United States Court of Appeals For the First Circuit
No. 23-1286
LAWRENCE GENERAL HOSPITAL,
Plaintiff, Appellant,
v.
CONTINENTAL CASUALTY COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Gelpí, Howard, and Rikelman, Circuit Judges.
Roman Martinez, with whom Robert J. Gilbert, Michael Huggins, David A. Barrett, Margaret A. Upshaw, and Latham & Watkins LLP were on brief, for appellant.
Kannon K. Shanmugam, with whom H. Christopher Boehning, Matthew M. Higgins, Brian M. Lipshutz, Kenneth N. Thayer, Paul, Weiss, Rifkind, Wharton & Garrison LLP, and Conn Kavanaugh Rosenthal Peisch & Ford, LLP were on brief, for appellee.
January 10, 2024 RIKELMAN, Circuit Judge. Lawrence General Hospital
("LGH") sued its insurer, Continental Casualty Company, for
denying coverage for losses LGH alleges it suffered during the
COVID-19 pandemic. Relying on recent decisions rejecting similar
claims, the district court granted Continental's motion to dismiss
LGH's complaint under Federal Rule of Civil Procedure 12(b)(6).
On appeal, LGH contends that the district court misconstrued the
critical case law and that the detailed allegations in its
complaint are sufficient to state a claim for two different types
of coverage under its policy. First, LGH argues that the policy
provisions covering "direct physical loss of or damage to
property," associated business-interruption losses, and related
expenses should apply because the SARS-CoV-2 virus chemically
bonded with its property, resulting in physical damage. Second,
LGH contends its separately purchased Health Care Endorsement
covers losses and costs incurred as a result of complying with
government decontamination orders related to COVID-19. Applying
Massachusetts state law, we find that LGH failed to state a claim
that the SARS-CoV-2 virus caused "direct physical loss of or damage
to [its] property." However, because we conclude that LGH was
subject to decontamination orders and thus states a claim for
coverage under the Health Care Endorsement, we affirm in part,
reverse in part, and remand for further proceedings.
- 2 - I. BACKGROUND
A. Relevant Facts
We "draw the facts from the complaint and its
attachments," taking the well-pleaded facts as true and construing
all reasonable inferences in LGH's favor. Lanza v. Fin. Indus.
Regul. Auth., 953 F.3d 159, 161 (1st Cir. 2020); Barchock v. CVS
Health Corp., 886 F.3d 43, 48 (1st Cir. 2018).
1. LGH's Insurance Policy
LGH is a nonprofit community hospital operating in
northeastern Massachusetts and southern New Hampshire. It has its
main campus at the eponymous Lawrence General Hospital in Lawrence,
Massachusetts but also operates various other ambulatory surgery
centers, family health centers, outpatient rehabilitation centers,
and laboratories in the region. LGH purchased an "all risk"
commercial property insurance policy ("the policy") from
Continental for the period of October 1, 2019, through October 1,
2020. The policy includes two types of coverage at issue in this
appeal.
First, the policy provides broad coverage for "direct
physical loss of or damage to property." This coverage includes
the value of the lost or damaged property itself, as well as
related losses. The "Business Interruption" provision insures
against "loss resulting from [the] necessary interruption of [the]
business caused by direct physical loss of or damage to covered
- 3 - property" during the time necessary to "rebuild, repair or replace"
the property. The "Extra Expense" provision covers "the reasonable
and necessary extra expense . . . incurred by the Insured in order
to continue as nearly as practicable the normal operation of the
Insured's business following direct physical loss of or damage to
covered property by perils(s) [sic] insured against." The policy
provides primary coverage of up to $563 million for "direct
physical loss of or damage to covered property."
Second, LGH purchased an additional Health Care
Endorsement, which includes "Disease Contamination Coverage."
This coverage is triggered by an "evacuation or decontamination
order at a [covered] location by the National Center [sic] for
Disease Control, authorized public health official or governmental
authority because of the discovery or suspicion of a communicable
disease or the threat of the spread of a communicable disease."
(Emphasis omitted.) Continental will pay for "direct physical
loss of or damage to covered property," a variety of "necessary
and reasonable costs," and lost business income "due to the
evacuation and decontamination order." Under the Health Care
Endorsement, the policy provides coverage of up to $1 million per
occurrence. LGH alleges that it was subject to many occurrences
triggering coverage under the endorsement.
- 4 - 2. The COVID-19 Pandemic and LGH's Response
During early 2020, in the middle of the policy period,
the SARS-CoV-2 virus spread throughout the United States, leading
quickly to tens of thousands of cases of COVID-19.1 The city of
Lawrence experienced some of the highest rates of COVID-19
infection in the Commonwealth, and LGH served as the main COVID-
19 treatment facility in the region.
In its complaint, LGH alleges that it suffered physical
loss of and damage to its property due to the "continuous
reintroduction" of SARS-CoV-2 particles. Relying on expert
testimony, LGH alleges that through a process called "adsorption"
SARS-CoV-2 particles create "an actual [noncovalent] chemical
bond" with the surface of the objects they land on, causing
structural changes to the objects themselves and making the virus
"hard to detach." LGH distinguishes between SARS-CoV-2 particles
that are merely "deposited" on an object, "akin to spilled flour,"
and adsorbed particles which "adhere[] to the surface of the
adsorbing object and concentrate[] there."
