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Insurance policy does not cover $150 million-plus in losses to Carilion, company says

Insurance policy does not cover $150 million-plus in losses to Carilion, company says

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An insurance company says a policy held by Carilion Clinic does not cover losses from the coronavirus pandemic, which the health care system claims were in excess of $150 million.

American Guarantee and Liability Insurance Co. is asking a judge to dismiss a lawsuit Carilion filed against it in March.

AGLIC “turned its back on Carilion” by declining to fulfill its obligations under a property insurance policy that should have covered lost business and other damages caused by the public health crisis, according to the lawsuit.

But in a response filed late Monday in Roanoke’s federal court, the company maintained that its policy applies to physical damage to property, such as that caused by a fire, flood or hurricane.

The coronavirus “harms people — it does not harm property,” lawyers for AGLIC wrote, quoting a federal judge in West Virginia who recently dismissed a similar lawsuit against a different insurance company.

“A virus does not require property to be repaired, rebuilt or replaced,” the motion to dismiss stated. “A virus can simply be wiped off the surface with disinfectant, so there is no physical damage.”

In its lawsuit, Carilion said it lost more than $150 million, much of it from elective surgeries that were postponed and patients who stayed home for months rather than seek treatment for relatively minor ailments.

Carilion was also forced to impose costly safety measures against a virus that infected more than 1,300 of its 21,000-some employees, it said.

The lawsuit provides perhaps the most detailed public account to date of the pandemic’s financial impact on a health care system that treats nearly a million patients annually in Southwest Virginia and beyond.

Carilion maintains that its property was either lost or damaged in at least four ways: through the transmission of the virus in its hospitals, clinics and other settings; through government orders that temporarily prohibited outpatient surgery and other services; through required precautions such as social distancing; and through the need to disinfect door handles, bed sheets, hospital gowns, medical equipment and other surfaces.

As the virus spread, it contaminated Carilion’s facilities “just as if asbestos, ammonia fumes or a salmonella outbreak was in the air or on the surfaces of the premises,” the lawsuit stated.

Carilion paid $874,863 a year for its insurance.

But according to AGLIC, there’s an exclusion for damage caused by any “virus [or] disease causing or illness causing agent.”

Under another provision that applies to an “interruption by communicable disease,” Carilion submitted a claim in March 2020 but failed to provide details needed for an investigation that was never completed, AGLIC’s response stated.

After AGLIC agreed to extend a deadline to May 24 in order for Carilion to provide more information, the lawsuit was filed March 18, the company says. Carilion counters that while it never received an outright denial of its claim, it was forced to go to court to preserve its legal rights.

Depending on the details, “there may not be a dispute at all,” AGLIC said. However, that applies only to the provision for communicable disease, which has a policy limit of $1 million.

In its lawsuit, Carilion said the maximum amount under its full policy is $1.3 billion. Hannah Curtis, a spokeswoman for the system, said Tuesday that it was “actively reviewing” AGLIC’s response.

Carilion had “no further response” to other questions, which included whether it has sustained more financial damage than what it says its property insurance carrier is responsible for, and to what degree that figure was offset by state and federal aid, such as the CARES Act.

It was also unclear whether the health care system is still covered by AGLIC; the lawsuit states the disputed coverage expired June 30, 2020.

No date has been set for U.S. District Judge Michael Urbanski to hear the case.

According to AGLIC, more than 275 courts across the country have dismissed lawsuits similar to the one brought by Carilion. It was not clear whether any of those cases involved the company, which could not be reached for comment.

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Laurence Hammack covers environmental issues, including the Mountain Valley Pipeline, and business and enterprise stories. He has been a reporter for The Roanoke Times for more than three decades.

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