Baylor College of Medicine won a $48.5 million prize after a Harris County jury found that losses suffered 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 grapple with insurers to cover losses suffered from closures, social distancing restrictions and other disruptions as COVID-19 spread rapidly in 2020. In the case of the College of Baylor Medicine, that medical school remained open to treating patients and developing research on treatments, vaccines and the virus, but incurred losses to purchase 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 it was denied. The medical school then sued insurers at Lloyd’s Syndicate, a London-based property insurance market that insures large or unusual risks.
Insurers argued that the virus cannot cause property damage because it can be cleaned with disinfectant and does not cause any structural or tangible changes. The underwriters’ attorneys did not respond to requests for comment.
Baylor attorneys argued to the jury that the physical presence of the virus on Baylor property caused the lost revenue and additional 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 a 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 made the property less functional, less usable, less valuable.”
Businesses have filed thousands of pandemic-related claims under property insurance policies that provide business interruption coverage, but few have been successful, said Murray Fogler, a trial attorney at Baylor College of Medicine. Baylor’s case was the first of its kind, to Fogler’s knowledge, to go to a jury trial.
Most of these cases are transferred to federal courts, which have largely dismissed claims on the grounds that the virus cannot cause property damage.
“We were lucky to stay in state court,” Fogler said.
Many of those cases that were dismissed involved businesses, restaurants, beauty salons and other services, which closed due to stay-at-home orders. But Baylor argued that his situation was different because he had to continue operations.
“They had to repeatedly allow people who were infected to come in. That means we couldn’t just wipe down the surfaces and then we were fine,” Fogler said. “We were able to show that the virus was there, which made us different from restaurants, hair salons or anyone else 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 coverage for the virus, but Baylor’s lawyers argued they bought an “all risk” policy that should have covered everything.
Since 2020, most property insurance companies have added virus exclusion clauses to their policies.
Baylor’s lawyers said that even though the medical school received the damages, it could take years to get the money. They anticipate that Lloyd’s Syndicate will file an appeal.
“I’m sure they’re going to appeal,” Fogler said. “I’m sure they’ll take it to the Court of Appeals and to the Texas Supreme Court if they can, if they continue to lose.”
