A pending case in Texas illustrates why COVID-19 business interruption claims need to be decided by juries in light of case-specific facts, not by judges using a one-size-fits-all approach.
Out of the 1,199 (and counting) trial court rulings addressing COVID- 19 business interruption lawsuits,[1] only one of them resulted in a judgment for the policyholder. That decision, Baylor College of Medicine v. Lloyd's Syndicate 1967 Subscribing to Policy B0180PG1922227, is now the subject of a petition for review pending in the Texas Supreme Court.
Back in 2022, Baylor College of Medicine won an eight-figure verdict from one of its insurers after persuading a Houston jury that it suffered nearly $50 million in lost business income during the pandemic.[2] That victory was recently wiped away by a decision from the Texas Court of Appeals for the Fourteenth District.[3] The Texas Supreme Court is now considering whether to review that court's decision.[4]
The appeal court's decision raises one of the central questions underlying so many aspects of insurance law: Who decides? It is a basic but often critical question. Sometimes the final decision-maker is a jury (as with the trial court's decision here); sometimes judges are the final decision-makers (as with the appellate court's decision here); sometimes it is the legislature (which some in California and elsewhere tried to do during the COVID-19 pandemic);[5] and sometimes it is decided by the parties themselves (for example, when they knowingly agree to an insurance policy that unambiguously disclaims coverage for pandemic-related losses).
In Baylor's case, a jury of 12 heard three days of testimony and then was asked, "Did COVID-19 cause direct physical loss of, or damage to, Baylor's property?"[6] They unanimously answered "yes." But that was not enough for the three-judge appellate panel, which decided that no "'reasonable and fair-minded'" person could reach the same conclusion as the 12 jurors.[7]
Like so many other courts addressing these issues related to COVID-19, the appellate court grounded its conclusion on the notion that direct physical loss or damage "requires a tangible alteration or deprivation of the property."[8] As the court openly admitted, it was "striving for uniformity with other jurisdictions that have applied identical or similar policy language."[9]
Uniformity is a laudable goal, but following the pack is not necessarily the most satisfying justification for a legal decision. That is particularly true when the pack has not provided a particularly compelling explanation for why a virus categorically cannot cause property loss.
The weakness in these courts' reasoning is particularly troubling when thinking about the now-pressing issue of damage caused by fires — wildfires, in particular. It should be self-evident that insurance covers fire-related losses. After all, fire-related loss is one of the prototypical risks — along with marine cargo losses — that formed the foundation of the insurance industry in our country.[10]
As a result, fire-related losses such as smoke, soot and ash present a particularly useful analogy for considering whether COVID-19 constitutes a covered loss.
Fire, water and smoke are the "typical" and "classic cases" of physical loss, as the Nevada Supreme Court and the U.S. Court of Appeals for the Third Circuit have recognized.[11] Yet courts have not provided a particularly compelling explanation about why there is insurance coverage for one microscopic irritant, i.e., fire-related smoke, but not another, i.e., the coronavirus. There is no clear basis for distinguishing the two types of loss.
As Louisiana Supreme Court Justice Jefferson Hughes explained in a refreshingly short two-paragraph dissent in Cajun Conti LLC v. Certain Underwriters at Lloyd's, London, addressing a COVID-19 claim: "Like smoke from a fire next door that did no physical damage to the premises, but caused the business to be closed until the odor could be removed and the business cleaned, a physical loss occurred."[12]
One of the early California decisions addressing COVID-19, Inns-by-the-Sea v. California Mutual Insurance Co., did engage to a degree with the analogy to fire-related smoke, and its discussion highlights why Baylor's claim was stronger than so many other COVID-19 business interruption cases.[13] The California Court of Appeal was addressing a claim that did not "allege that the presence of the COVID-19 virus on its premises is what caused the premises to be uninhabitable or unsuitable for their intended purpose."[14]
The insured was unable to use its property because of government orders, not the physical presence of the virus at its property.[15] But that was not what occurred for Baylor hospital. Unlike in other COVID-19 cases, Baylor proved to the jury that it was injured by the virus's physical presence on its property, not merely from government shut-down orders adopted at the onset of the pandemic.
As one of Baylor's attorneys explained after the jury entered its verdict, Baylor "had to keep its doors open and, as a researcher on COVID-related research, had to continue research projects…. [I]t continually had infected people on its property during the policy period."[16] This is a critical point that distinguishes Baylor College of Medicine from other COVID-era insurance plaintiffs: The virus was undeniably present on its premises, as the jury concluded. The jury also decided that the presence of the virus caused Baylor tens of millions of dollars of losses.[17]
The jury's decision reflected the type of case-specific analysis that only fact-finders, not appellate courts, can do. This more nuanced approach is in line with one of the best judicial syntheses of the pre-COVID-19 case law issued early in the pandemic.
