Colorado Court of Appeals Permits COVID-19 Coverage Suit to Proceed Based on Health Care Endorsement Coverage

The Colorado Court of Appeals (Division VI), applying Colorado law, partially affirmed a trial court decision dismissing an action seeking insurance coverage for COVID‑19 related losses. Spectrum Retirement Communities, LLC v. Continental Cas. Co., 2025 WL 1700452 (Colo. Ct. App. June 18, 2025). The Court of Appeals affirmed the dismissal with respect to coverage afforded for “direct physical loss” but determined that the insured’s complaint stated sufficient facts to support a claim that certain COVID-19 related losses were potentially covered under the policy’s Health Care Endorsement (“HCE”).

The insured owned, operated, and managed forty-three senior living and memory care communities across ten states. During the COVID-19 pandemic, the insured kept its facilities open in accordance with government orders but nonetheless claimed to have suffered property and economic losses due to these orders. The insured instituted an action seeking coverage for these losses under its all-risk commercial property policy, which included the HCE.

The trial court granted the insurer’s judgment on the pleadings. The court reasoned that, based on the facts alleged in the operative complaint, the insured could not establish a “direct physical loss” resulting from COVID-19 such that coverage could be triggered.

On review, the Colorado Court of Appeal affirmed the trial court’s determination in part as to those insuring agreements that require “direct physical loss” because the buildings were not rendered uninhabitable, noting Tenth Circuit precedent holding that COVID-19 virus does not physically alter the property on which it rests and can be removed with standard cleaning measures.

However, the appellate court reversed the trial court’s ruling in part concerning coverage under the HCE, which had not been specifically addressed at the trial court level. The HCE provided: “If as a result of an evacuation or decontamination order [by a government authority] because of the discovery or suspicion of a communicable disease or the threat of the spread of a communicable disease, the Insurer will pay for [. . .] the necessary and reasonable costs incurred by the Insured to: (a) evacuate the contaminated location, if required by the governmental authority; (b) decontaminate or dispose of contaminated covered property; (c) test after disposal, repair, replacement or restoration of damages property is completed; and (d) any employee overtime costs associated with providing additional care to patients affects by a communicable disease.” Although stopping short of determining whether the insured suffered a loss covered by the HCE, the appellate court determined that the insured had alleged sufficient facts to state a claim for coverage under the HCE’s insuring terms.