Where medical centers sought coverage for COVID-related business losses under the biocontamination and decontamination costs provisions in their policy, their claims are dismissed. The provisions require changes to the nature of the insured property that necessitates either repair or replacement to restore to full functionality, and the COVID-19 virus does not and cannot cause such damage.
Plaintiffs operate medical centers in Virginia. On Jan. 31, 2021, they filed this suit against American Guarantee and Liability Insurance Company. Count One seeks a declaration that Zurich is obligated “to provide insurance coverage for the losses of Plaintiffs incurred from mid-March 2020 forward under the [interruption by communicable disease] endorsement, the Biocontamination Extension, and the Decontamination Costs coverage provision.” Count Two alleges breach of contract related to Zurich’s denials of coverage under all three cited provisions. Zurich has moved to dismiss the complaint.
With regard to the biocontamination and decontamination costs provisions, Zurich argues that, in the absence of “physical loss, damage or destruction” (as to the biocontamination provision) or “physical damage” (as to the decontamination costs provision), neither provision is implicated and plaintiffs have failed to state a claim for breach of those provisions. Zurich contends that the potential presence of the COVID-19 virus on surfaces in plaintiffs’ hospitals is not “physical damage” because the structural integrity of the insured premises is not altered in any way.
After review of the relevant contractual provisions, the court finds that the terms “physical loss, damage or destruction” and “physical damage” are not ambiguous, and that the potential presence of COVID-19 in plaintiffs’ facilities does not amount to “physical loss, damage or destruction” or “physical damage” of the insured property. Those terms require some change to the nature of the insured property that necessitates either repair or replacement to restore the property to full functionality. The COVID-19 virus does not and cannot cause such damage.
Likewise, the March 25, 2020, Executive Order did not cause “physical loss, damage or destruction” or “physical damage” to insured property. The overwhelming weight of authority favors this interpretation, and federal courts applying both Virginia and Tennessee law agree.
However, because the interruption by communicable disease provision does not have a requirement of physical loss or damage, and Zurich did not make an independent 12(b)(6) argument addressed to this claim, Counts One and Two will proceed on the interruption by communicable disease claim only.
Defendant’s motion to dismiss granted in part, denied in part.
Danville Regional Medical Center LLC v. American Guarantee and Liability Insurance Company, Case No. 4:21-cv-00012, Feb. 22, 2022. WDVA at Danville (Cullen). VLW 022-3-087. 18 pp.