The COVID-19 pandemic's impact on Northwell Health's patient business and cleaning and staffing costs, don't entitle the New Hyde Park, N.Y.-based health system to $1.25 billion in insurance claims, a federal judge ruled Tuesday.
U.S. District Judge Jed S. Rakoff dismissed the suit from New York's largest healthcare provider, saying the not-for-profit system failed to prove that Boston-based Lexington Insurance Company and Chicago-based Interstate Fire & Casualty Company breached their contract and violated the implied covenant of good faith and fair dealing by denying Northwell's claims.
Northwell said in its complaint that it purchased "all risks" policies from the two insurers, which were effective from March 2018 to March 2021. The policies covered losses from the interruption of normal business operations, restriction of access to property—including if caused by a civil order—and communicable disease. The policy limit was about $1.3 billion, with Lexington responsible for 90% and Interstate for 10%, subject to a $500,000 combined deductible, the lawsuit said.
"We continue to be disappointed that Lexington and Interstate Fire and Casualty have failed to honor the terms of the policy thus necessitating this lawsuit at a time when Northwell needs to dedicate its resources to helping the community and our team members recover from the COVID-19 pandemic," a Northwell spokesperson wrote in an emailed statement.
The health system submitted claims to these commercial property insurers in April 2020, seeking to recoup the revenue loss associated with canceling elective surgeries and make up for increased costs related to cleaning supplies and staff during the pandemic, the lawsuit said. Six months later, the two insurers informed Northwell its claim was denied, as the pandemic-related losses were not covered under its policies around communicable disease, decontamination costs and civil and military provisions, according to the complaint.
Northwell asked the insurers to reconsider their decision in December 2020. The next month, Lexington and Interstate reported their position was final.
The health system sued the insurers in February in the U.S. District Court for the Southern District of New York, estimating its staff had cared for more than 100,000 patients suffering from COVID-19 at that point, and comparing the coronavirus' impact to its operations to that of a noxious gas. But unlike this contaminants, COVID-19 did not cause Northwell personnel to be unable to use its facilities—rather, the health system was still able to see patients and function with extra precaution, Rakoff wrote.
"A hospital does not cease to be a hospital because a viral outbreak requires more staff or an increase in the hospital's use of hygiene practices, personal protective equipment or janitorial services," Rakoff wrote.
Rakoff noted that Northwell's business did not actually slow because of the coronavirus. Rather, the health system just served a different patient mix, and potentially less lucrative line of business, compared with elective surgeries. He added that insurers' contracts also state that they do not cover "loss or damage caused by… actual, alleged or threatened release, discharge, escape or dispersal of contaminants or pollutants," according to the complaint.
"What is a sneeze or cough if not a discharge or dispersal?" Rakoff wrote, noting that Northwell had said the coronavirus was transmitted by patients clearing their throat.
The complaint was dismissed with prejudice, and Northwell's motion for a summary judgment was denied as moot. The health system is far from alone in being denied commercial coverage related to the coronavirus.
At least 1,250 businesses had sued insurers nationwide as of October 2020 for refusing to cover claims of business interruption from COVID-19 shutdown orders, according to National Law Review. The Review found judges dismissed policyholders' claims in nearly 75% of cases.