Reviewing the pre- and early-Covid-era case law, U.S. District Judge Geoffrey Crawford of Vermont, sitting temporarily in the Western District of New York, "identifie[d] two complementary principles," in Kim-Chee LLC v. Philadelphia Indemnity Insurance Co.[18]
First, "persistent" contamination "may cause a direct physical loss if it renders the insured property unusable."[19] Second, "temporary" contamination, or contamination "that imposes remediation costs without preventing use of the building," typically does not give rise to covered physical loss.[20] These are "two ends of a spectrum[,]" which "extend[] from the easily remedied intrusion of road dust" (which is not covered, according to prior cases) "and ending with the persistent hazard of gasoline seepage" (which is covered, according to the case law).[21]
As Judge Crawford persuasively explained, these are fundamentally factual questions about the scale and scope of the impact on the use of the property. Property insurance does not cover short, insignificant impacts as a matter of law, while it does cover lengthy, substantial intrusions.
In between those two guideposts, what should happen? It would seem to be a paradigm case for a jury, properly instructed on the law, to make a decision based on nuanced, case-specific facts — which is exactly what the Houston jury did in Baylor's case.
In reviewing the jury's verdict, the Texas Court of Appeals implicitly rejected Judge Crawford's more nuanced approach to these issues: Property loss insurance cases sometimes involve questions of degree. This is exactly the type of fact-bound questions that juries are well-situated to make. One can only hope that the Texas Supreme Court takes up the case and reinstates the jury's assessment of the evidence in this case.
[1] Covid Coverage Litigation Tracker, Trial Court Rulings on the Merits in Business Interruption Cases (last visited Mar. 14, 2025), https://cclt.law.upenn.edu/judicial-rulings/.
[2] Roxanne Libatique, Lloyd's loses COVID-19 BI case against Baylor College of Medicine, Insurance Business Magazine (Sept. 6, 2022), https://www.insurancebusinessmag.com/us/news/breaking-news/lloyds-losescovid19- bi-case-against-baylor-college-of-medicine-419426.aspx. Technically, Baylor recovered only a fraction of its losses because the insurer at issue covered only a 25% quota share of the risk.
[3] Lloyd's Syndicate 1967 v. Baylor Coll. of Med., No. 14-22-00925-CV (Tex. App. Jan. 28, 2025), SearchMedia.aspx?MediaVersionID=98559911-cf45-4b8b-bd9cc7aa82b0aeaa& MediaID=9047cee7-8fc4-4764-99a1- d375fb82d793&coa=%22%20+%20this.CurrentWebState.CurrentCourt%20+%20@%22&D T=Opinion" rel="noopener noreferrer" target="_blank">https://search.txcourts.gov/SearchMedia.aspx?MediaVersionID=98559911 -cf45-4b8b-bd9c-c7aa82b0aeaa&MediaID=9047cee7-8fc4-4764-99a1- d375fb82d793&coa=%22%20+%20this.CurrentWebState.CurrentCourt%20+%20@%22&D T=Opinion.
[4] See Elizabeth Daley, Baylor Asks Texas Justices To Review $12M Virus Verdict Toss, Law360 (Mar. 5, 2025), https://www.law360.com/trials/articles/2306578/baylor-askstexas- justices-to-review-12m-virus-verdict-toss.
[5] A.B. 743, 2021-2022 Sess. (Ca. 2021), https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220AB74 3.
[6] Lloyd's Syndicate 1967, slip op. at 2.
[7] Id. at 8 (citation omitted).
[8] Id. at 11.
[9] Id. at 16.
[10] See, e.g., Jeffrey W. Stempel, et al., Principles of Insurance Law 12 (5th ed. 2020).
[11] Port Auth. of N.Y. & N.J. v. Affiliated FM Ins. Co., 311 F.3d 226, 235 (3d Cir. 2002); Starr Surplus Lines Ins. Co. v. Eighth Jud. Dist. Ct. in & for Cnty. of Clark, 535 P.3d 254, 262 (Nev. 2023).
[12] Cajun Conti LLC v. Certain Underwriters at Lloyd's, London, 359 So. 3d 922, 930 (La. 2023) (Hughes, J., dissenting).
[13] Inns-by-the-Sea v. Cal. Mut. Ins. Co., 286 Cal. Rptr. 3d 576 (Cal. Ct. App. 2021).
[14] Id. at 589.
[15] Id. at 590.
[16] Ben Zigterman, Texas Jury Awards Baylor Med School $48M In A COVID First, Law360 (Sept. 2, 2022), https://www.law360.com/articles/1527021/texas-jury-awards-baylor-medschool- 48m-in-a-covid-first
[17] Id.
[18] Kim-Chee LLC v. Phila. Indem. Ins. Co., 535 F. Supp. 3d 152 (W.D.N.Y. 2021), aff'd, No. 21-1082-CV, 2022 WL 258569 (2d Cir. Jan. 28, 2022).
[19] Id. at 161.
[20] Id.
[21] Id.