However, LGH also alleges that the nature of the bond
between SARS-CoV-2 particles and physical objects "varies, often
markedly so, depending on the type of object." For example, LGH
Like the parties, we distinguish between the disease, COVID- 1
19, and the virus that causes it, SARS-CoV-2.
- 5 - contends that "the properties of the host surface can affect
whether an adhered (deposited, adsorbed, or somewhere in between)
viral particle remains stuck to the surface and, if so, whether it
retains its infectivity." As for the bond's duration, LGH alleges
that some studies have found the SARS-CoV-2 virus remains
infectious for seven days on surfaces such as plastic, stainless
steel, glass, and wood; other studies have found SARS-CoV-2 may
remain infectious on glass and stainless steel for approximately
a month under indoor conditions.
As a result of this contamination, LGH alleges that it
was forced to undertake a series of remediation efforts including:
"enhanced cleaning" using "stronger (and more expensive and time-
consuming) cleaning products and techniques"; extensive testing,
cleaning, and maintenance of HVAC systems, including replacement
of HEPA filters; and sterilization or disposal of items such as
"intravenous therapy (IV) poles, medical gas, linens, toilet
paper, and food."
3. Alleged Decontamination Orders
Additionally, LGH alleges that it was subject to several
government decontamination orders sufficient to trigger the
Disease Contamination Coverage provision. On March 11, 2020, the
World Health Organization declared the global COVID-19 outbreak a
pandemic. Both the federal government and Massachusetts quickly
- 6 - reacted to the news by each declaring a COVID-19 state of
emergency.
LGH points to directives from the Massachusetts
Department of Public Health (DPH) and Centers for Disease Control
(CDC) as representative examples of COVID-19 decontamination
orders. On March 15, 2020, DPH issued a memorandum requiring
hospitals to postpone or cancel all nonessential, elective
invasive procedures until the state of emergency was lifted.
"[N]onessential, elective invasive procedures" were defined
broadly as "procedures that are scheduled in advance because the
procedure does not involve a medical emergency." On May 18, 2020,
DPH issued an updated memorandum authorizing hospitals to resume
a subset of invasive, elective procedures, including cancer
screenings and organ transplants, if the hospitals both met and
attested to compliance with specific safety standards outlined in
the DPH "Reopen Approach for Acute Care Hospitals guidance." The
Reopen Approach required, for example, that hospitals "have an
established plan for thorough cleaning and disinfection of all
common and procedural areas, including in-between patient
encounters in treatment rooms, which may require hiring
environmental services staff and reducing patient hours to allow
for more frequent cleaning." If a hospital failed to meet the
stated safety standards, the Reopen Approach warned that the
hospital must "promptly suspend provision of non-emergent Phase 1
- 7 - services," including "nonessential, elective invasive" surgical
procedures. DPH also warned it would "monitor and assess
compliance," requiring "remedial action or suspension of [Phase 1]
procedures and services as warranted."
On June 8, 2020, DPH issued a new memorandum authorizing
hospitals to resume "elective, non-urgent procedures and
services," again subject to certain mandatory conditions. These
conditions included compliance with the previously stated safety
standards, as well as "[o]ngoing compliance with CDC requirements
and other public health guidance regarding environmental infection
controls," including "thorough cleaning and disinfection of
[patient] room[s] and equipment." LGH alleges that, by reference,
the June 8 order made mandatory a variety of CDC directives. As
an example, LGH cites the CDC's September 2020 publication
"Guidance for Cleaning and Disinfecting Public Spaces, Workplaces,
Businesses, Schools, and Homes," which included suggestions on
using Environmental Protection Agency-approved cleaning products,
regularly disinfecting high-touch areas, and ensuring the use of
appropriate personal protective equipment when using disinfectants
and chemicals.2
2LGH also cites as mandatory the CDC's June 2021 guidance on ventilation system upgrades. However, this document was issued well after the October 2019-October 2020 policy period, and it is not clear -- nor does LGH explain -- why this guidance would be a
- 8 - B. Procedural History
On April 8, 2020, LGH filed a claim with Continental for
coverage of COVID-19 losses beginning on March 16, 2020. After
Continental denied coverage, LGH sued in Massachusetts Superior
Court, bringing solely Massachusetts state-law claims.
Continental then removed the case on the basis of diversity
jurisdiction under 28 U.S.C. § 1332 to the District of
Massachusetts.
Now in federal court, LGH filed an amended complaint to
attempt to satisfy the legal requirements specified in three
recently decided cases: Verveine Corp. v. Strathmore Insurance
Co., 184 N.E.3d 1266 (Mass. 2022); SAS International, Ltd. v.
General Star Indemnity Co., 36 F.4th 23 (1st Cir. 2022); and Legal
Sea Foods, LLC v. Strathmore Insurance Co., 36 F.4th 29 (1st Cir.
