COVID-19 and Insurance
A company’s insurance policies may protect the company against the economic harm caused by COVID-19. Below, we outline general considerations for the most common insurance coverages. However, a detailed review of the specific policy language and the applicable facts and circumstances is necessary to determine whether an insurance policy may provide coverage for COVID-19.
Property Policy and Business Interruption Coverage
A property policy compensates a company if its covered property suffers a physical loss or damage. Property policies may also provide time element coverage, more commonly known as business interruption coverage, which replaces lost income caused by a covered loss. To trigger business interruption coverage, the company must first suffer a covered physical loss or damage. Insurers will likely argue that COVID-19 is not a physical loss or damage because the harm caused to an insured’s property by COVID-19 is not tangible. Insureds may counter that COVID-19 renders its covered property unusable, either because of actual or suspected COVID-19 contamination. Whether COVID-19 is covered will depend on the specific policy language and the facts and circumstances of the claim. Some governmental authorities, including Harris County, Texas and the City of New Orleans, have made nonbinding pronouncements that COVID-19’s ability to attach to surfaces for prolonged periods of time could cause property loss or damage. But at least one major international broker has already alerted its client insureds that it does not believe that the COVID-19 crisis triggers typical business interruption coverage due to the absence of actual property damage to an insured’s property.
Many business interruption policies exclude a loss caused by pollution or contamination, and some definitions of contamination are broad enough to capture viruses, like COVID-19. One court has concluded that some property policies exclude losses due to a bacterial outbreak. Landshire Fast Foods of Milwaukee, Inc. v. Employers Mut. Cas. Co., 676 N.W.2d 528, 529 (Wis. Ct. App. 2004). The policy at issue provided coverage for “direct physical loss or damage to Covered Property” unless otherwise excluded. Id. at 531. The policy excluded coverage for loss or damage caused by “discharge, dispersal, seepage, migration, release or escape of ‘pollutants.’” Id. Pollutants was defined as “any solid, liquid, gaseous or thermal irritant or contaminant.” Id. The parties disagreed on the meaning of “contaminant” in the definition of pollution. Id. The court held that a bacterial outbreak that renders a product impaired or impure is a contaminant, so the insured was found not covered by its property policy. Id. at 532. Business interruption claims may hinge, then, on whether the loss is in fact caused by the virus or by a governmental order as discussed further below.
Some business interruption policies specifically extend coverage to uncommon situations that may be implicated by COVID-19. For example, civil authority coverage protects insureds that are prevented from operating normally due to government action. Governmental authorities at the local, state, and federal level have issued various orders to prevent the spread of COVID-19, such as stay-at-home orders, which also prevent some companies from operating normally. Another example of expanded business interruption coverage is ingress/egress coverage which protects an insured when it is prevented from entering its property. In response to COVID-19, governmental authorities have closed businesses where people gather, such as malls and movie theaters, preventing businesses there from entering its property. Loss of attraction coverage (also known as leader property coverage) is an additional business interruption coverage that may cover COVID-19. Loss of attraction generally covers loss suffered by the insured due to loss or damage to a third-party’s premises in the vicinity of the insured’s premises that attracts business to the insured. For example, loss of attraction may provide coverage to a retail outlet located near an anchor tenant that has a covered loss, which thereby reduces vehicle and foot traffic near the retail location. While these business interruption coverage extensions may cover COVID-19, they are typically sub-limited so the amount of coverage may be less than the overall amount of coverage in the entire policy.
Several lawsuits have already been filed to determine coverage of COVID-19. For example, the Chickasaw and Choctaw nations filed lawsuits in Oklahoma against their insurers for losses related to closing casinos and other businesses in response to COVID-19. In Cajun Conti, LLC et al. v. Certain Underwriters at Lloyd’s of London, et al., Cause No. 2020-02558, (Complaint filed on 3/16/20, La. Dist. Ct., Orleans Parish), the insured, Oceana Grill, sued insurers in Louisiana to provide coverage under a property policy for losses incurred as a result of the closure of the restaurant in an effort to curb the spread of COVID-19. These cases are the first of many that will be filed to determine coverage under business interruption policies. At this early stage it is impossible to predict whether insureds or insurers will prevail because the cases will turn on the specific policy language and the facts and circumstances of the claims.
General Liability Policy
A general liability policy protects an insured from claims by third parties by providing a defense to a third party claim and an indemnification or payment of the claim. Consider, for example, the scenario in which a third-party alleges an insured was negligent by failing to protect against exposure to COVID-19 at a company’s premises. An insured’s liability policy would hire an attorney to provide a defense and, if liability becomes reasonably clear, pay the COVID-19 claim. However, many general liability policies have an exclusion for communicable diseases which may result in no defense or indemnification. A close review of the policy and any excess policies (to the extent the excess policies do not follow form) before a COVID-19 claim may be prudent so an insured avoids a dispute regarding coverage while simultaneously defending itself against a third-party COVID-19 claim.
A pollution or environmental policy can protect both a company’s property from pollution or protect a company from third-party claims related to pollution. The specific language of the insuring provision and any potentially applicable exclusions will likely be determinative. For example, a federal court examined whether a pollution policy covered the avian influenza (commonly known as the “bird flu”). Rembrandt Enterprises, Inc. v. Illinois Union Ins. Co., CV 15-2913 (RHK/HB), 2017 WL 129998, at *1 (D. Minn. Jan. 12, 2017). The insured, a bird farmer, euthanized over 9 million birds due to the bird flu. Id. The pollution policy at issue provided coverage against losses caused by “the discharge, dispersal, release, escape, migration or seepage of any . . . irritant, contaminant, or pollutant . . . on, in, into, or upon [covered] land and structures.” Id. The policy excluded, however, losses “‘arising out of or related to the presence or removal of naturally occurring materials,’ unless those materials were ‘present . . . as a result of human activities or human processes.’” The federal court denied the cross-motions for summary judgment because the “crux of this action is the mode by which the bird flu was transmitted onto” the insured’s property. Id. at *2. The parties subsequently resolved the case before trial. The case illustrates the complicated coverage and exclusion provisions that require review when determining whether to make a claim based on COVID-19.
A company’s insurance policies may help a company financially respond to COVID-19. However, for COVID-19 claims, we anticipate business interruption coverage disputes. Insurers will likely argue that COVID-19 is not a “physical” loss; insureds will argue that their business interruption claims should be covered because the COVID-19 renders their property unusable or unfit for its intended purpose. The availability of business interruption coverage, liability coverage, and pollution coverage will depend on the specific policy language and the facts and circumstances of the COVID-19 claim.
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