Pa. Hospital Says Virus Exclusion Doesn't Apply To 'Expenses'

By Daphne Zhang
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Law360 (July 10, 2020, 6:49 PM EDT) -- A Pennsylvania hospital urged a federal judge to rule that its "loss of use" of buildings and facilities because of state-mandated COVID-19 closures is a physical loss covered under its policy with Travelers Property Casualty Co., adding that the policy's virus exclusion only applies to coverage of "losses" but not to "business expenses."

The 54-bed Chan Soon-Shiong Medical Center at Windber said Thursday there is ambiguity in its policy terms with Travelers and it has offered the court a reasonable interpretation, so the court should read the policy in favor of the policyholder.

"Adopting Travelers' position would be resolving the ambiguity in favor of the insurer, in direct contravention of Pennsylvania law," it argued. "Any argument of Travelers that its interpretation of the policy language is more reasonable is of no consequence."

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, it said in the memorandum.

"The policy provided for extra expenses for this pandemic and the exclusion does not apply to expenses. We hope the court will rule in our client's favor as soon as possible so it and all other businesses can receive the coverage they are entitled to and expenses incurred through no fault of their own," Scott Cooper, an attorney representing the hospital, told Law360 on Friday.

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 COVID-19 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.

In Thursday's Memorandum, 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."

Counsel for Travelers did not immediately respond to request for comment Friday.

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 d/b/a Chan Soon Shiong Medical Center 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.

--Editing by Amy Rowe.

For a reprint of this article, please contact reprints@law360.com.

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