2022). Continental moved to dismiss the amended complaint for
failure to state a claim, and on February 24, 2023, the district
court granted the motion to dismiss. LGH timely appealed.
II. STANDARD OF REVIEW
We review de novo a district court's decision to grant
a motion to dismiss under Rule 12(b)(6), reversing the dismissal
only if "the combined allegations, taken as true . . . state a
binding decontamination order under the policy. As such, we do not consider it in our analysis.
- 9 - plausible, not a merely conceivable, case for relief." Lee v.
Conagra Brands, Inc., 958 F.3d 70, 74 (1st Cir. 2020) (quoting
Sepúlveda-Villarini v. Dep't of Educ. of P.R., 628 F.3d 25, 29
(1st Cir. 2010)). To determine if the plaintiff's allegations are
plausible, we "separate factual allegations from conclusory ones."
Conformis, Inc. v. Aetna, Inc., 58 F.4th 517, 528 (1st Cir. 2023)
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009)). We then
"accept as true all well-pleaded facts alleged in the complaint
and draw all reasonable inferences therefrom in the pleader's
favor." Lanza, 953 F.3d at 162 (quoting Nystedt v. Nigro, 700
F.3d 25, 30 (1st Cir. 2012)).
III. DISCUSSION
A. Interpreting Insurance Contracts
As this case is in federal court by virtue of diversity
jurisdiction, state law provides the substantive rules of our
decision. See Torres-Ronda v. Nationwide Mut. Ins. Co., 18 F.4th
80, 84 (1st Cir. 2021); Erie R. Co. v. Tompkins, 304 U.S. 64, 78
(1938). The parties agree that Massachusetts law governs the
policy, so we endeavor to predict how the Commonwealth's highest
court would decide this case, regardless of whether our independent
analysis would suggest a different outcome. See Aubee v. Selene
Fin. LP, 56 F.4th 1, 4 (1st Cir. 2022).
Massachusetts courts construe the language of an
insurance policy as a matter of law, applying many of the usual
- 10 - rules for interpreting contracts. Verveine, 184 N.E.3d at 1272;
Valley Forge Ins. Co. v. Field, 670 F.3d 93, 97 (1st Cir. 2012)
(applying Massachusetts law). That, of course, means beginning
with the "actual language of the polic[y]." Brazas Sporting Arms,
Inc. v. Am. Empire Surplus Lines Ins. Co., 220 F.3d 1, 4 (1st Cir.
2000) (applying Massachusetts law).
Under Massachusetts law, we interpret "the words of the
policy in their usual and ordinary sense." Verveine, 184 N.E.3d
at 1272 (quoting Citation Ins. Co. v. Gomez, 688 N.E.2d 951, 952-
53 (Mass. 1998)). This analysis requires that we determine "the
fair meaning of the language used, as applied to the subject
matter." Id. (quoting Gordon v. Safety Ins. Co., 632 N.E.2d 1187,
1189 (Mass. 1994)). And that means interpreting the policy "in a
reasonable and practical way, consistent with its language,
background, and purpose." See Gen. Hosp. Corp. v. Esoterix Genetic
Lab'ys, LLC, 16 F.4th 304, 308 (1st Cir. 2021) (citation omitted)
(applying Massachusetts law). We also consider "what an
objectively reasonable insured, reading the relevant policy
language, would expect to be covered." Verveine, 184 N.E.3d at
1272 (quoting Dorchester Mut. Ins. Co. v. Krusell, 150 N.E.3d 731,
738 (Mass. 2020)); Brazas Sporting Arms, 220 F.3d at 4 (citation
omitted).
A term or phrase in an insurance policy is ambiguous
only if "it is susceptible of more than one meaning and reasonably
- 11 - intelligent persons [could disagree on] which meaning is the proper
one." Verveine, 184 N.E.3d at 1272 (quoting Dorchester Mut. Ins.,
150 N.E.3d at 738). A court will not find ambiguity merely because
"the parties offer different interpretations of the policy
language," Scottsdale Ins. Co. v. Torres, 561 F.3d 74, 77 (1st
Cir. 2009), or there are "multiple dictionary definitions of a
word." Citation Ins. Co., 688 N.E.2d at 953. If a term or phrase
in an insurance policy is reasonably susceptible of more than one
meaning, it is "strictly construed against the insurer" and in
favor of the insured. Easthampton Congregational Church v. Church
Mut. Ins. Co., 916 F.3d 86, 92 (1st Cir. 2019) (citing Metro. Prop.
& Cas. Ins. Co. v. Morrison, 951 N.E.2d 662, 671 (Mass. 2011)).
With these principles in mind, we turn to LGH's policy.
B. "Direct Physical Loss of or Damage to Property"
LGH contends it adequately alleged that SARS-CoV-2
chemically bonded with its property, resulting in physical
alteration that qualifies as direct physical loss or damage under
the policy, and the district court therefore erred in dismissing
this claim. We evaluate LGH's argument under a trio of insurance
cases decided under Massachusetts law interpreting "direct
physical loss of or damage to property" in the context of the
COVID-19 pandemic. See Verveine, 184 N.E.3d 1266; SAS, 36 F.4th
23; Legal Sea Foods, 36 F.4th 29. Based on this precedent, we
conclude that we must affirm the district court.
