Colleges, like many businesses, are turning to courts to compel insurers to provide coverage for coronavirus-related costs and income losses.
Four schools—Rockhurst University in Kansas City, Mo.; Maryville University in St. Louis; Benedictine College, near Kansas City, Kans.; and the University of St. Thomas in Houston—are the first colleges to sue their insurers after being denied coverage under their commercial liability policies.
Those complaints represent a tiny fraction of the more than 1,100 insurance cases stemming from pandemic coverage disputes. The small number of lawsuits may indicate that schools are wary of mounting legal hurdles in the pursuit of payouts, but a few rulings in policyholders’ favor in select jurisdictions could lead to more claims, attorneys say.
“We’re still in the very early stages of the Covid-19 coverage wars,” said Hinshaw & Culbertson LLP partner Scott Seaman.
Businesses have flooded courts across the country with similar lawsuits, alleging that government-mandated business closures caused by the coronavirus trigger liability policy coverage.
So far, judges have mostly sided with insurance companies in these fights, throwing out several cases for policyholders’ failure to link the virus and closures to any covered physical property loss or damage.
Colleges, though, have varying sources of revenue—from tuition and athletic programs to running dorms and food services—that make their operations different from those of many businesses.
Many schools, in their attempt to reopen and resume classes this fall, have been exposed to a flood of refund requests and potential suits from students and parents.
They have “taken a big hit to revenues,” said Anthony Tatum, an attorney at King & Spalding LLP.
The four schools each claim to hold all-risk commercial property policies, but their insurers either denied coverage outright or have sought to limit coverage to the policies’ communicable disease provisions.
State-ordered closures, canceled events, vacant student housing facilities, and student reimbursements have contributed to millions in lost revenues, the four schools said in their complaints. Decontamination costs, particularly on campuses that had infected individuals, also are mounting, they said.
Maryville and Rockhurst said the policy limit on coverage for losses from communicable diseases is “far lower than Plaintiffs’ expected losses and the overall limits of liability in each Policy.”
“Apart from the nightmarish logistical challenge, and the serious disruption to their core mission of education, the measures colleges and universities have taken as a result of COVID19 have had a devastating financial impact,” they said in a joint class action filed against Factory Mutual in July.
Benedictine College, on the same day, filed a separate class action against Zurich American Insurance Co.
In August, St. Thomas sued American Home Assurance Co., an AIG subsidiary, over a denial letter it received in May. The complaint contrasted the denial with remarks by AIG’s CEO to investors, also in May, that Covid-19 “would be the single largest CAT (catastrophe) loss the industry has ever seen,” and that the company had set aside $272 million to cover the losses.
“If an insurer is advising its shareholders year after year that the company has substantial exposure from pandemic and disease, how can that insurer suddenly contend when faced with a claim that those same risks are not covered?” Levine said.
Policyholder firms are combing through insurers’ securities disclosures for similar past comments about risk exposure to catastrophic losses, including pandemics and diseases, he said.
Virus, Disease Exclusions
Many companies are litigating whether standard virus and communicable disease exclusions in their commercial property insurance policies prevent them from obtaining coverage. The cases will also turn on whether the virus is found to have resulted in physical loss or damage.
But the four schools say their policies don’t include such exclusions.
St. Thomas said its insurer was relying “exclusively” on a pollution and contamination exclusion to deny coverage.
Benedictine College said its $100 million policy originally excluded viruses under a contamination exclusion but also had an “amendatory endorsement” that removed the word “virus” from the contamination definition. Those changes require Zurich to cover the claim, the school said.
In the schools’ cases, the examination of physical loss or damage, and whether the policies have explicit virus exclusions, are all similar preliminary legal questions that other business interruption cases are grappling with, Tatum said.
“If you have an event of communicable disease on-site, or have someone who’s been exposed, the policy should respond for costs the company incurs to clean up the area, which is significant,” Tatum said.
American Home and Factory Mutual didn’t respond to requests for comment. A spokeswoman for Zurich declined to comment on litigation.
Schools considering suing their insurers may also be awaiting a ruling on the potential consolidation of some Covid-related coverage claims, attorneys said.
The Judicial Panel on Multidistrict Litigation will hear oral arguments Sept. 24 on whether business interruption cases should be grouped together by insurance company defendants. The panel, in an August ruling, refused to funnel hundreds of individually brought cases and proposed class actions into a single, federal court venue but left the door open for insurer-specific consolidation.
“Educational institutions might be waiting to see what the appropriate way to bring these cases is,” said Seaman, nodding to the JPML and procedural questions.
As of yet, no proposed class has been certified by any judge.
The dearth of university-filed business interruption lawsuits so far could reflect a recognition that their policies don’t provide the type of coverage sought, said Seaman, who represents insurers.
It could also be that universities are waiting for favorable rulings in their perspective jurisdictions, he said. Many have continued charging tuition and fees, allowing them to continue operating and limit business losses they might seek from insurers.
But students are increasingly suing over tuition reimbursement as classes move online, and more schools could turn to insurance policies to cover their legal fees.
“We know the insurance companies are not going to pay these claims without a fight,” said Michael Levine, partner at Hunton Andrews Kurth LLP.