also sheds light on the challenges faced by businesses and institutions in navigating insurance coverage for losses incurred during the COVID-19 pandemic.