Law360 (May 26, 2021, 6:16 PM EDT) -- A Minnesota federal judge has thrown out a health system's $5 million bid for pandemic loss coverage, saying the coronavirus wasn't a covered pollutant under its policy with Chubb unit ACE American Insurance Co.
Losses that Essentia Health suffered as a result of government restrictions on elective medical procedures aren't covered under its pollution policy, U.S. District Judge Eric C. Tostrud found Tuesday. The Duluth-headquartered health system was forced to partially or completely suspend its operations in Minnesota to comply with state orders, it said.
Judge Tostrud said the coronavirus didn't fall under the meaning of a "pollution condition," as defined in Essentia's policy with ACE. While acknowledging that it might make sense for such conditions to encompass viruses "in isolation," Judge Tostrud wrote that an endorsement in Essentia's policy precludes coverage for business interruption losses that are the result of an indoor environmental condition like viruses.
"The specific inclusion of 'viruses' in the endorsement's definition of 'indoor environmental condition' suggests an intent not to include 'viruses' in the policy's definition of 'pollution condition,'" Judge Tostrud wrote in a 19-page decision.
He said Essentia's argument that the virus should be included as a covered condition in the pollution policy would render the health care endorsement superfluous. That endorsement, he added, was narrow in scope, covering only remediation costs incurred to address the loss caused by viruses inside a building and the air in that building.
"If a virus were a 'pollution condition,' those limits would go away," he said. He also noted that COVID-19 is a communicable disease, able to spread from person to person.
Essentia was seeking $5 million in coverage for its losses — the maximum allowed under its policy for an individual pollution condition, according to court documents. The policy insured Essentia for up to $8 million in total for all pollution conditions.
The company estimated it lost more than $59 million in April 2020, shortly after Minnesota Gov. Tim Walz ordered health facilities to suspend nonessential health procedures. The order was an effort to save protective equipment for frontline responders and to help guarantee the safety of workers and patients in hospitals.
Essentia first sued ACE in January, describing the coronavirus as an "irritant" and "contaminant" covered under the pollution policy. In his Tuesday decision, Judge Tostrud noted that those terms were undefined in the policy, but cautioned against interpreting them "in a vacuum" and without regard for the context of the policy.
Taking that broader approach, he added Essentia's suit to a growing dustbin of pandemic suits brought by policyholders seeking coverage for their losses. Over 80% of such suits have been dismissed permanently in federal courts, according to judicial data compiled by the University of Pennsylvania Carey Law School.
Policyholders claiming coverage under pollution policies have fared poorly as well. Cases brought by a Philadelphia-area casino and Fort Lauderdale shopping mall were recently dismissed. In something of a reversal of Essentia's case, however, New York's biggest health care provider argued that its insurers couldn't escape coverage based on contamination exclusions, saying the coronavirus wasn't a contaminant or pollution.
Essentia Health employs 13,500 workers with hospitals, health clinics and other care facilities located in Minnesota, Wisconsin and North Dakota, court documents show.
Counsel for ACE declined to comment on the decision.
Counsel for Essentia did not immediately respond to a request for comment.
Essentia is represented by Rikke A. Dierssen-Morice, Judah Druck and Bryan R. Freeman of Maslon LLP.
ACE is represented by Kevin M. Haas of Clyde & Co. LLP and by Alexandra L. Zabinski, Cheryl A. Hood Langel and Robert L. McCollum of McCollum Crowley Moschet Miller & Laak.
The case is Essentia Health v. ACE American Insurance Company, case number 0:21-cv-00207, in the U.S. District Court for the District of Minnesota.
--Additional reporting by Shawn Rice, Mike Curley, Matthew Santoni and Lauren Berg. Editing by Vincent Sherry.
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