- 12 - We begin with a discussion of these three critical cases.
In Verveine, Boston-area restaurants challenged the denial of
their commercial insurance claims for lost revenue from the COVID-
19 pandemic and resulting government restrictions. 184 N.E.3d at
1270-71. The policies at issue covered "direct physical loss of
or damage to" the insured premises as well as lost business income
and extra expenses sustained due to suspension of operations
"caused by direct physical loss of or damage to property at [the
insured premises]." Id. at 1273 (emphasis omitted). The
Massachusetts Supreme Judicial Court ("SJC") upheld the dismissal
of the restaurants' complaint under its state equivalent to Federal
Rule 12(b)(6). Id. at 1270.
Most importantly, Verveine held that property does not
sustain physical loss or damage "in the first place unless there
needs to be active repair or remediation measures to correct the
claimed damage or the business must move to a new location." Id.
at 1275 (emphasis added) (citing Sandy Point Dental, P.C. v.
Cincinnati Ins. Co., 20 F.4th 327, 333 (7th Cir. 2021)). That is
because "'direct physical loss of or damage to' property requires
some 'distinct, demonstrable, physical alteration of the
property,'" id. (quoting 10A Jordan R. Plitt et al., Couch on
Insurance § 148:46 (3d ed. 2016)), and of course property cannot
repair itself. The SJC explained that "saturation, ingraining, or
infiltration of a substance into the materials of a building or
- 13 - persistent pollution of a premises requiring active remediation
efforts is sufficient to constitute 'direct physical loss of or
damage to property.'" Id. at 1276. By contrast, the "[e]vanescent
presence of a harmful airborne substance that will quickly
dissipate on its own, or surface-level contamination that can be
removed by simple cleaning, does not physically alter or affect
property." Id. Applying this standard, the SJC held that the
restaurants' losses from COVID-19 related closures were "not in
any way attributable to a direct physical effect on the plaintiffs'
property that can be described as loss or damage." Id. To the
contrary, the court stated, the restaurants' "continuing ability
to provide takeout and other services" demonstrated that there
were no physical effects on the restaurants' property itself, and
consequently the alleged "presence" of the virus would either
"dissipate on its own" or be removed "by simple cleaning." Id.
Shortly after Verveine was decided, our court applied
its reasoning in two opinions issued on the same day. Both cases
involved an appeal from a Rule 12(b)(6) dismissal for claims
virtually identical to those in Verveine: alleged wrongful denial
of commercial property insurance coverage for losses related to
the COVID-19 pandemic. SAS, 36 F.4th at 24-25; Legal Sea Foods,
36 F.4th at 30-31. However, both complaints involved slightly
more detailed allegations than those in Verveine. SAS alleged
that "smaller aerosol droplets carrying SARS-CoV-2 can linger in
- 14 - the air for hours and can be pulled into air circulation systems
and spread to other areas in a building"; "SARS-CoV-2 can linger
on surfaces for up to 28 days, serving as a vehicle for viral
transmission during that timespan"; and that the virus "cannot
simply be removed with disinfectant because it is continually
spread and reintroduced." SAS, 36 F.4th at 27-28 (internal
quotation marks omitted). Legal Sea Foods alleged that the virus
"attach[ed] to surfaces on and within . . . insured property and
[hung] in the air," resulting in "losses attributable to
governmental closure orders and losses due to the actual presence
of the SARS-CoV-2 virus at Legal's restaurants," requiring
"increase[d] frequency of cleaning" at those restaurants. Legal
Sea Foods, 36 F.4th at 32, 35-36 (alterations in original).
Nonetheless, relying on Verveine, we found that the
allegations in both complaints amounted to no more than an
"[e]vanescent presence of a harmful airborne substance that will
quickly dissipate on its own, or surface-level contamination that
c[ould] be removed by simple cleaning." SAS, 36 F.4th at 27-28
(first alteration in original) (citing 184 N.E.3d at 1276); Legal
Sea Foods, 36 F.4th at 34-36 (same). Regarding the spread of SARS-
CoV-2 through the air, we explained that "we do not see a reason
for concluding that the SJC would view Legal's allegations
concerning the virus's circulation and hours-long persistence in
the air as establishing more than '[e]vanescent presence.'" Legal
- 15 - Sea Foods, 36 F.4th at 36. As to the allegations about SARS-CoV-2
contamination lasting "for up to 28 days," we found "no allegation
that the virus cannot 'be removed by simple cleaning.'" SAS, 36
F.4th at 27-28. In evaluating the alleged remediation efforts, we
explained that the SJC's invocation of the phrase "simple cleaning"
referred to "the intensity of remediation measures that would be
required to remove a droplet." Legal Sea Foods, 36 F.4th at 36.
