By Shawn Rice

Law360 (March 12, 2021, 5:57 PM EST) -- A New York health care system can't collect $1.25 billion in insurance coverage for lost revenue after it had to switch to treating COVID-19 patients instead of providing more profitable nonessential medical procedures, the insurers argued.

Lexington Insurance Co. and Interstate Fire & Casualty Co. said Northwell Health Inc., the Empire State's biggest health provider, can't claim its switch in services amounts to a business interruption loss that triggers insurance coverage, according to a filing in New York federal court on Thursday.

The insurers argued their policies don't cover financial losses resulting from a change to Northwell's patient mix as coronavirus cases picked up, and that there is no "direct physical loss of or damage to" any of the 23 hospitals managed by Northwell in New York City and the surrounding area.

"The change in Northwell's patient population reflected the changing medical needs of the communities it serves and government directives aimed at maximizing treatment of COVID-19 patients — factors unrelated to the actual presence of the virus in Northwell's facilities," the insurers said.

A year after the start of the pandemic, insurers and policyholders continue to fight over business interruption coverage, and whether the coronavirus shutdowns and infections warrant insurance coverage under specific provisions of policies, including those that cover a physical loss or damage to premises.

According to recent UPenn data, there have been 250 decisions on motions to dismiss or partial summary judgment, with over 80% of those resulting in the dismissal of policyholders' complaints.

Northwell filed another coverage suit in New York state court in July, alleging Illinois Union Insurance Co. wrongfully denied coverage after stringing along the health care provider for two months. Northwell accused Illinois Union of misrepresenting the terms of its policy by denying coverage.

In the federal case, the health care provider sued its insurers in February, alleging the presence of the coronavirus and government orders caused a direct physical loss and damage to its locations. The health care provider said it lost revenue from nonessential medical procedures in devoting resources to help combat the global pandemic.

The health care provider said it was hit hard by the government orders suspending ambulatory physician practices and elective procedures. The influx of COVID-19 patients at Northwell's facilities, according to the suit, increased costs to sanitize and make the facilities safer for patients and the health care workers.

In Thursday's motion, Lexington and Interstate asked the Southern District of New York to dismiss Northwell's suit, arguing Northwell cannot show its business was suspended when it recognizes its facilities were "inundated" with COVID-19 patients. Even if there was damage caused by the presence of the coronavirus, the policies specifically exclude losses by viruses, according to the suit.

"And sympathy for Northwell's plight cannot unsettle the fact that an insured must be held to the insurance policies it actually signed, not the ones it wished it had. It is for this reason that courts in this district and around the country have consistently dismissed with prejudice COVID-19-related claims similar to Northwell's," the insurers said.

A representative for Allianz Global Corporate & Specialty, the parent company of Interstate, told Law360 it doesn't comment on individual claims, settlements or pending litigation.

But, Allianz said in a written statement that it would "honor COVID-19-related claims where they are part of our policies and cover is clear," adding, "However, many businesses will not have purchased cover that will enable them to claim on their insurance for COVID-19 pandemic losses."

Counsel for Northwell declined to comment. Representatives for Northwell didn't respond to comment requests.

Counsel and representatives for Lexington declined to comment.

Northwell is represented by Robin L. Cohen, Alexander M. Sugzda and Cynthia M. Jordano of Cohen Ziffer Frenchman & McKenna LLP.

Lexington is represented by Michael B. Carlinsky and Maaren A. Shah of Quinn Emanuel Urquhart & Sullivan LLP and Keith Moskowitz of Dentons US LLP.

Interstate is represented by Michael D. Hynes of DLA Piper LLP.

The case is Northwell Health Inc. v. Lexington Insurance Co. et al., case number 1:21-cv-01104, in the U.S. District Court for the Southern District of New York.

--Additional reporting by Mike Curley and Jeff Sistrunk. Editing by Marygrace Murphy.

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