Milwaukee-based Froedtert Health Inc. filed a lawsuit against Factory Mutual Insurance Company over its denial of the health system's COVID-19 business interruption claim.
According to the lawsuit filed Wednesday, Froedtert is seeking compensation for the significant damage, losses and expenses incurred as a result of the COVID-19 pandemic.
Froedtert argues that these damages are covered under its "all risks" property insurance policy, which includes a $2 billion limit of liability per occurrence. The policy provides additional coverage for communicable diseases response, including cleanup costs and public relations services.
Factory Mutual has refused to pay out Froedtert's claim. This is despite an initial agreement by the Johnston, Rhode Island-based insurance provider that there was coverage under the policy’s communicable disease response coverage sections, according to the complaint.
"Froedtert has dutifully paid its premiums to have a safety net of disaster insurance for precisely the kind of calamity that has happened, and Factory Mutual must honor its promises," the health system said in the complaint.
Asked for comment on the matter, Steve Zenofsky, assistant vice president of public relations at Factory Mutual issued the following statement by email: "FM Global values the long-term relationships we have with our policyholders and we are proud to be leading the industry for claims service. It is unfortunate when legal matters arise because we strongly believe our insurance policies are clear on the coverage provided."
Froedtert and its area facilities lost $75 million in business income from March to September 2020 and, as of June 2020, had incurred more than $10 million in extra expenses. Labor costs at Froedtert Hospital, alone, exceeded $1 million, according to its complaint.
As explained in the complaint, Froedtert was on the "front lines" of the battle against COVID-19 and was unable to close its doors to the public as a means of protection from loss or damage due to the virus' entry and contamination of indoor air and surfaces.
"Despite (Froedtert's) best efforts to contain the communicable disease, it spread throughout the facilities both by respiratory droplets in the air and by clinging to and persisting on surfaces by physically changing the affected property and rendering it dangerous and unusable," according to the complaint.
Because Froedtert's facilities had to remain open and operational, the company spent millions of dollars on frequent property disinfection, protective gear for staff as well as other necessary screening and IT equipment to curb the spread of the virus.
Froedtert says it was forced to reallocate resources, including property and staff, and adjust business operations in order to abide by government orders and devote more attention to the public health emergency. By September 30, 2020, Froedtert Hospital had dedicated resources to approximately 1,010 patients who tested positive for COVID-19, according to the complaint.
The health system largely blames the negligence of both the Chinese and U.S. governments for the failure to prevent the spread of COVID-19.
"Froedtert prudently purchased 'all risk' business interruption insurance for precisely this kind of casualty – loss or damage resulting from the presence of a communicable disease and resulting from others’ negligence," according to the complaint.
Prior to Froedtert submitting its claim, Factory Mutual issued a two-page "talking points" document addressing policy holders' questions about coverage for pandemic-related losses. According to the complaint, Factory Mutual instructed adjusters to rely on the talking points when accepting or denying all claims related to COVID-19.
According to the talking points document included in the case, coverage for property damage is "triggered" by the "actual presence" of a communicable disease at the property. Simultaneously, access to the property must be limited for a certain amount of time.
For example, if an employee were confirmed to be affected with the disease, that would be considered "actual presence" but that must be the basis for the decision to limit access to the property. Factory Mutual also asserts that communicable disease does not constitute physical damage under certain coverage sections.
Froedtert argues against that in the complaint, saying "the scientific community has confirmed that SARS-CoV-2 virions and COVID-19 alter the conditions of properties, in that the premises are physically damaged and no longer safe for normal use. In this regard, SARS-CoV-2 virions and COVID-19 cause physical loss of and damage to properties."
Froedtert said there was lack of investigation by Factory Mutual into its claim because the insurer used a "one-size-fits-all" approach to determining coverage for its clients' COVID-19 losses, and therefore, there was "no reasonable basis" to deny the health system's claim.
According to the complaint, Froedtert is seeking compensation for damages, including "compensatory damages, actual attorney’s fees, pre- and post-judgment interest, punitive damages, and any other costs and relief that this court deems appropriate."
Froedtert is not alone in its fight to collect what it considers rightful payment for the financial devastation of COVID-19. Disputes and litigation over business interruption insurance coverage was the subject of an award-winning story published by BizTimes Milwaukee last year.