Baylor College of Medicine won a $48.5 million award after Harris County jury found that losses incurred by the medical school in the early phases of the coronavirus pandemic should have been covered by its property insurance.
The verdict comes as businesses of all kinds battle with insurers to cover losses incurred from lockdowns, social distancing restrictions and other disruptions as COVID-19 rapidly spread in 2020. In the case of the Baylor College of Medicine, that medical school stayed stay open to treat patients, and develop research around treatments, vaccines and the virus, but incurred losses to buy personal protective equipment, constantly clean and disinfect facilities and equipment, and cover other extraordinary expenses.
Baylor filed an insurance claim in April 2020 to recover its losses, but was denied. The medical school then sued underwriters at Lloyd’s Syndicate, a property insurance marketplace headquartered in London that insures large or unusual risks.
The underwriters argued that the virus can’t cause property damage because it can be wiped off with disinfectant and doesn’t cause any tangible or structural change. The lawyers for the underwriters did not respond to requests for comment.
Baylor’s lawyers made the case to the jury that the physical presence of the virus on Baylor’s property caused the loss of income and the extra expenses incurred during the pandemic, said Robert Corrigan Jr., senior vice president and general counsel at Baylor College of Medicine.
“We were able to do that because the common understanding of what loss or damage means includes more than some structural change to the property — it’s anything that impairs the ability to use the property or impairs the value of the property,” Corrigan said. “The jury certainly believed that the presence of the virus did cause the property to be less functional, less usable, less valuable.”
Companies have filed thousands of claims related to the pandemic under property insurance policies that provide business interruption coverage, but few have succeeded, said Murray Fogler, a trial attorney for Baylor College of Medicine. Baylor’s case was the first of its kind, to Fogler’s knowledge, that made it to a jury trial.
Most of these cases get transferred to federal courts, which have largely dismissed the claims on the grounds that the virus can’t cause property damage.
“We were lucky enough to stay in state court,” Fogler said.
Many of those cases that were dismissed involved businesses, restaurants, hair salons and other services, that shutdown because of stay-at- home orders. But Baylor argued that its situation was different because it had to continue operations.
“They had to permit people who were infected to repeatedly come in. That means we could not just wipe the surfaces clean and then we were OK,” Fogler said. “We were able to prove the virus was there which made us different than restaurants or hair salons or any other Because the property was repeatedly re-infected with the virus every day.”
Fogler and Corrigan contend that before the pandemic neither the school nor insurers were thinking about virus coverage, but Baylor’s lawyers argued that they bought an “all risk” policy that should have been all encompassing.
Since 2020, most property insurance companies have added virus exclusion clauses to their policies.
Baylor’s lawyers said even though the medical school was awarded the damages, it could take years to get the money. They anticipate Lloyd’s Syndicate will file an appeal.
“I’m sure they’re going to appeal,” Fogler said. “I’m sure they’re going to take it to the Court of Appeals and the Texas Supreme Court if they can, if they continue to lose.”