Texas Court of Appeals Reverses $12 Million Judgment in COVID-Related Insurance Claim

The issue in this business-interruption insurance claim is a familiar one: “Did the presence of the SARS-CoV-2 virus (COVID-19) on insured property cause ‘direct physical loss of or damage to’ the property?” A jury answered yes and awarded the Baylor College of Medicine (Baylor) $12 million in damages. In Lloyd’s Syndicate v. Boston College of Medicine, the Texas Fourteenth Court of Appeals decided to follow the herd and held that COVID does not constitute direct physical loss or damage. It did so despite some pretty compelling expert testimony about COVID’s physicality and the threat it could pose to medical research facilities.

Some experts explained that while Baylor could not shut its doors because it is an active medical facility, it did incur costs associated with new sterilization protocols that needed to be adopted in order to keep staff and clients safe during the pandemic. After some time, the COVID virus is no longer transmissible. The damage to the property, the expert testified, is physical, but not structural, which strikes me as a great way to explain the nature of the physical damage  that COVID causes and why it should be covered under the policy. 

But the Court of Appeals wasn’t having it. Both the Texas Supreme Court and the Fifth Circuit have adopted the view that “direct physical loss of or damage to” property requires a “tangible alteration or deprivation of the property.” The Court of Appeals adopted that same standard. Many courts have considered similar arguments and rejected them, and so the Court concluded that there was insufficient evidence to sustain the jury verdict.