Given that Legal Sea Foods alleged only "increase[d] frequency of
cleaning," we saw "nothing . . . in Legal's complaint that would
provide a basis for concluding that Verveine can be distinguished
from the case before us on such a basis." Id.
Turning to the arguments here, LGH contends that its
property damage claim is sufficient to survive a Rule 12(b)(6)
motion because the allegations in its complaint are materially
different from those in Verveine, SAS, and Legal Sea Foods. In
particular, LGH alleges that SARS-CoV-2 physically altered the
structure of its property through a process called "adsorption,"
which it argues is sufficient to establish direct physical loss or
damage under Verveine. LGH further contends that the physically
altered property was then unsafe because "[h]umans can become
infected by touching . . . an object to which viral particles have
attached." It notes that, in Verveine, the SJC favorably cited
cases where ammonia, gasoline, and noxious odors constituted
physical loss or damage. See 184 N.E.3d at 1276. According to
- 16 - LGH, in those cases, just like here, the property was unsafe
because of the potential harm to people from being inside it, even
though there was no structural issue with the property itself.
As a result of this newly dangerous property, LGH argues,
it undertook substantial remediation efforts that went beyond
"simple cleaning." Given these efforts and LGH's allegation that
the virus may remain on surfaces for up to a month, it contends
the district court erred by dismissing its claim. In support, LGH
cites our opinions in SAS and Legal Sea Foods, where we suggested
that the presence of a virus on a surface for twenty-eight days
may be too long to be deemed "evanescent" and then focused on the
lack of allegations in those cases of any remediation efforts
beyond "simple cleaning." SAS, 36 F.4th at 28 ("But, even if the
presence of the virus on a surface for 28 days is too long to be
deemed 'evanescent,' SAS makes no allegation that the virus cannot
'be removed by simple cleaning.'" (citation omitted)); Legal Sea
Foods, 36 F.4th at 36 ("Even if a period of 28 days is too long to
be 'evanescent,' Legal has not alleged the virus cannot 'be removed
by simple cleaning,' as it alleges only that it has had to
'increase frequency of cleaning' in its restaurants.").
Even accepting all LGH's allegations as true, we
conclude that we must reject its arguments for three reasons.
First, the central holding of Verveine, as applied to this case,
is that property cannot repair itself and thus "direct physical
- 17 - loss of or damage to property" exists only if a party must take
active efforts to repair it. 184 N.E.3d at 1275. We read this to
mean that even "distinct, demonstrable, physical alteration" of
property that will resolve of its own accord, without the aid of
remediation efforts, is not "direct physical loss of or damage to
property" under Massachusetts law. Id. Moreover, we read the
SJC's discussion of "evanescent presence" as an illustration of
its central holding: "direct physical loss of or damage to
property" occurs only when "active remediation measures" to
correct the claimed damage are necessary. Id. at 1276. Both
"evanescent presence" and its inverse, "saturation, ingraining, or
infiltration of a substance" into property, serve as
demonstrations of this holding, not as a separate test of "direct
physical loss or damage." Id. Nothing in our opinions in SAS and
Legal Sea Foods suggests otherwise.
Taking as true LGH's allegation that SARS-CoV-2
particles can physically alter the affected property through
adsorption, LGH's complaint still makes clear that, absent any
intervention by it whatsoever, SARS-CoV-2 particles dissipate or
become noninfectious within as little as seven to twenty-eight
days. Any "damage" that can fix itself without further
intervention, and certainly within a period as short as twenty-
eight days or less, cannot amount to "direct physical loss of or
damage to property" under Massachusetts law as explained in
- 18 - Verveine. Therefore, even if LGH did undertake remediation efforts
that amounted to more than "simple cleaning," those efforts were
not to address any "direct physical loss of or damage to property."
Second, this case is distinguishable from the cases
discussed by the SJC about ammonia release, persistent odor, or
gasoline contamination where "direct physical loss of or damage to
property" was found. See Verveine, 184 N.E.3d at 1276 (first
citing Gregory Packaging, Inc. v. Travelers Prop. Cas. Co. of Am.,
No. 2:12–cv–04418, 2014 WL 6675934, at *1 (D.N.J. Nov. 25, 2014)
(ammonia release requiring outside remediation company to reduce
levels in building low enough for safe occupancy inflicted direct
physical loss or damage); then citing W. Fire Ins. Co. v. First
Presbyterian Church, 437 P.2d 52, 53-55 (Colo. 1968) (gasoline-
infiltrated soil and vapors contaminated foundation, halls, and
rooms); and then citing Farmers Ins. Co. of Ore. v. Trutanich, 858
P.2d 1332, 1335-36 (Or. Ct. App. 1993) (persistent odor in
residence from methamphetamine production constituted physical
damage, and therefore cost of remediation was recoverable)). Here,
the allegations demonstrate that LGH undertook its remediation
efforts not to address physical damage to the property, but to
prevent the spread of COVID-19 among people present in the
hospital.
