A federal district court in New York on Monday dismissed COVID-19 business interruption litigation filed by a New York health system against American International Group Inc. and Allianz SE units, stating the losses had not been caused by direct physical loss or damage as required by the coverage.

AIG unit Lexington Insurance Co. and Allianz unit Interstate Fire & Casualty Co. had provided all-risks coverage to New Hyde Park-based Northwell Health Inc., with a policy limit of $1.25 billion in the aggregate, according to the complaint in Northwell Health, Inc. v. Lexington Insurance Co. and Interstate Fire & Casualty Co.

Lexington provided 90% of the coverage and Interstate 10% on a quota share basis, subject to a $500,000 combined coverages deductible per occurrence.

Northwell, which had stopped offering outpatient care services and performing elective procedures at the pandemic’s outset, sought business interruption losses from the insurers, which they denied.

The health system sued the insurers in U.S. District Court in New York in February, charging breach of policy and of the covenant of good faith and fair dealing.

The ruling by Judge Jed S. Rakoff said Northwell “has identified a litany of possible provisions that authorize reimbursement for its COVID-19-related costs and losses. However, Northwell’s arguments for coverage under each of these provisions are unpersuasive.”

The health system failed to state a claim for breach of contract both because the coverages “require the claimed cost or loss to be caused by direct physical loss or damage and because Northwell fails to adequately plead additional, independent requirements for coverage under these provisions,” the ruling said in granting the insurers summary judgment dismissing the case.

Northwell said in a statement, “We continue to be disappointed that Lexington and Interstate Fire and Casualty have failed to honor the terms of the policy, thus necessitating this lawsuit at a time when Northwell needs to dedicate its resources to helping the community and our team members recover from the COVID-19 pandemic. At this time, Northwell is unable to provide further comment.”

An Allianz attorney and AIG had no comment.