The legal team for Baylor College of Medicine believes that this was the first jury trial in the nation to tackle the issue of whether a commercial property insurance policy covered business interruption losses because of the pandemic.(Credit: Billion Photos/Shutterstock)

A jury in Harris County returned a $48.5 million verdict in favor of Baylor College of Medicine (BCM), finding the insurers’ commercial property insurance policies covered losses due to COVID-19.

Posttrial, Baylor’s legal team announced its belief that this was the first jury trial in the nation on the issue of whether a commercial property insurance policy covered business interruption losses because of the pandemic.

Murray Fogler of Fogler, Brar, O’Neil & Gray said, “Judges in other cases here and in other jurisdictions previously held that a virus could not cause damage as a matter of law, a precondition in many business interruption policies, including Baylor’s.”

Fogler tried the case with his partner, Robin O’Neil.

Robert Corrigan, Baylor’s senior vice president and general counsel, added that “Baylor was fortunate to have our case before a courageous judge who identified a fact issue that under our system of justice is decided by a jury. The Baylor community is deeply grateful to the jury for listening to the evidence and making an informed decision.”

In the fourth quarter of 2021, the defendant companies, Lloyd’s of London underwriters, moved for summary judgment. Baylor’s response to the defense motion laid out the reasons this case was different from other COVID-19 property loss claims.

The insurers cited federal district court decisions that dismissed COVID-19-related business interruption claims at the pleading stage, the response motion said, but those cases relied on different claims, facts and policies than those at issue.

“No Texas state court interpreting the term ‘direct physical loss of or damage to property’ in other contexts have made clear that whether the coronavirus caused direct physical harm to property is a fact issue,” Baylor argued.

“Insurers contend various exclusions in the policies preclude coverage … but fail to tell the court that for the next policy year the insurers added an express exclusion for virus-related losses. The express addition of a new exclusion belies their arguments that the existing exclusions did the trick,” Baylor said.

The policies at issue were signed on Oct. 31, 2019, in three separate contracts: the XL policy, the ACE policy, and the Lloyd’s policy. Baylor paid more than $1.5 million in premiums and in exchange, the insurers agreed to provide a portion of Baylor’s $100 million primary coverage.

The pandemic severely affected Baylor’s operations at its many facilities in Harris County and elsewhere. While the insurers did not dispute that Baylor suffered harm — the health care system claimed $69 million in damages — the insurers claimed that the losses were something other than the loss to its properties, according to court documents.

“The policies insure BCM’s physical places of business, not BCM’s business activities,” the defendants’ summary judgment motion asserted.

Fogler responded, “But the policies insure both.”

Unlike many other businesses that have sought coverage unsuccessfully, Baylor said that its missions required extraordinary steps to keep its properties open to continue to treat patients afflicted with COVID and other emergent medical conditions, conduct clinical trials on COVID vaccines and teach the next generation of health care providers and scientists.

Because of that, Baylor was able to prove that the SARS-CoV-2 virus was physically present in its facilities for the entire period of its insurance policy, the plaintiff’s attorneys said.

The jury heard from several experts, including Baylor’s world-renowned virologist Dr. Peter Hotez, who opined that the virus settles on surfaces, making the property less functional and valuable. The jury agreed that the virus caused direct physical loss of or damage to Baylor’s property and awarded damages for lost profits, extra expenses and research losses.

Although the judgment affects all three insurers, only Lloyd’s is required to pay for now. XL Insurance America, a unit of AXA, and ACE American Insurance Co., a unit of Chubb, were successful on their motions for summary judgment and Baylor has appealed.

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