Although LGH argues that these cases represent examples
where the property was unsafe as a result of its potential harm to
- 19 - humans, even though it remained structurally sound, a close review
shows why the SJC concluded these cases did not help the plaintiffs
in Verveine and why they also do not help LGH. In Gregory
Packaging, the local fire department instituted a mile-radius
evacuation zone around the affected property and did not allow the
insureds to reenter the building until it was satisfied that the
remediation company reduced the ammonia gas to "a safe level for
occupancy." 2014 WL 6675934 at *1, *2-4. Similarly, in Western
Fire Insurance Co., the insureds evacuated at the behest of the
local fire department, which determined that "the infiltration of
gasoline in the soil under and around the building" rendered the
building "uninhabitable" and use of the building "dangerous." 437
P.2d at 54. There are no similar facts alleged here.3 Instead,
many of LGH's covered properties remained open for some uses, a
fact that, per the SJC, indicates "there were not physical effects
on the property itself." Verveine, 184 N.E.3d at 1276.
Additionally, these cases are characterized by the
uninhabitability of the premises due to pollution or persistent
3 LGH alleges that two of its medical facilities were closed by government order from early March 2020 until May 11, 2020, and August 18, 2020, respectively. These closures were not a result of SARS-CoV-2 rendering the buildings uninhabitable, however, but instead the result of Massachusetts' policy on elective procedures. See Verveine, 184 N.E.3d at 1276 ("COVID-19 orders standing alone cannot possibly constitute 'direct physical loss of or damage to' property.").
- 20 - odor emanating from the building itself, including its walls and
foundation, not due to an infectious disease carried by people
within the building. Given that "[commercial insurance] policies
insure property, not people," it is understandable that an "all
risk" policy would cover pollution arising from the covered
property itself, not the people within it. See Schleicher &
Stebbins Hotels, LLC v. Starr Surplus Lines Ins. Co., 302 A.3d 67,
77 (N.H. 2023).
Third, as the SJC did at the time it decided Verveine,
we consider the clear consensus of courts throughout the country,
which cuts against LGH and demonstrates the flaws in its argument.
See Or. Clinic, PC v. Fireman's Fund Ins. Co., 75 F.4th 1064, 1071
n.1 (9th Cir. 2023) (noting that "as of May 25, 2023, 819 suits
raising similar claims . . . have been dismissed with prejudice by
federal and state courts"). For example, the New Hampshire Supreme
Court recently held that the dissipation of SARS-CoV-2 within a
month is essential to the determination that it does not cause
direct physical loss or damage. See Schleicher & Stebbins Hotels,
302 A.3d at 78. As the court aptly stated:
Accepting for the purposes of this appeal that . . . the virus can linger on surfaces for as long as 28 days, the fact that the virus will eventually dissipate on its own is significant to the question of whether the property has been changed in a distinct and demonstrable way. Property that has been changed in a distinct and demonstrable way
- 21 - will not be changed back simply by the passage of time.
Id. Similarly, as the Nevada Supreme Court explained, "[p]resence
of a physical virus on the property, even if it 'attaches to' the
property, does not give rise to the necessary transformative
element of something like 'fire, water, or smoke.' Otherwise, the
alleged presence of a physical force would 'render[] every sneeze,
cough, or even exhale' a qualifying harm." Starr Surplus Lines
Ins. Co. v. Eighth Jud. Dist. Ct. in & for Cnty. of Clark, 535
P.3d 254, 264 (Nev. 2023) (citations omitted).
The logic in these opinions echoes the SJC's explanation
in Verveine that "the question is not whether the virus is
physical, but rather if it has direct physical effect on property
that can be fairly characterized as 'loss or damage.'" 184 N.E.3d
at 1275. And as multiple courts have found, such direct physical
effect on property does not occur with SARS-CoV-2, where "the
problem of COVID-19 and its associated health risks are entirely
dependent on people being present at the property, rather than
arising from any harm to or defect in the property itself." Eighth
Jud. Dist. Ct., 535 P.3d at 266. Thus, we conclude that the SJC
would find no coverage under the physical property damage provision
here, despite the detailed allegations in LGH's amended complaint.
We address one final point on this issue. We disagree
with LGH that ruling that a virus or disease cannot cause physical
- 22 - loss or damage under the policy is irreconcilable with the policy's
Disease Contamination Coverage provision. This provision states:
If as a result of an evacuation or decontamination order at a location by the National Center [sic] for Disease Control, authorized public health official or governmental authority because of the discovery or suspicion of a communicable disease or the threat of the spread of a communicable disease, the Insurer will pay for: (1) direct physical loss of or damage to covered property . . . .
(First emphasis added.) The plain text of the policy clearly
contemplates coverage for a direct physical loss of or damage to
property "as a result of an evacuation or decontamination order,"
not from the communicable disease itself.
In sum, we conclude that the district court did not err
in finding LGH failed to allege "direct physical loss of or damage
to" its covered property. The allegations, taken as true,
demonstrate only a risk to people from the virus, not tangible
damage to LGH's physical property requiring remediation. Our
conclusion here reflects not only our understanding of
Massachusetts law, but also the clear consensus of courts across
the country.
