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story.lead_photo.caption Kassandra Salazar (left), a sophomore at the University of Arkansas from Rogers, speaks Tuesday, April 5, 2016, to a group of 11th-grade students from Heritage High School in Rogers as they walk past Old Main while on a tour of the university campus in Fayetteville. ( NWA Democrat-Gazette file photo / Andy Shupe)

The University of Arkansas board of trustees has filed a lawsuit against insurance giant Travelers alleging that its "all-risk" commercial property insurance should cover losses associated with the inability to use facilities because of the pandemic.

The lawsuit is one of many of its type across the country, experts said, with only a few that have been decided so far.

"The University has suffered millions in losses and damages while Travelers has denied the University's insurance claim," Nate Hinkel, a UA System spokesman, said in a statement. "The University feels an important obligation to taxpayers, many employees and students to make every effort possible to recover these scarce resources."

More than 1,100 similar cases have been filed since mid-March, according to a tally kept by Tom Baker, a law professor at the University of Pennsylvania Carey Law School. Most seek relief related to the loss of business income, according to Baker's Covid Coverage Litigation Tracker, an online analysis of insurance law cases. His data is published at cclt.law.upenn.edu.

In documents filed in Pulaski County Circuit Court, the UA board describes how state health directives led to University of Arkansas for Medical Sciences facilities going unused.

The state Department of Health in March recommended the postponement of elective surgery and urged the postponement of all procedures not considered medically necessary, the lawsuit states. In April, this became a mandate, with resumption of some elective procedures beginning in May "under limitations and restrictions," the lawsuit states.

"The Covered Property, both real and personal, could not be physically put to its intended purposes. For example, Covered Property such as operating rooms, operating tables, surgical instruments, recovery rooms and other Covered Property were not allowed to be devoted to the intended functions and purposes," states the lawsuit.

The lawsuit, filed Aug. 31, also refers to losses at the University of Arkansas, Fayetteville.

"Similarly, due to the coronavirus and/or the Health Directives, the University was damaged by, among other things, being forced to cancel programming and events scheduled to take place at UAF and other Covered Properties, causing substantial revenue losses from a variety of sources," the court documents state.

The lawsuit claims that for the Travelers policy effective July 1, 2019, through July 1 of this year, the "University paid $3,353,917 in premium to Travelers for this coverage, with approximately $1,135,000 allocated to UAMS and approximately $1,153,000 allocated to UAF."

The lawsuit states the policy "affords up to $900,000,000 in coverage per occurrence for business income losses."

In making a claim for damages, the UA board states that it's seeking an amount to be determined at trial, plus an additional 12% in damages permitted under state law, as well as attorneys' fees, "post-judgment interest" and additional relief.

A spokesman for Travelers declined to comment about the case but referred to court rulings elsewhere.

In a federal case decided in California, a judge on Monday dismissed a lawsuit filed by a San Francisco retail store called Mudpie against Travelers. The store had cited lost business income under California's stay-at-home order.

An excerpt from the UA trustees case likely points to what's in dispute.

The lawsuit quotes from a statement made during an April quarterly earnings call, when "a Travelers executive explained that 'our commercial property insurance policies that include business interruption, including as a result of civil authority, require losses to be caused by direct physical damage to property from a covered cause of loss.'"

The UA board disputes that statement, however.

"Loss of functionality constitutes 'direct physical loss of' the Covered Property under the Policy," the lawsuit states.

The UA board's lawsuit claims that the executive's statement made in the earnings call is misleading.

The UA board argues that the policy "provides coverage for 'direct physical loss of or damage to Covered Property,' unless the risk is specifically excluded," going on to argue that there's no pandemic exclusion in the policy, despite Travelers asserting that the policy has a "Virus or Bacteria" exclusion.

"If Travelers had intended to exclude coverage for pandemic events -- as opposed to mere viral or bacterial contamination of property -- Travelers could and should have done so plainly and explicitly," the lawsuit states.

Daniel Schwarcz, a professor at the University of Minnesota Law School, said that while there have been hundreds of these "business interruption" cases filed nationally against insurers, "they haven't really met with much success."

"At the end of the day, what's causing businesses to not be able to operate isn't really anything having to do with people's property," Schwarcz said.

[CORONAVIRUS: Click here for our complete coverage » arkansasonline.com/coronavirus]

Some have argued that the coronavirus can be physically present, but a surface can be decontaminated "relatively easily," Schwarcz said.

"The real threat of transmission is that person-to-person transmission through the air, and that's just not what business interruption coverage is designed to cover, by and large," Schwarcz said.

He added that the insurance industry "has been very aggressive" in fighting the claims.

Representing the UA trustees in the case are attorneys based in Texarkana, Texas, and Dallas with the Jackson Walker L.L.P. law firm. Hinkel said it's "not uncommon" for university attorneys to use outside resources in specialty areas.

"Ultimately, this lawsuit stems from the university's responsibility to protect our campuses, which is what led us to purchase this insurance policy in the first place," Hinkel said.

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