Baylor College of Medicine v. XL Insurance America, Inc. and ACE American Insurance Company

Affirmed and Memorandum Opinion filed February 6, 2024.

In The

Fourteenth Court of Appeals

NO. 14-22-00145-CV

BAYLOR COLLEGE OF MEDICINE, Appellant

V.
XL INSURANCE AMERICA, INC. AND ACE AMERICAN INSURANCE
COMPANY, Appellees

On Appeal from the 295th District Court
Harris County, Texas
Trial Court Cause No. 2020-53316-A

MEMORANDUM OPINION

Appellees are insurance companies that denied coverage to appellant, Baylor
College of Medicine, for losses caused by the presence of the virus that causes
COVID-19 on Baylor’s properties. The trial court granted appellees’ motion for
summary judgment, ruling that Baylor’s losses fall within the scope of a Pollution
and Contamination Exclusion in each policy. Baylor challenges the trial court’s
summary judgment on this ground. We affirm.
I. BACKGROUND

Baylor and appellees entered into all-risks insurance policies that covered
“direct physical loss of or damage to property.” The policies included a Pollution
and Contamination Exclusion (the Exclusion):

This Policy does not cover loss or damage caused by, resulting from,
contributed to or made worse by actual, alleged or threatened release,
discharge, escape or dispersal of Contaminants or Pollutants, all
whether direct or indirect, proximate or remote or in whole or in part
caused by, contributed to or aggravated by any physical damage
insured by this Policy.
....
Contaminants or Pollutants means any solid, liquid, gaseous or
thermal irritant or contaminant, including smoke, vapor, soot, fumes,
acids, alkalis, chemicals and waste, which after its release can cause
or threaten damage to human health or human welfare or causes or
threatens damage, deterioration, loss of value, marketability or loss of
use to property insured hereunder, including, but not limited to,
bacteria, virus, or hazardous substances listed in the Federal Water,
Pollution Control Act, Clean Air Act, Resource Conservation and
Recovery Act of 1976, and Toxic Substances Control Act or as
designated by the U.S. Environmental Protection Agency. . . .

Baylor alleges in its petition that it suffered direct physical loss of or damage
to property due to the COVID-19 pandemic. Baylor alleges that it was required to
close some of its operations and dramatically reduce other operations when
COVID-19 “persisted and continued to spread in the community.” Baylor claims
damages resulting from “the physical presence of the virus on [Baylor]’s insured
property and rapid community spread.”

When Baylor submitted a claim to appellees for business interruption caused
by the pandemic, appellees denied the claim, contending (1) there was no direct
physical loss or damage to covered property; and (2) the Exclusion applied.

2
Baylor sued appellees, among others, for various claims related to the denial of
coverage.

Appellees filed a motion for summary judgment, urging the same grounds it
had relied upon in denying Baylor’s claims. The trial court granted the motion and
rendered a judgment for appellees, ruling that “any loss or damage caused by,
resulting from, contributed to, or made worse by COVID-19 falls within the scope
of the [Exclusion].” The court dismissed Baylor’s claims with prejudice. After the
trial court severed Baylor’s claims against appellees, the judgment became final,
and Baylor appealed.

II. ANALYSIS

In its second issue,1 Baylor contends that the trial court erred by granting
summary judgment based on the Exclusion. Baylor contends that the Exclusion is
ambiguous because a virus is not a “pollutant or contaminant,” as the phrase is
used in the Exclusion, and the ambiguity must be resolved in favor of coverage.

A. Legal Principles

Courts interpret insurance policies like any contract, and the primary
concern is to ascertain the intentions of the parties as expressed in the document.
See RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015). The
language of the contract is the best representation of what the parties intended. Id.
Unless the policy dictates otherwise, we give words and phrases their ordinary and
generally accepted meaning, reading them in context and in light of the rules of
grammar and common usage. Id.

1
Baylor contends in its first issue that the trial court “correctly denied summary judgment
on the ‘direct physical loss’ ground.” We do not reach this issue because of the disposition of
Baylor’s second issue. See Tex. R. App. P. 47.1.

3
If an insurance contract is ambiguous, we must resolve the uncertainty by
adopting the construction that most favors the insured. Id. Whether a contract is
ambiguous is a question of law. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d
154, 157 (Tex. 2003).

An ambiguity does not arise merely because of a lack of clarity in language
or because the parties offer conflicting interpretations. RSUI, 466 S.W.3d at 119.
A contract is ambiguous only if it is subject to two or more reasonable
interpretations. Id. Thus, we must determine whether Baylor’s construction of the
contract is a reasonable one. See id.

B. Application

Baylor’s interpretation of the Exclusion is that “bacteria, virus, or other
hazardous substances” are not examples or types of “Contaminants or Pollutants,”
as that term is defined in the policy. Baylor contends that the phrase “bacteria,
virus, or other hazardous substances” is intended to list “examples only of the
types of damage to human health or property that could be occasioned by the
release of an excluded pollutant or contaminant.”

