Baylor College of Medicine v. XL Insurance America, Inc. and Ace American Insurance Company (No. 14-22-00145-CV; February 6, 2024) stemmed from the COVID-19 pandemic. When the pandemic forced Baylor to close or dramatically reduce operations to combat the community spread of the disease, it filed a claim with its insurers for business interruption. The insurers denied the claim on the basis that “(1) there as no direct physical loss or damage to convered property; and (2) the Exclusion applied.” Baylor’s policy contained an exclusion for loss or damage caused by “the release, discharge, escape, or dispersal of Contaminants or Pollutants.” Baylor sued the insurers, who moved for summary judgment based on the policy exclusion. The trial court dismissed Baylor’s claims with prejudice. Baylor appealed.
In an opinion by Justice Wise, the court of appeals affirmed. Baylor argued that the exclusion’s was ambiguous because a virus is not a “contaminant or pollutant.” Specifically, Baylor asserted that “bacteria, virus, or other hazardous substances” were not examples of “contaminants or pollutants” as defined in the policy, which listed substances such as “smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste …” It contended that the exclusion’s reference to “virus” only referred to “the types of damages to human health or property that could be occasioned by the release of an excluded pollutant or contaminant.” While observing that the exclusion was “not a model of clarity,” the court nonetheless determined that the exclusion covered a “virus.” It read the policy language as specifying that a bacteria or virus, along with the other substances included in the non-exhaustive list set out in the exclusion, can all “cause or threaten damage to human health or welfare.” The plain dictionary meaning of those terms further refers to their damage-causing characteristics, leading the court to conclude that “the only reasonable interpretation of the Exclusion is that ‘bacteria, virus, or hazardous substances’ are listed as additional types of pollutants or contaminants because they are capable of causing or threatening damage to human health of human welfare.”
Baylor argued further that the exclusion defined a pollutant or contaminant as a “solid, liquid, gaseous or thermal irritant or chemcal,” none of which describe a virus. The court was unconvinced. It was also unconvinced by Baylor’s contention that its claims arose from the presence of the virus at Baylor and in the community, not by a “release, discharge, escape or dispersal,” as specified by the policy. The court didn’t buy the idea that the spread of the virus did not constitute a “dispersal” under the exclusion, nor that the insurers’ subsequent amendments to their policy exclusions also specified communicable diseases and pathogens. In sum, the court declined to create an ambiguity where none existed in the policy language itself.
This is undoubtedly a correct decision that, had it come down differently, could have thrown wide the courthouse doors to similar business interruption lawsuits. The shadow of the COVID-19 pandemic is a long one.
