Northwell Health is suing two property insurers over their refusal to pay hundreds of millions of dollars' worth of claims the New York health system says it's owed for losses stemming from the COVID-19 pandemic.
New York's largest private employer argued in its federal lawsuit against Lexington Insurance Co. and Interstate Fire & Casualty Co. that the policies it purchased are designed to cover "exactly" the type of losses and expenses it sustained during the pandemic. New York City, where Northwell's facilities are located, was hit hard early on in the crisis, with approximately 200,000 coronavirus cases reported during the first three months alone.
"Defendants' position has forced Northwell to fight a two-front battle, both against the COVID-19 pandemic, but also to obtain coverage to which it is clearly entitled," the health system said in its complaint.
The complaint says Northwell purchased "all risks" policies from Lexington, which principally operates in Boston, and Interstate, based in Chicago, effective from March 1, 2018, to March 1, 2021. The policies cover 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 is about $1.3 billion, with Lexington responsible for 90% and Interstate for 10%, subject to a $500,000 combined deductible.
New Hyde Park, N.Y.-based Northwell lost almost $247 million on operations in the first nine months of 2020, a -2.6% margin. That's despite having recognized $892 million in federal coronavirus grants during that period. On the other hand, the value of not-for-profit Northwell's cash, investments and cash equivalents grew 29% year-over-year to $7.8 billion in the first nine months of 2020.
Northwell said it has treated more than 100,000 COVID patients across its facilities. The health system added more than 1,600 beds in response to the pandemic, secured personal protective equipment and added staff. In its complaint, Northwell wrote that it also incurred substantial costs in cleaning supplies, janitorial services and hiring new employees and vendors to keep its facilities safe and sanitized.
The most significant driver of the health system's financial losses, however, have been the forced cessation of elective surgeries under state orders, the closure of physician practices and fewer hospital admissions and other visits to its facilities. Northwell's total discharges were down 14.6% year-over-year in the first nine months of 2020.
In its complaint, Northwell wrote that it promptly notified the insurers of its claim for coverage under the policies and provided documentation of its hundreds of millions of dollars in covered costs and losses. After more than six months, the insurers notified Northwell on Oct. 30, 2020, they were denying its claims in their entirety.
"Operating a network of healthcare facilities, Northwell understood that it would be on the front lines in the event of a pandemic such as COVID-19, and it reasonably expected that the policies would cover such losses arising from such a pandemic," the complaint said.
Northwell is far from alone. 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. Over a third were filed by restaurants and bars. The Review found judges dismissed policyholders' claims in nearly 75% of cases.
Part of the property insurers' rationale for denying Northwell's claims, according to the complaint, was that the executive orders from New York's governor and health commissioner did not trigger coverage because they did not completely prohibit access to Northwell's facilities. Northwell argues nothing in the policies requires complete prohibition or total shutdown of access to Northwell's facilities for coverage.
The complaint says the defendants also claim that the "Pollution, Contamination, Debris Removal Exclusion" erases Northwell's coverage for communicable disease and decontamination costs because it only applies to traditional environment and industrial pollution and not from claims arising from the presence of the coronavirus.
Northwell says that's not true, as excluded damages are those that result from the "release, discharge, dispersal, escape or dispersal" of pollutants or contaminants regulated by the Environmental Protection Agency. "This exclusion does not apply to Northwell's claim."
Northwell filed suit in the U.S. District Court for the Southern District of New York.
Lexington did not return a request for comment. Allianz Global Corporate & Specialty, Interstate's parent company, said in a statement that while it can't comment on the Northwell case, commercial property policies only cover direct physical loss or damage to property.
"All of us—businesses and individuals alike—have suffered personal and economic hardship due to the pandemic," AGCS said. "That shared hardship, however, doesn't provide a basis for property coverage. We owe it to our policyholders and other stakeholders to only pay valid claims for covered losses."
Northwell said in a statement it values its long-standing relationships with Lexington and Interstate.
"It is unfortunate that they have failed to honor the terms of the policy agreed upon at its inception, thus necessitating this lawsuit at a time when Northwell needs to dedicate its resources to fighting the global pandemic surrounding the novel coronavirus," the health system said.