Health Care Endorsement Allows Insured to Escape Dismissal of COVID-19 Claim

    Agreeing with the district court that the insured could not demonstrate "direct physical loss" due the onset of COVID-19, the First Circuit overruled the dismissal based on a health care endorsement. Lawrence Gen. Hosp. v. Continental Casualty Co., 2024 U.S. App. LEXIS 676 (1st Cir. Jan. 10, 2024). 

   The health care endorsement included "Disease Contamination Coverage." Coverage was triggered by an "evacuation or decontamination order at a covered location by the National Center for Disease Control, authorized public health office or governmental authority because of the discovery or suspicion of a communicalbe disease or the threat of the spread of a communicable disease." 

    Due the to pandemic and shutdown orders, Lawrence General Hospital (LGH) was forced to undertake a series of remediation efforts. Continental denied coverage and LGH sued. The district granted Continental's motion to dismiss.

    The First Circuit agreed that based on current case law, LGH could not demonstrate direct physical loss. The property could not repair itself and this direct physical loss of or damage to prpoerty existed only if a party had to take active efforts to repair it. Therefore, physical alteration of property that would resolve of its own accord, without the aid of remediaiton efforts, was not "direct physical loss of or damage to property." SARS-CoV-2 particles became noninfectious within as little as seven to twenty-eight days. Any "damage" that could fix itself without further intervention, and within a period as short as twenty-eight days or less, could not amount to "direct physical loss of or damage to property."

    Therefore, the district court did not err in finding LGH failed to allege "direct physical loss of or damage to" its covered property. 

    The court then turned to the Disease Contamination Coverage. LGH argued it was subject to several mandatory government orders, which triggered coverage. Continental contended LGH was not subject to a "decontamination order" and argued that the government orders were not mandatory orders. Further, the directives did not require "decontamination." 

    The court found the directives were orders. LGH alleged it was required to comply with specific public health and safety standards before the hospital was allowed to move forward with elective procedures such as cancer screenings, prenatal care, removal of breast malignancies, and organ transplants.

    LGH and Continental agreed that decontamination involved removing, eliminating or ridding a property of contamination. But Continental argued that an insured could never remove, eliminate, or rid itself of COVID-19 because it was repeatedly reintroduced by people. At this motion to dismiss stagee, the court disagreed with Continental. The Disease Contamination Coverage provision specifically applied to public health orders issued "because of the discovery or suspicion of a communicable disease for the threat of the spread of a communicable disease." 

    Therefore, the First Circuit affirmed in part, reversed in part, and remanded for further proceedings.