Federal Court In North Carolina Finds Health Care Centers Allege Direct Physical Loss For COVID-19 Claims

A federal court in North Carolina denied an insurer’s motion to dismiss COVID-19 claims by finding that the insured sufficiently alleged physical losses such that there was “direct physical loss” under the terms of the policy. Novant Health Inc. v. Am. Guar. & Liab. Ins. Co., No. 1:21-cv-309, 2021 U.S. Dist. LEXIS 181871, 2021 WL 4340006 (M.D.N.C. Sept. 23, 2021).  

The policy at issue insured against “direct physical loss” caused by a covered cause of loss. The insured alleged that COVID-19 resulted in a physical transformation of the air and surfaces “rendering them dangerous transmission vehicles.” In turn, the insured alleged that this led not to temporary damage, but to a sustained physical damage that was not fully repaired through simple cleaning and disinfection. As a result, the insured argued, this rendered the property unusable for ordinary use. 

The court turned to the language of the policy to determine whether these allegations constituted a “direct physical loss.” The court noted that the term was left undefined in the policy and that the only North Carolina case addressing its meaning was decided at the summary judgment stage with more clear facts, and thus was not applicable. Accordingly, the extent to which COVID-19 resulted in “direct physical loss” covered under the policy could be determined once more facts were developed and dismissal was inappropriate. The court denied the insurer’s motion to dismiss.