Hospital Denied Quick Win Over Travelers' COVID-19 Coverage

By Dave Simpson
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Law360 (July 14, 2020, 9:55 PM EDT) -- A Pennsylvania federal judge said Tuesday it would be premature to declare that a hospital's "loss of use" of buildings and facilities resulting from state-mandated COVID-19 closures is a physical loss covered under its policy with Travelers Property Casualty Co., noting that he will wait until he's considered certification of the putative class.

U.S. District Judge Kim R. Gibson declined the summary judgment bid from the 54-bed Chan Soon-Shiong Medical Center at Windber, which had argued that the court should read the policy in favor of the policyholder because there is ambiguity in its policy terms with Travelers and it has offered the court a reasonable interpretation.

"Plaintiff's motion asks the court to rule on the merits of plaintiff's claims such that it could provide offensive, nonmutual estoppel to members of a proposed class that has not yet been certified," the judge said. "To avoid potential unfairness to defendant by ruling on the merits of plaintiff's claims without a certified class, the court will defer ruling on the motion for summary judgment until after the court has ruled on the motion to certify a class."

The medical center filed the proposed class action in April, claiming Travelers wrongfully denied coverage for its losses from the pandemic and government shutdown orders. The lawsuit was filed on behalf of all Pennsylvania citizens who have suffered covered losses because of the COVID-19 pandemic but were denied coverage by Travelers.

The hospital said it had to "close its business" and has been "forced to furlough employees." The medical center has about 450 employees and operates an emergency room, but also includes a cardiac care unit, hospice, rehabilitation services, imaging and radiology among its offerings, according to its website.

The Windber hospital claimed the policy's virus exclusion should not apply because the exclusion only referred to virus-related "loss or damage" but not business expenses. Paying one's rent and mortgage, or paying employees the amounts owed under their employment contracts, are not excluded under the policy, the hospital said earlier this month.

The hospital said the reality that the policy excludes coverage for an insured's loss does not mean the policy excludes coverage for an insured's expenses.

"Travelers cannot contend that the exclusion does not eliminate coverage for continuing operating expenses," it argued.

Additionally, the hospital claimed its suspension of operations was caused both by "a direct physical loss" and "direct physical damage" to its properties because it experienced "loss of use" of its buildings and facilities.

"There can be a physical loss of a building without there having been a physical alteration of the building. It is enough that there has been a loss of use of the building," the Windber hospital argued.

The medical center said the "loss of use" of its premise was because of the state-mandated closure that was partially caused by "a physical detriment to property — virus on building surfaces in the city." The existence of the novel coronavirus on its properties creates physical damage because the virus physically changed the condition of the buildings' surfaces, it added.

The hospital contended it does not need to prove the COVID-19 virus was in its buildings when it decided to suspend operation because regardless of whether the virus existed on its property on the day it suspended operation, "future inevitable property damage can cause a suspension."

The medical center is represented by James C. Haggerty of Haggerty Goldberg Schleifer & Kupersmith PC and Scott Cooper of Schmit Kramer PC.

Travelers is represented by Richard D. Gable Jr. of Butler Pappas Weihmuller Katz Craig LLP and Stephen E. Goldman of Robinson & Cole LLP.

The case is Windber Hospital et al. v. Travelers Property Casualty Co. of America, case number 3:20-cv-00080, in the U.S. District Court for the Western District of Pennsylvania.

--Additional reporting by Daphne Zhang. Editing by Jay Jackson Jr.

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Pennsylvania Western

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Kim R. Gibson

Date Filed

April 23, 2020

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