POTENTIAL INSURANCE COVERAGES WITH THE COVID-19 PANDEMIC
The current COVID-19 virus pandemic has brought a new stark reality for businesses. Employees are required to stay at home, companies are suffering considerable business interruptions, and companies are facing serious liquidity issues. Fortunately, businesses can proactively manage their exposure to the COVID-19 virus now by carefully reviewing their existing insurance policies to determine whether adequate coverage is afforded for the COVID-19 virus and other infectious disease-related losses. Some of the most common coverages you may consider are:
Business Interruption Insurance
Business interruption insurance is generally part of all-risk property insurance or is commonly found in the property insurance section of a business owners’ insurance policy. Business interruption insurance typically covers an insured’s lost income resulting from a covered event, when the event caused an interruption or suspension of the business. Some business interruption policies include coverage for “contingent” business interruption; those coverages apply when a covered event damages a key business partner and impacts the policyholder’s business.
Like any insurance policy, these coverages are subject to certain limitations and exclusions. In many commercial property insurance policies, business interruption coverage is triggered when the policyholder sustains “direct physical loss of or damage to” insured property by a covered cause of loss. In the event of a claim for coronavirus-related business interruption, certain insurance carriers may dispute whether this “physical loss” requirement has been met. Policyholders should keep in mind, however, that courts across the country have not settled upon a uniform rule for when insured property has suffered a “physical loss.” Some courts have determined that contamination and other incidents that render property uninhabitable or otherwise unfit for its intended use constitutes a “physical loss” sufficient to trigger business interruption coverage. The determination of whether “physical loss” has occurred will therefore continue to require a close examination of the particular facts of each case.
If your business has potential COVID-19 business interruption losses, the best practice is to have the relevant policies reviewed to determine if you have the potential for coverage. Where the potential for coverage exists, policyholders are encouraged to promptly provide notice to their insurance carrier.
General Liability Insurance
As the incidence of coronavirus illness increases, businesses (such as those in the hospitality industry) could also face claims by infected guests that they allegedly failed to exercise reasonable care in guarding against, or warning of, the risk of exposure to coronavirus. Commercial General Liability (CGL) insurance includes coverage for the insured’s liability to third parties for claims of property damage or bodily injury. Most policies include a defense or reimbursement for the cost of defending a potentially covered claim. Additionally, the CGL typically includes economic losses resulting from covered bodily injury or property damage. The definition of property damage under a CGL policy is broader than under a typical property insurance policy and may include loss of use of property that is not physically damaged. Potential liability exposure to claims for bodily injury or property damage connected to COVID-19 could be substantial, and your CGL insurance for those claims could be critical, particularly as lawsuits are already arising from this pandemic.
Directors and Officers (“D&O”) Insurance
In addition to third-party claims brought against businesses themselves, a company's directors and officers may be subjected to shareholder lawsuits alleging that their unreasonable actions (or inaction) in response to COVID-19 or other infectious disease epidemics caused the company economic loss. Directors and officers (“D&O”) insurance policies may provide coverage for the costs and liabilities arising from these shareholder lawsuits.
Event Cancellation Insurance
Event cancellation insurance covers certain economic losses associated with the necessary and/or unavoidable cancellation, curtailment, postponement or relocation of a scheduled event. Many policies also cover losses resulting from the inability of participants to attend the event. In both instances, coverage hinges on the cancellation, reduced attendance, and related issues arising from an unexpected cause beyond the policyholder’s control. Event cancellation policies contain a wide variety of exclusions, including specific exclusions for infectious and communicable diseases. However, not all policies contain disease exclusions, and those that do may limit the application of the exclusion to certain enumerated circumstances. Thus, event cancellation insurance could prove to be a valuable resource for policyholders with events that will be adversely impacted by the COVID-19 pandemic. In the event of a potentially covered loss, policyholders are encouraged to provide prompt notice to their insurance carrier.
Workers’ Compensation Insurance
With respect to similar claims for bodily injury brought against a company by its own employees, most states' workers' compensation statutes provide that an employee is entitled to benefits for “occupational diseases.” Significantly, diseases that are typically contracted by the general public, or “ordinary diseases of life,” (i.e., those to which the general public is equally exposed) are generally excluded from workers' compensation insurance programs. If an employee can establish a direct causal connection to the workplace, there may be a valid argument for workers' compensation insurance coverage. This means that healthcare workers or others whose jobs require them to be put at greater risk of exposure to the virus than the general public likely will have a greater chance of obtaining workers’ compensation coverage, compared to employees who are exposed in the same manner as a member of the general public. Coverage determinations will be highly fact-specific and dependent upon policy language or each state’s workers’ compensation program. The degree to which an employee’s exposure relates to his or her job requirements presumably will be among the key considerations.
Farnsworth & vonBerg, LLP is continuing to monitor issues affecting clients and businesses in response to the coronavirus pandemic. If you have any questions, for more information on the topics mentioned above, or for assistance with addressing insurance issues, supply chain problems, development of best practices and protocols, or other matters affecting your business, please contact any of us here at F&V: firstname.lastname@example.org; email@example.com; firstname.lastname@example.org; email@example.com.
This publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.