In a a new federal lawsuit, AECOM says Zurich America Insurance Co. breached its obligation to pay claims for global economic losses caused by the COVID-19 pandemic, under an "all-risk" property and business interruption policy held by the firm. The industry design-build giant seeks to recover losses plus punitive damages for what it says is the insurance company’s “contemptible” conduct in saying it would deny claims under the policy.
Except for exclusions, all-risk policies are broader in what they cover than named peril policies, which are restricted to specific causes.
The success of the lawsuit is hardly assured. To do so, AECOM's attorneys will have to overcome language in the disputed property policy that excludes all forms of "contamination" except radioactive contamination.
The AECOM policy provides for payouts of up to $250 million per cause, with various sublimits. More importantly, according to AECOM, the policy lacks the virus exclusion through which insurers have sought to limit their liability for virus-related losses.
AECOM’s losses came as a result of having to shut down some of its 800 offices and construction sites globally because of the virus. More than 650 projects were closed in May, and at least 500 employees have been infected, says the complaint filed Jan. 11 in U.S. district court in Pasadena, Calif.
The policies' wordings are important in other disputed claims related to the virus.
According to AECOM's complaint, Zurich told the company that “the presence of COVID-19 on or in a building or on surfaces does not constitute physical loss or damage” to its structures, and that slowdowns or shutdowns due to governmental orders do not constitute physical damage.
AECOM argued that Zurich made that claim despite its knowledge of the risks of losses associated with pandemics and its knowledge of court decisions recognizing that the presence of a hazardous substance in a building or its airspace could constitute direct loss of or damage to property.
“Zurich has known, or should have known, for decades that its policies would be called upon to pay perhaps hundreds of millions of dollars or more to their insureds and, specifically knows that it could be obligated under its policies to pay tens of millions of dollars to AECOM for losses associated with viruses and pandemics,” the complaint said.
Neither Zurich nor AECOM responded to ENR’s request for further comment on the lawsuit.
Zurich has had an exclusion for losses from viruses and bacteria since 2006 but wrote policies for AECOM that deleted the exclusion. “By doing so, Zurich confirmed its intent to cover losses caused by a virus or other disease-causing agent,” the court filing says. “Therefore, Zurich cannot be surprised that AECOM asked it to pay for AECOM’s losses,”
The Zurich policies also have a separate section providing AECOM with “time element” insurance that pays for the suspension of business activities at the insured’s business locations, the AECOM says.
As a direct result of Zurich’s contract breaches, AECOM claims it has suffered and will continue to suffer millions of dollars in damages, for which it says the insurance firm is liable.
AECOM did not list specific damages it has incurred but will amend its complaint once it determines their full extent, it says.
AECOM's lawsuit did not substantially address the exclusion in the policy covering all forms of contamination except radioactivity, but it has been relied on in other lawsuits.
This story was updated Jan. 20, 2021 to include the exclusion for contamination in the Zurich property insurance policy.