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Law360 (March 25, 2021, 6:34 PM EDT) -- A slew of New Jersey hospitals have slapped Zurich American Insurance Co. with two suits in state court, alleging the carrier wrongfully denied covering their COVID-19-related losses when the policy specifically deleted "virus" from policy exclusions.
RWJBarnabas Health Inc. and Valley Health System Inc. alleged Zurich refused to honor its obligations under their $2.5 billion and $550 million "Zurich Edge Healthcare Policy," which the insurer has marketed as providing "higher limits, broader coverage and greater flexibility" to policyholders.
The two health systems said their all-risk policies do not preclude losses caused by viruses or pandemics, and Zurich failed to acknowledge that the coronavirus caused property damage after their employees and patients tested positive and died from COVID-19 in their facilities.
RWJBarnabas, which treats 3 million patients annually and is New Jersey's second-largest private employer, said it had over 1,000 confirmed cases of COVID-19 at its facilities among its patients and staff.
"Tragically, nine RWJBarnabas staff have passed away after contracting COVID-19 at its properties," it said. "Countless individuals, asymptomatic, pre-symptomatic, or otherwise were present at RWJBarnabas and may have unknowingly spread the virus on RWJBarnabas property to the people in RWJBarnabas."
VHS said more than 760 of its employees tested positive for COVID-19 and "a number of patients" contracted the virus after entering its facilities, including two who died. The infected individuals spread airborne droplets containing the virus onto their properties, creating a direct physical loss or damage, a precondition for coverage under their policies, the two health systems said.
Although the policy contains a contamination exclusion, "virus" was specifically removed from the exclusion, according to the two systems, which own acute care hospitals and community medical centers across the Garden State.
When Zurich sold its Edge policy to RWJBarnabas and VHS, "Zurich agreed to delete 'virus [and] disease causing or illness causing agent' from the definition of excluded contamination and restored coverage to the policy which would otherwise have been excluded," the two providers said.
"In modifying the contamination exclusion, Zurich recognized, and was put on notice, that the contamination exclusion is not a proper method to bar coverage for losses resulting from viruses," they added.
Additionally, state lockdown orders have made their properties unusable as the government prohibited their facilities to admit new patients at different times due to confirmed COVID-19 cases, the systems said, adding that they also lost substantial revenue from the inability to provide nonemergency procedures due to the orders.
The health systems are alleging breach of contract, seeking a declaration that their losses are covered under the Zurich Edge all-risk policies, and demanding damages in a jury trial.
More than 1,500 COVID-19-related business interruption coverage disputes have been filed since the beginning of the pandemic, according to data from the University of Connecticut's Insurance Law Center. Zurich alone has fielded more than 110 COVID-19 cases, according to the law center's COVID-19 coverage litigation tracker.
Recently, Zurich has been slammed with policyholders' lawsuits seeking coverage under their hundreds of millions of dollars' worth of policies. Last week, Carilion Clinic and its affiliated hospitals in Virginia, West Virginia, Tennessee and North Carolina asked Zurich to cover its over $150 million pandemic losses under its $1.3 billion Zurich Edge policy after more than 1,300 of its employees were diagnosed with COVID-19.
Earlier this month, Detroit Entertainment LLC, the owner of Motor City Casino Hotel, told Michigan state court that its Zurich affiliate insurer owes it $270 million for COVID-19-related losses that have triggered its $750 million policy. The hotel and Carilion are both represented by Pillsbury Winthrop Shaw Pittman LLP.
In late February, over a dozen health care service companies told an Illinois federal judge that Zurich must cover their pandemic-related losses. Seven health care companies said they hold total policy limits of $450 million per occurrence, and five said their overall per-occurrence policy limits are $250 million with Zurich.
Representatives for the parties could not be immediately reached for comment.
The two health systems are represented by Lynda A. Bennett and Michael D. Lichtenstein of Lowenstein Sandler LLP.
Counsel information for Zurich is not immediately available.
The suits are Robert Wood Johnson Fitness & Wellness Center et al. v. Zurich American Insurance Co., case number ESX-L-002271-21, in the Superior Court of New Jersey in Essex County, and Valley Health System Inc. et al. v. Zurich American Insurance Co., case number BER-L-001907-21, in the Superior Court of New Jersey in Bergen County.
--Editing by Marygrace Murphy.
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