Massachusetts Hospital Wins COVID-19 Claim Under Disease Contamination Endorsement

A federal appeals court has ruled that a Massachusetts hospital is entitled to coverage for losses due to COVID-19 under a health care endorsement in its policy from Continental Casualty Co.

The First Circuit Court of Appeals concluded that Lawrence General Hospital (LGH) was subject to decontamination orders during the pandemic and thus has a legitimate claim for coverage under a health care endorsement it purchased that covers losses and costs incurred as a result of complying with government decontamination orders related to COVID-19.

The ruling reverses in part a dismissal of the LGH’s claims by a district court. The First Circuit remanded for reconsideration of the hospital’s claims under the endorsement.

However, in keeping with other COVID insurance rulings, the First Circuit rejected LGH’s companion claims that its other policy provisions for associated business-interruption losses and related expenses should also cover its losses due to COVID. The policy provided primary coverage of up to $563 million for “direct physical loss of or damage to covered property.”

The hospital tried to argue that the virus chemically bonded with its property, resulting in physical damage. But the First Circuit upheld the district court dismissal of these damage claims and affirmed a trio of cases (See Verveine, 184 N.E.3d 1266; SAS, 36 F.4th 23; Legal Sea Foods, 36 F.4th 29) already decided under Massachusetts law rejecting such theories of “direct physical loss of or damage to property” in the context of the COVID-19 pandemic.

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The additional health care endorsement that LGH purchased includes disease contamination coverage. This coverage is triggered by an “evacuation or decontamination order at a covered location by the National Center for Disease Control (CDC), authorized public health official or governmental authority because of the discovery or suspicion of a communicable disease or the threat of the spread of a communicable disease.” It says that Continental will pay for “direct physical loss of or damage to covered property,” a variety of “necessary and reasonable costs,” and lost business income “due to the evacuation and decontamination order.”

Under the endorsement, the policy provides coverage of up to $1 million per occurrence. LGH alleged that it was subject to many occurrences triggering coverage under the endorsement. The federal government and state of Massachusetts each declared a COVID-19 state of emergency. The state issued a memorandum requiring hospitals to postpone or cancel all nonessential, elective invasive procedures until the state of emergency was lifted. To resume, the hospital had to comply with various safety, cleaning, disinfectant, ventilation and environmental infection and other directives and conditions.

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Continental denied coverage, questioning whether LGH was subject to a “decontamination order” and argued that it was not. In Continental’s view, the directives by the Massachusetts Department of Public Health and the federal CDC cited by LGH were not mandatory orders at all. Further, Continental contended that the directives did not require “decontamination.” The terms “decontamination order,” “decontamination,” and “order” are not defined in the policy.

The First Circuit rejected both of these arguments, citing the “fair meaning” of the terms. The court said “fair meaning” of the term “order” is unambiguous and that an “order” must be compulsory. It found that was the case with the orders LGH faced.

“LGH’s compliance with the directives was not optional under any practical understanding of that term. Conducting the type of urgent elective procedures identified in the directives is important both to LGH’s mission of providing necessary care to its community and to its bottom line and ability to operate,” the court stated.

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The court said that LGH convincingly argued that the “choice” to comply with the stated conditions or forgo the ability to treat “the vast majority of its patients” for an indefinite period was “no choice at all.”

Further, the court added, Continental’s interpretation would be inconsistent with the purpose of the policy: insurance coverage so that LGH could continue to provide medical care to patients. “Following Continental’s argument to its logical conclusion, no evacuation or decontamination directive would ever be mandatory, because a facility would always have the option of ceasing to provide all or a subset of medical services instead of complying,” the court concluded.

Finally the First Circuit rejected Continental’s argument that the limited use of the term “decontamination” in the government directives “proves that decontamination was not the objective” of those directives. According to Continental, CDC’s document indicates with reference to one technique that it did not believe COVID-19 decontamination to be attainable. This, the court replied, was an “overreading” of the documents in which the CDC articulates a range of strategies to reduce the risk of contracting COVID-19 in indoor spaces, including improvements to ventilation systems and the use of ultraviolet germicidal irradiation lights.

Topics Massachusetts COVID-19