(Article from Insurance Law Alert, February 2025)
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Holding
Ruling on a matter of first impression in Texas, a Texas appellate court ruled that the presence of the COVID-19 virus on insured property does not give rise to coverage under commercial property policies. Lloyd’s Syndicate v. Baylor College of Medicine, 2025 Tex. App. LEXIS 378 (Tex. App. Ct. Jan. 28, 2025).
Background
Baylor, a university and medical research facility, sought business interruption coverage for COVID-19-related losses under all risk property policies. When the insurers denied coverage, Baylor sued for breach of contract, among other claims. The case was tried to a jury, which answered “yes” to the following question: “Did COVID-19 cause direct physical loss of, or damage to, Baylor’s property?” Following the verdict, the trial court entered final judgment awarding Baylor more than $12 million in damages and attorney’s fees.
Thereafter, the insurers moved for judgment notwithstanding the verdict, arguing that there was legally insufficient evidence to support the jury’s finding. The trial court denied the motion and the appellate court reversed.
Decision
Construing the evidence in “the light most favorable to the verdict,” the appellate court concluded that a reasonable factfinder could not conclude that the presence of the COVID-19 virus on insured property caused direct physical loss of or damage to property. The court reasoned that the policy language was unambiguous and that Texas law requires “a tangible alteration or deprivation of the property.”
This standard was not met, the court explained, because while the presence of the virus was potentially harmful to people, it did not harm the property itself. Additionally, the court emphasized the ease with which the virus could be removed from property through surface cleaning “or simply waiting several days” for the virus to become harmless and for the property to return to its “original, undamaged condition.” According to the court, to find otherwise would mean that “property everywhere would be in a constant state of damage or loss” and “would render every sneeze, cough, or exhale a tangible alteration or deprivation of property.”
Comments
The court highlighted an important distinction between the physicality of a virus particle itself, and any alleged physical damage to or loss of property. More specifically, the court acknowledged evidence that the virus itself is physical and created a physical bond with property, but nonetheless held that the virus did not cause a physical loss of or damage to the property.
The ruling aligns with the overwhelming majority of courts across the country that have addressed the scope of coverage for COVID-19-related losses under property policies.