C. Disease Contamination Coverage Provision
LGH next argues that the district court erred in
dismissing its claim under the Disease Contamination Coverage
provision. On this issue, we agree with LGH.
- 23 - This provision covers losses or costs incurred when four
criteria are met: (1) LGH is subject to "an evacuation or
decontamination order"; (2) "at a [covered] location"; (3) issued
"by the National Center [sic] for Disease Control, authorized
public health official or governmental authority"; (4) "because
of . . . the threat of the spread of a communicable disease."
(Emphasis omitted.) LGH alleges that it was subject to several
mandatory orders from the Massachusetts DPH and, by reference, the
CDC, which are sufficient to trigger coverage under this provision.
Importantly, on appeal, Continental has not contested
that LGH has met the last three criteria for coverage under this
provision. Instead, Continental focuses on the first factor --
whether LGH was subject to a "decontamination order" -- and argues
that it was not. In Continental's view, the DPH and CDC directives
cited by LGH were not mandatory orders at all. Further,
Continental contends the directives did not require
"decontamination."
The terms "decontamination order," "decontamination,"
and "order" are not defined in the policy, and accordingly we
construe their "fair meaning . . . as applied to the subject
- 24 - matter." Gordon, 632 N.E.2d at 1189 (citation omitted). Under
this framework, we reject both of Continental's arguments.4
1. The Directives Were Orders
The "fair meaning" of the term "order" is unambiguous,
and as such we consider whether the directives identified by LGH
are "orders" within that term's "usual and ordinary sense."
Citation Ins. Co., 688 N.E.2d at 952-53 (citation omitted). As
other courts interpreting this term have found, and we agree, an
"order" must be compulsory. See Conn. Child.'s Med. Ctr. v. Cont'l
Cas. Co., No. 22-322, 2023 WL 2961738, at *2 (2d Cir. Apr. 17,
2023) (discussing the lack of "orders that required Plaintiffs-
Appellants to evacuate or decontaminate their properties"
(emphasis added)); PS Bus. Mgmt., L.L.C. v. Fireman's Fund Ins.
Co., No. 21-30723, 2022 WL 2462065, at *4 (5th Cir. July 6, 2022)
(discussing whether "any public health order mandated that
[Plaintiffs'] premises 'be evacuated, decontaminated, or
disinfected'" (emphasis added)). The parties do not dispute this
definition. Rather, they dispute whether the sanctions LGH would
face for its noncompliance with the DPH and CDC directives are
4In a footnote in its brief, Continental also suggests that LGH's claims under the Disease Contamination Coverage provision would be foreclosed by several exclusions. We leave for the district court to decide any issues related to the alleged exclusions given that Continental did not include an argument on this defense in its briefing below or on appeal.
- 25 - severe enough for those directives to be considered "orders." We
hold that they are.
LGH alleges that beginning on March 15, 2020, DPH
directed all Massachusetts hospitals to "postpone or cancel any
nonessential, elective invasive procedures," which were defined as
"procedures that are scheduled in advance because the procedure
does not involve a medical emergency." It further alleges that
beginning on May 18, 2020, it was subject to an updated memorandum
requiring it to comply with specific public health and safety
standards before the hospital was allowed to move forward with
"elective procedures" such as "cancer screenings in high-risk
groups," "prenatal care," "removal of breast malignanc[ies]," and
"organ transplants." The mandatory public health standards
included "cleaning and disinfection of all common and procedural
areas." LGH claims an additional June 2020 memorandum required
its "[o]ngoing compliance" with the prior "public health and safety
guidelines," as well as with "CDC requirements and other public
health guidance regarding environmental infection controls" before
engaging in "non-essential elective invasive procedures and
services." As LGH points out, both the May and June 2020
directives required that it attest to its compliance with the
stated conditions and informed LGH that noncompliance would result
in "remedial action or suspension of [non-essential elective
invasive] procedures and services." According to Continental,
- 26 - however, the directives were not orders because LGH could have
"chosen" to remain open for only non-elective procedures or waited
for DPH to change the requirements for hospitals to resume elective
procedures.
We cannot square Continental's argument with our
obligation to interpret the policy "in a reasonable and practical
way, consistent with its language, background, and purpose." Gen.
Hosp. Corp., 16 F.4th at 308 (citation omitted). LGH's compliance
with the directives was not optional under any practical
understanding of that term. Conducting the type of urgent elective
procedures identified in the directives is important both to LGH's
mission of providing necessary care to its community and to its
bottom line and ability to operate. As LGH convincingly argues,
the "choice" to comply with the stated conditions or forgo the
ability to treat "the vast majority of its patients" for an
indefinite period is no choice at all.
Further, Continental's interpretation would be
inconsistent with the purpose of the policy: insurance coverage so
that LGH could continue to provide medical care to patients.
Following Continental's argument to its logical conclusion, no
evacuation or decontamination directive would ever be mandatory,
because a facility would always have the option of ceasing to
provide all or a subset of medical services instead of complying.
- 27 - The additional coverage LGH purchased with the Health Care
Endorsement would therefore be illusory.
