COVID-19 Damages Lungs, Not Property, Insurer Says

By Daphne Zhang
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Law360 (August 17, 2020, 10:13 PM EDT) -- Continental Casualty Co. told a Kansas federal judge Monday that "COVID-19 damages human lungs, not property," saying that its policyholder can't rely on an absence of virus exclusion for coverage when it failed to show a physical loss in the first place.

The insurer said the court should toss the proposed class action brought by Alliance Radiology, P.A. because the radiologists failed to allege any physical alteration of their covered properties, and their workplaces were never closed by state-mandated orders.

Continental said the government closure orders specifically kept the radiologists' working places like hospitals and imaging centers open for the public to visit, and it was not civil authority orders but the hospitals' own directives that restricted operation for their working locations.

The carrier said in the dismissal motion that Alliance Radiology was not able to demonstrate physical damage of its properties in every way. The practice does not show evidence of COVID-19 infection among its physicians, staff, and patients, but only claimed that visitors brought the infection to its property, causing physical damage, the insurer said. 

"The fleeting presence of a virus that can survive on surfaces for only a few hours or days, and can be easily removed through ordinary cleaning or disinfectants, is not physical loss of or damage to property," Continental said, citing CDC's guideline in disinfecting surfaces during the pandemic.

The mere presence of COVID-19 positive individuals in the radiologists' working places "does not constitute direct physical loss of or damage to property, COVID-19 damages human lungs, not property," the carrier said.

Continental was hit with the proposed class action in late April, two days after Alliance Radiology filed its coverage claim. The professional association of radiologists, located in Kansas City, Missouri, employs 28 physicians who read radiology studies for hospitals and imaging centers in Kansas and Missouri. The practice was seeking to represent a nationwide class of all Continental policyholders. The insurer denied its claim in late June while the suit is ongoing.

On Monday, Continental said that under Kansas law, physical damage means physical alteration, and the radiologists failed to allege any structural changes on their properties. The insurer asked the court to follow recent rulings from a Michigan court, D.C. federal court, and a Texas district court, which dismissed COVID-19 loss claims, holding that there must be tangible injuries presentable on a property to show physical damage.

Alliance Radiology has alleged that its all-risk policy does not contain a virus or pandemic exclusion so that Continental should cover its losses. The insurer rebuffed its policyholder's position, saying that an insured needs to establish that its loss triggers coverage first before discussing whether there is an exclusion to apply.

Additionally, the carrier said, civil authority coverage would not apply because the state-mandated orders did not cut access to the radiologists' workplaces, the orders were not issued due to physical damage, and the practice failed to allege that government orders caused revenue loss since its operations were open and the public was able to visit its property the whole time.

"Plaintiff's claims are not based on civil authority orders at all, but instead are based on the hospitals' 'orders and decrees suspending all elective medical procedures,' resulting in a purported loss of revenue to plaintiff," Continental argued.

The insurer added that the hospitals, after receiving government orders, made their own decision and issued their own directives to stop doing certain procedures — not because of property damage, but specifically to conserve medical resources and reduce exposure to the virus.

And because the hospital-ordered suspensions were not required by state-mandated closures, the radiologists cannot allege that the government orders "directly caused" its loss of revenue and business opportunities, Continental said in the motion.

Representatives for the parties could not be immediately reached for comment. 

Alliance Radiology is represented by Abby McClellan, Bradley Wilders, Christopher Curtis Shank, Patrick J. Stueve and James D. Myers of Stueve Siegel Hanson LLP, J. Kent Emison of Langdon & Emison, John J. Schirger, Joseph M. Feierabend and Matthew W. Lytle of Miller Schirger LLC, Dawn Marie Parsons, Michael Barzee, Rachael D. Longhofer and Richard F. Lombardo of Shaffer Lombardo Shurin PC.

Continental is represented by David H. Timmins, Joshua Grabel, Taylor Brooke Concannon Hausmann and Tyler J. Scott of Husch Blackwell LLP.

The case is Alliance Radiology, P.A. et. al. v. Continental Casualty Co., case number 2:20-cv-02218, in the U.S. District Court for the District of Kansas

--Editing by Amy Rowe.

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