Shipbuilder's COVID insurance lawsuit revived by Vermont high court

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The aircraft carrier Gerald R. Ford (CVN 78) is under construction at Huntington Ingalls Industries-Newport News Shipbuilding in Newport News, Virginia, U.S., in this February 27, 2012 . Ricky Thompson/U.S. Navy/Handout via REUTERS
  • Split court allows military shipbuilder’s case to proceed, stops short of finding coverage
  • Ruling is first high court win of its kind for policyholders

Sept 26 - The Vermont Supreme Court revived a military shipbuilder’s lawsuit for insurance coverage of lost income and extra expenses incurred in dealing with the virus that causes COVID-19, becoming the first state high court to rule for the policyholder in such cases.

In a 3-2 split Friday, the majority said Huntington Ingalls Industries (HII) had cleared the state’s “extremely low bar” for initial pleadings by alleging that the virus adheres to surfaces, turning them into vectors for disease that must be counteracted with barriers and other physical modifications.

“To be clear, this opinion does not state that what occurred in insured’s shipyards is ‘direct physical loss or damage to property’ under the policy,” and HII must still prove its case on remand, Associate Justice Harold Eaton Jr wrote. He was joined by Chief Justice Paul Reiber and retired Associate Justice Denise Johnson.

The dissenters said Covid harms people, not property.

HII spokesman Danny Hernandez said the company was “very pleased” with the decision and looks forward to litigating in Franklin County Superior Court, where HII filed suit in September 2020. The complaint named Chubb’s Ace American Insurance Co, Zurich American Insurance, and 30 other companies or syndicates that reinsured the $1.5 billion Global Property Insurance Policy that HII purchased from its captive insurance company, Vermont-based HII Risk Management.

Attorneys for Ace and Zurich – including Jeffrey Babbin of Wiggin and Dana, who argued the case for all the reinsurers – did not immediately respond to requests for comment on Friday.

According to the complaint, HII is the largest military shipbuilding company in the United States. It remained open during the pandemic, but its shipyards “were not capable of performing their essential functions at their intended capacities.”

HII sought a declaration that the reinsurance policies would cover its business losses. Both sides quickly filed motions for judgment based on the pleadings, and the judge ruled for the insurers last year.

HII’s appeal drew amicus support from United Policyholders, represented pro bono by Marshall Gilinsky of Anderson Kill. The American Property Casualty Insurance Association filed an amicus brief supporting the reinsurers.

The Vermont Supreme Court’s ruling for HII came one day after a California appellate court revived a COVID-coverage lawsuit by a consulting group, Tarrar Enterprises, saying it should have been allowed to amend its initial complaint. The Tarrar ruling followed pro-policyholder appellate decisions this summer in Louisiana and California, according to the University of Pennsylvania Carey Law School’s Covid Coverage Litigation Tracker.

The case decided Friday is Huntington Ingalls Industries Inc. et al. v Ace American Insurance Company et al, Vermont Supreme Court, No. 2021-173.

For Huntington Ingalls Industries: Kirk Pasich of Pasich LLP; Erin Miller Heins and Vincent Todd of Langrock Sperry & Wool

For Ace American et al.: Jeffrey Babbin of Wiggin and Dana; Nolan Burkhouse and Megan Sigur of Paul Frank + Collins; Robert Fisher and William Cooney of Clyde & Co

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