In Novant Health, Inc. v. American Guarantee and Liability Insurance Co.North Carolina Central District Court Judge Catherine C. Eagles made the right decision by allowing a large insured in the hospital system to argue the merits of her COVID business interruption claim -19, resisting the urge to follow the herd of decisions that have unduly and prematurely closed this door.
Too many courts have chosen to swap their black robes for lab coats, citing unsubstantiated scientific assumptions to reach pre-cooked legal conclusions on the dismissal motions when they should accept the well-argued facts in the complaints as true. and allow discovery. In such cases, the following criticism of the Purdue University amicus brief in Examining the Seventh Circuit of Circle Block Partners, LLC v. Fireman’s Fund Insurance Company is sadly true:
“Law lags behind science; he does not direct it. Rosen v. Ciba-Geigy Corp., 78 F.3d 316, 319 (7th Cir. 1996) [(Posner, J.)]… Rather than assuming the veracity of deeply factual claims contained in a complaint – and leaving their proof (or rebuttal) to expert scientists – the tribunal invented scientific findings that favored its preferred legal conclusion. It was a mistake.
That wasn’t true for Justice Eagles, however.
In a measured decision, Justice Eagles dismissed the American Guarantee and Liability Insurance Company’s (a subsidiary of the Zurich American Insurance Company (“Zurich”)) petition to dismiss Novant Health’s claim for reimbursement for the resulting losses. of the presence of the coronavirus in his hospital and outpatient properties. Coronavirus coverage cases require courts to properly apply established principles of policy interpretation and unchallenged procedural standards to this first-generation phenomenon.
Sadly, many courts have backed down at the opportunity and misapplied these rules, failing to engage in the ever-changing understanding of this virus and to recognize the palpable and lasting physical damage it produces. The result was largely unfavorable for policyholders across the country. Unexpected pleadings and parroted forensic analysis made premature dismissals the norm. But better reasoned exceptions such as Novating– and the waves of well-argued complaints that specifically address the scientifically proven physical loss and damage caused by the coronavirus – inspire hope.
The decision is particularly notable for policyholders insured under the Zurich policy form EDGE (Zurich Commercial Property All Risks Insurance Policy Form, sold at its greatest property risks), but it is also applicable to many others. .
Above all, the court of Novant found that insurers cannot meet their burden of demonstrating that the continued reintroduction of a deadly virus could definitely not be covered by a non-life insurance policy covering all risks of direct physical loss or property damage. The court concluded that the insured hospital and medical facilities had undergone a “material and physical transformation” in which the air and surfaces had become “dangerous vehicles of transmission”, a transformation that would necessarily last “through all occupation. of property ”.
The court therefore ruled that the allegations of the presence of the virus on the covered properties were sufficient for the purposes of the pleading requirements. In doing so, the district court noted that the courts disagreed over the definition of “physical loss” as used in insurance clauses such as the one at issue. The court left the question open, observing that the term has been reasonably interpreted both restrictively to exclude everything but the most obvious structural damage, and inclusive to cover damage “beyond demonstrable structural changes, including loss of use, functionality or reliability. “
Lawyers for Pillsbury’s Insurance Recovery & Advisory were among the first to report that the disproportionate number of courts applying a more exclusive test of physical loss or property damage (which purport to require “distinct and demonstrable physical alteration of property” instead that the loss of the functional use of the property) may have been the result of unknowingly relying on false statements contained in a legal treaty of trust, Section 148: 46 of the third edition of Sofa on insurance. Our lawyers recently co-authored an upcoming groundbreaking scientific article that exposes these false statements of law. The article explores how the Sofa treaty created the narrower test in the 1990s on the basis of limited support in case law, then gave its readers the false impression that its new test was majority rule by calling it “widely used” – while not citing virtually any of the cases which for years rejected narrower formulations and continued to apply the majority rule test “loss of functional use”.
Most of the decisions dismissing business interruption actions related to COVID-19 cite or directly cite this specious Couch test, or cite cases that are the offspring of it. SofaThe s inaccuracies therefore likely skewed the results of lawsuits to enforce first party property policies, and cost policyholders tens or even hundreds of billions of dollars in unpaid claims. Whatever your take on the intended meaning of this essential language, Justice Eagles in Novant correctly determined that such “issues are best assessed on a developed factual record”, and not dismissed on pleadings alone.
Having found that the insured was discharging his onus, Eagles J. rightly shifted his attention to whether the insurer, Zurich, could discharge its burden of proving that the claim was excluded by the police. In particular, the court weighed the policyholder’s argument – that a rider in the EDGE policy, widely known as the virus removal rider, removed the “virus” from the contamination exclusion of police – against Zurich’s argument that it only did this for locations in the state of Louisiana. . The court ruled that many provisions of the policy stating that the virus removal rider applied to the entire policy created factual issues that could not be resolved on a motion to dismiss.
Novant is an important decision for policyholders battling the wave of courts that infringe on factual determinations at the plea stage. It is an important example to the courts that personal conceptions about the character and effect of the coronavirus are not a substitute for engaged and serious judicial review of a fully developed factual record and informed advocacy on the merits.