The ninety-eight-word sentence defining “Contaminants or Pollutants” is not
a model of clarity. But the lack of clarity alone does not create an ambiguity. See
RSUI, 466 S.W.3d at 119. The initial list of examples of contaminants or
pollutants (“including smoke, vapor, soot” etc.) is interrupted by a clause
(beginning with “which can cause”) that adds additional information about the
types of contaminants or pollutants that are included in the definition. Although
the structure of this sentence indicates the clause is nonrestrictive because it is
preceded by a comma, reading the clause in context suggests a restriction is
intended—that is, an excluded contaminant or pollutant must be capable of causing
or threatening “damage to human health or human welfare or . . . damage,
4
deterioration, loss of value, marketability or loss of use to property insured
hereunder.” Compare The Chicago Manual of Style 5.202, at 230 (15th ed. 2003)
(“[W]hich is used nonrestrictively—not to narrow a class or identify a particular
item but to add something about an item already identified. Which should be used
restrictively only when it is preceded by a preposition. Otherwise it is almost
always preceded by a comma, a parenthesis, or a dash.” (examples omitted)), with
Stewman Ranch, Inc. v. Double M. Ranch, Ltd., 192 S.W.3d 808, 812–13 (Tex.
App.—Eastland 2006, pet. denied) (reasoning that a clause beginning with “which”
was restrictive because it would be superfluous otherwise).

Following this clause, the sentence continues, “including, but not limited to,
bacteria, virus, or hazardous substances” listed in various federal statutes. This
phrase indicates a non-exhaustive list. Cf. Tex. Gov’t Code § 311.005 (regarding
statutory interpretation, “including” is a “term[] of enlargement and not of
limitation nor exclusive enumeration”).2

As commonly understood, “bacteria, virus, or hazardous substances” are not
themselves types of “damage to human health or property.” Rather, “bacteria,
virus, or hazardous substances” are things that can “cause or threaten damage to
human health or human welfare.” A virus can be “the causative agent of an
infectious disease” and can “cause various important diseases.” Virus, Webster’s
Third New International Dictionary 2556 (1993) (emphasis added). Bacteria need
not be—indeed, often are not—a cause or type of “damage,” though bacteria are
capable of causing damage. See Bacterium, Webster’s Third New International
Dictionary 161 (1993) (noting that bacteria are “important to man because of their
chemical effects . . . and as pathogens”). The only reasonable interpretation of the
2
See generally Wash. Square Fin., LLC v. RSL Funding, LLC, 418 S.W.3d 761, 767
(Tex. App.—Houston [14th Dist.] 2013, pet. denied) (“Questions of contract construction are
reviewed in much the same way as questions of statutory construction.”).

5
Exclusion is that “bacteria, virus, or hazardous substance” are listed as additional
types of pollutants or contaminants because they are capable of causing or
threatening damage to human health or human welfare.

Quoting the definition of a “virus,” Baylor contends that a virus cannot be a
pollutant or contaminant because a virus is not a “solid, liquid, gaseous or thermal”
irritant or contaminant. Regardless of whether a virus can be classified strictly as
solid, liquid, gaseous or thermal, the Exclusion identifies “virus” as a type of
contaminant or pollutant, as described above. Thus, Baylor’s contention is
unconvincing.

Baylor also contends that it has not alleged that the virus has been “released,
discharged, escaped or dispersed”—only that the virus is “physically present” on
its property. Baylor alleges in its petition, however, that its claims arose because
the virus “spread in the community” to become present on its property. “Disperse”
means “to cause or become spread widely.” Disperse, Webster’s Third New
International Dictionary 653 (1993). Thus, Baylor’s claims are for “loss or
damage caused by, resulting from, contributed to or made worse by actual, alleged
or threatened . . . dispersal” of the virus, as required by the Exclusion.

Finally, Baylor contends that the “best evidence” that the Exclusion does not
apply here is that the appellees amended their policies for the following coverage
period to specifically exclude communicable diseases. Baylor acknowledges that
courts may not consult extrinsic evidence to create an ambiguity—to contradict or
vary the meaning of the explicit language of the contract. See URI, Inc. v. Kleberg
Cnty., 543 S.W.3d 755, 765 (Tex. 2018); RSUI, 466 S.W.3d at 137. Only when the
surrounding circumstances reveal and ambiguity about the intent embodied in the
contract’s language may courts use extrinsic evidence to evaluate the parties’
intent. See URI, 543 S.W.3d at 765.

6
Here, there is no ambiguity. The Exclusion identifies “virus” as a type of
pollutant or contaminant for which there is no coverage. Baylor cites to no
authority to suggest that courts should consider subsequent contracts between the
parties to alter the unambiguous language of a prior contract, and we find none.
We cannot create an ambiguity by consulting extrinsic evidence. See URI, 543
S.W.3d at 765, RSUI, 466 S.W.3d at 137. Regardless, even consulting the
subsequent policies’ new exclusions shows that the exclusions are broader and
exclude coverage for losses caused by pathogens other than viruses and bacteria.3
Thus, nothing in the subsequent exclusions undermines the conclusion that the
parties had agreed to exclude coverage for losses caused by a virus under the
Pollution and Contamination Exclusion.

The trial court did not err by rendering a summary judgment for the
appellees based on the Exclusion. Baylor’s second issue is overruled.

III. CONCLUSION

Having overruled Baylor’s issue necessary to the disposition of the appeal,
we affirm the trial court’s judgment.

/s/ Ken Wise
Justice

Panel consists of Justices Wise, Zimmerer, and Poissant.

3
One policy excludes coverage for “communicable diseases,” defining the term as “any
illness, sickness, infection, condition, or disorder caused, in whole or in part, by any direct or
indirect contact with or exposure to any virus, parasite, or bacteria or any disease-causing agent
of any nature regardless of the method of transition, contact or exposure.” The other excludes
loss from any “virus, bacteria or other microorganism that induces or is capable of including
physical distress, illness or disease.”

7