The purpose of this memorandum is to provide a very general overview of the types of insurance that could potentially provide coverage for losses suffered by businesses affected by COVID-19. As with any insurance coverage issue, an ultimate determination of coverage depends upon the actual language in the insurance policy at issue.
Business Interruption Insurance (“BI”)
BI insurance is typically included in property insurance policies. It generally provides two types of coverage. The first is for recovery of lost income and associated increased costs that a business incurs during a period of interruption to its operations that is caused by direct physical loss or damage. By way of example, if there is a fire at a property and the business is shut down, the insurance should cover the loss arising from the interruption of the business. While this portion of BI coverage would not seem to be applicable to a COVID-19 loss at first blush, if a property needs to be closed for decontamination, some policies will provide coverage, particularly policies sold to the hospitality industry. A determination of coverage will vary depending on the specific language in each policy and there may be sub-limits that apply. In addition, some policies contain exclusions for both viruses and bacteria, while other policies contain exclusions for only bacteria. Since COVID-19 is a virus and not a bacteria, coverage may depend on the language in the policy.
The second type of coverage found in most BI policies is referred to as “contingent” coverage, which provides coverage for indirect losses. This type of coverage generally applies when the business’s supply chain is interrupted. Like the direct loss coverage, this coverage requires “damage” at the supplier’s location that caused the interruption. As such, the definition of “damage” found in the policy will control. Similarly, some policies sold to businesses located within a shopping center may have an enhancement that provides coverage when the “anchor” store is closed. Again, these policies may require the anchor store to be damaged, so the definition of damage in the policy will be critical to a coverage determination.
While the above describes the general scope of BI coverage, there are significant policy enhancements available that may expand coverage in some policies. These enhancements are more often found in policies sold to the hospitality and entertainment industries, and to companies that depend on foreign supply chain vendors. Examples of these enhancements include:
- Civil Authority Coverage – This coverage is triggered when a governmental body restricts access to the policyholder’s property. This type of coverage is very policy language-dependent, so it is difficult to provide a general scope of the coverage. A policyholder whose business is affected by a governmental order needs to review its coverage.
- “Communicable or Infectious Disease” coverage and “Notifiable Disease Coverage”– As their names imply, these enhancements provide coverage for losses caused by certain diseases without the requirement that there be physical damage to the property
- Political Risk Insurance – This type of coverage may provide BI coverage for certain losses that arise from the actions of foreign governments.
- Event Insurance – This enhancement provides coverage for losses arising from the cancellation or postponement of events such as concerts, sporting events, conferences, business meeting such as conventions, weddings, and fairs. While most typically found in policies sold to the entertainment industry, this enhancement can also be found in policies sold to businesses that derive ancillary income from events. By way of example, as a result of Hurricane Sandy, a school district in New Jersey had to cancel all of their sports events for a significant period of time, including canceling games at offsite locations. The concessions sold during these events provided significant income to the athletic department. Their policy provided an event enhancement with a sublimit to cover the loss.
Early reports on COVID-19 included stories of mass infections on cruise ships, in nursing homes, and arising out of business conferences. Service providers across many industries including health care, hospitality, entertainment, and transportation may be faced with claims from customers and the general public that their negligence caused exposure to the virus on their premises leading to infection or even death.
Commercial general liability policies typically cover liability for bodily injury and property damage caused by an accident, and should, in general, at least provide a legal defense to allegations that a businesses’ negligence caused illness or death. While some liability policies will contain Fungi and Bacteria Exclusions, these exclusions generally are not broad enough to exclude coverage for viral infections. Businesses should evaluate their current coverage to determine whether their policies also contain a less common exclusion for communicable diseases.
In addition, physicians who treat patients without observing suggested quarantine or self-isolation protocols, or hospitals that do not maintain appropriate amounts of staffing or equipment to treat patients in distress may also be vulnerable to claims arising out of the pandemic. In these cases, medical professionals and hospitals should look to Professional Liability or Errors & Omissions coverage that should provide coverage for mistakes made in providing professional medical services.
Workers Compensation policies should provide coverage for employees who contracted CORVID-19 at or through work.
What Policyholders Should be Doing Right Now
- Find your policies. While this step might seem so basic that it is taken as a given, as this situation worsens, brokers, agents, and insurers are going to be inundated with claims and questions. If the policyholder cannot locate its policies, today is the day to get copies. As part of this, make sure the copy of the policy is complete. The enhancements listed above are often included in riders or endorsements added to the policy. The policy declaration page should list all of the forms that are part of the policy. Make sure all of those forms are part of the copy of the policy.
- Identify the source and scope of any loss. This includes identifying facts that demonstrate the impossibility to conduct business and not simply a reduction in demand.
- Once the policies are located and the source(s) of the loss identified, review your policies carefully. Understand that terms and/or exclusions found in general policy terms and conditions can be modified or eliminated by language found in an endorsement or enhancement.
- If you believe that you have a claim, potential claim, or circumstances that could give rise to a claim, give notice under all potentially applicable policies.
- As you approach the renewal of your policies, keep in mind that some liability policies may be written on a claims made basis, meaning that the policy that applies to a claim is the policy that is in existence at the time a claim comes in, and not at the time of the exposure. Policyholders should carefully consider giving notice of potential claims to trigger current policies. In addition, because claims may be made against policyholders at any time in the future for exposures occurring today, it is important to analyze carefully any changes to the wording of exclusions that insurers slip into liability policies to deal with exposures resulting from the COVID-19 pandemic.
For more legal information in regard to the Novel COVID-19 outbreak, please check out our COVID-19 resource page here »
ABOUT MICHAEL CONLEY
Mr. Conley is Co-Managing Principal of the Philadelphia office and the founder of the firm’s Insurance Recovery Practice Group. His broad legal experience includes insurance coverage litigation, and general litigation. He exclusively represents policyholders, including closely held, publicly traded, nonprofit, and municipal entities, with claims against their insurance companies. His insurance coverage law experience includes handling coverage actions on behalf of insureds relating to claim under general liability policies, bad faith claims, defense obligations, law and ordinance exclusions, crime coverage, employment liability coverage, and coverage for data loss and environmental liability.
ABOUT MEGHAN FINNERTY
Ms. Finnerty is a commercial litigator with a varied practice, with an emphasis on assisting corporate and nonprofit policyholders as they navigate disputes with their insurance companies. Ms. Finnerty also has significant experience assisting companies in products liability and construction accident litigation. She has represented companies in fields such as energy, finance, construction, manufacturing and retail in commercial litigation disputes, and regularly serves as a sounding board for manufacturing clients on a wide variety of legal issues including, insurance losses, risk management, contractual indemnity, employee theft and collection issues.
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