A lawsuit brought by Northwell Health against its property insurers that argued for pandemic-related business loss claims totaling $1.25 billion has been tossed by a federal judge.
U.S. District Judge Jed S. Rakoff dismissed Northwell’s complaint with prejudice and denied a motion for summary judgment, writing in a Tuesday order that the nonprofit system’s arguments for coverage under multiple provisions of its insurance policies were “unpersuasive.”
Northwell had purchased two “all-risks” commercial property insurance policies from defendants Lexington Insurance Company and Interstate Fire & Casualty Company, according to court documents.
These policies included coverage for, among other things, lost earnings from the necessary suspension of business activities at an insured location if caused by “direct physical loss of or damage to covered property,” restricted access to a property resulting from a civil order and the increased cost of decontamination and/or removal of contaminated covered property.
In its initial complaint, filed in February, Northwell wrote that it sustained significant losses due to low elective procedure volumes and practice closures while also facing increased costs tied to cleaning supplies and services.
RELATED: Northwell Health estimates COVID-19 cost system $1.1B in first half of 2020
The system said that it submitted a reimbursement claim to the defendants in April 2020 and in October and January of the following year were informed that the claim was not covered under certain provisions of the policies.
In this week’s order, Rakoff wrote that the arguments Northwell laid out in its complaint failed to demonstrate that the policies provide coverage for its COVID-19 losses.
Specifically, the judge shredded an argument that COVID-19 attached to surfaces via expelled respiratory droplets “compromise the physical integrity of the structures it permeates” and leaves the structure “unusable” in the way that invisible fumes or noxious gas might.
Further arguments out of the health system related to losses from physician practice closures were plausible, Rakoff wrote, but regulatory orders from the state government that limited elective procedures did not prohibit access to the facilities themselves.
“If a hospital wanted to use facilities ordinarily used for elective procedures to conduct emergency ones, nothing in the orders forbids this,” Rakoff wrote. “While the orders certainly restrict access to hospitals, they fall far short of ‘prohibiting’ access.”
Northwell’s other arguments for coverage were also dependent on provisions with similar requirements regarding the physical structures or fell under specific exclusions outlined in the policy agreement, the judge wrote. Northwell’s accompanying argument that the insurers had breached a covenant of good faith and fair dealing would also only apply if the system was covered under the agreed-upon policy, he wrote.
“For the foregoing reasons, the motion to dismiss is granted and the complaint is dismissed with prejudice, and Northwell’s motion for summary judgment is denied as moot,” Rakoff wrote.
Northwell is the largest provider organization and private employer in the state of New York with 23 hospitals and over 800 outpatient facilities.
It reported a loss of $26 million in 2020 following 2019’s $188 million profit and had treated more than 100,000 patients diagnosed with COVID-19 as of filing the complaint in February.