Finally, Continental cites two cases affirming district
court rulings that government decontamination orders were
insufficient to support coverage under similar insurance
provisions interpreted under Connecticut and Louisiana law. See
Conn. Child.'s Med. Ctr., 2023 WL 2961738, at *2 (applying
Connecticut law and upholding the grant of a motion to dismiss
where the plaintiff-hospital "failed to allege that any specific
government order required them to evacuate or decontaminate their
properties" (emphasis added)); PS Bus. Mgmt., L.L.C., 2022 WL
2462065, at *4 (applying Louisiana law and upholding the grant of
a motion to dismiss where the plaintiff failed to allege "that any
public health order mandated that their premises 'be evacuated,
decontaminated, or disinfected'"). However, in each of these cases
the plaintiffs failed to describe the specific evacuation or
decontamination orders their property was subject to, instead
referring generally to executive orders and public health
guidance. See Complaint at ¶¶ 45-57, Conn. Child.'s Med. Ctr. v.
Cont'l Cas. Co., 581 F. Supp. 3d 385 (D. Conn. 2022) (No. 3:21-
cv-291) (failing to identify the specific orders requiring
decontamination and alleging plaintiff was subject to social
gathering restrictions, "directives and guidance" from the
Connecticut Department of Public Health, and "guidance" from OSHA
- 28 - and the CDC); Notice of Removal, Exhibit B at 3 ¶ 9, PS Bus. Mgmt.
v. Fireman's Fund Ins. Co., 2021 WL 4989870 (E.D. La. Oct. 7, 2021)
(No. 2:21-cv-1229) (alleging only that plaintiff was subject to
"non-essential business[]" closures). These examples are clearly
distinguishable from the specific and detailed allegations in
LGH's amended complaint.
2. The Orders Required Decontamination
The parties also dispute whether the DPH and CDC
directives were "decontamination" orders. Importantly, both LGH
and Continental agree that decontamination involves "remov[ing],"
"eliminat[ing]," or "rid[ding] [a property] of" contamination.
But Continental argues that an insured can never remove, eliminate,
or rid itself of COVID-19 "because it is repeatedly reintroduced
by people." Extending the logic of Continental's argument, the
Disease Contamination Coverage would not apply to COVID-19 at all
and could only be invoked when an insured's efforts lead to near-
permanent decontamination.
At this motion to dismiss stage, viewing LGH's well-pled
allegations in the light most favorable to it, we disagree with
Continental. We begin, of course, with "the actual language of
the polic[y]." Brazas Sporting Arms, Inc., 220 F.3d at 4; see
also Gen. Hosp. Corp., 16 F.4th at 308. The Disease Contamination
Coverage provision specifically applies to public health orders
issued "because of the discovery or suspicion of a communicable
- 29 - disease or the threat of the spread of a communicable disease."
There is no dispute that COVID-19 is a communicable disease.
Further, Continental has not pointed us to any language in the
policy suggesting that decontamination needs to be near-permanent
to qualify for coverage. Continental's own example of
decontamination, the removal of bacteria that causes Legionnaires'
disease from ventilation equipment, does not on its face foreclose
the possibility that the bacteria could be reintroduced to the
newly cleaned equipment.
Additionally, Continental's argument that the term
"decontamination" means near-permanent decontamination appears at
odds with the purpose of the policy. By Continental's reasoning,
a hospital that could become re-contaminated within the policy
period with a particular bacteria or virus would never be able to
claim coverage under the Disease Contamination Coverage provision.
Yet the very nature of a "communicable disease" implies the
possibility of re-contamination. Thus, the risk that a hospital's
premises could be contaminated multiple times with a particular
bacteria or virus during the outbreak of a communicable disease
appears to be the type of healthcare-specific risk that the policy
was designed to cover. See Brazas Sporting Arms, Inc., 220 F.3d
at 4 (requiring, under Massachusetts law, that we "consider 'what
an objectively reasonable insured, reading the relevant policy
language, would expect to be covered.'" (citation omitted)).
- 30 - Finally, we disagree with Continental's argument that
the limited use of the term "decontamination" in the DPH or CDC
directives "proves that decontamination was not the objective" of
those directives. Continental quotes from a section of the CDC
directive that uses the word "decontamination" in suggesting that
extremely elevated temperatures (above 158 degrees Fahrenheit) may
be an effective form of eliminating COVID-19 contamination but
noting such a strategy "is not generally recommended and is not
realistic for occupied spaces." Continental argues that this
discussion indicates the CDC believed COVID-19 decontamination to
be unattainable. This is an overreading of the CDC document. Over
ten pages, the CDC articulates a range of strategies to reduce the
risk of contracting COVID-19 in indoor spaces, including
improvements to ventilation systems and the use of ultraviolet
germicidal irradiation lights. That the CDC counseled against one
decontamination method is not an indication that it believed
decontamination by any method to be impossible.
III. CONCLUSION
For all these reasons, we AFFIRM IN PART, REVERSE IN
PART, and REMAND for further proceedings. The parties shall bear
their own costs.
- 31 -