A Look at Insurance Coverage Issues Related to COVID-19

The new coronavirus (COVID-19) has impacted businesses from nearly every sector of the economy. Delays, furloughs, cutbacks, layoffs, shutdowns, etc., have prompted a common question – will insurance cover any losses related to the coronavirus? 

Because losses related to COVID-19 come in many forms, this is not an easy question to answer. This is especially true since the terms of many insurance policies vary by insurance carrier, and even the lines of coverage with "standardized" terms often have key terms changed by endorsement that are available only to certain clients or certain industries. As such, there is no hard and fast rule as to whether any particular type of claim will be covered. The only way to know if a policy will cover a claim is to review the terms and conditions of the particular policy with a knowledgeable insurance professional.

Notwithstanding the specificity required in evaluating a particular policy, this Holland & Knight alert offers the following in an attempt to help identify some of the main issues related to coverage for coronavirus claims.

Please note, the following is a general outline of the issues and not an analysis of any particular policy or term. As such, the following should not be relied upon as legal advice regarding how any specific insurance policy would respond in a specific situation.

Comprehensive General Liability Insurance (CGL)

CGL policies generally cover bodily injury and property damage caused to third parties on the insured premises. Allegations that an insured caused a guest, customer or third party harm by failing to exercise reasonable care in implementing, enforcing or warning of the risk of potential exposure to the coronavirus could be covered by a CGL policy. To the extent that a guest, customer or third party alleged bodily injury as a result of an insured's negligence, we would expect to see coverage absent a specific exclusion.

Workers Compensation Insurance (WC)

Bodily injury claims brought by an insured's employees (as opposed to third parties) may be covered by a WC policy. However, most WC policies do not cover "ordinary diseases of life" (diseases to which the general public are also exposed). There is an exception if an employee can establish a direct causal connection to the workplace but it is not clear whether that exception would apply absent a unique relationship with the virus (e.g., there may be a direct relationship for first responders, laboratory workers, etc. that are required to work with the virus as part of their jobs).

Business Interruption Insurance (BI)

BI insurance is generally an add-on to a commercial property policy. Commercial property policies are intended to cover direct physical loss or damage to a property caused by a specific peril (e.g., fire, wind, earthquake, etc.). Similarly, the BI add on to a commercial property policy generally requires a "direct physical loss or damage" to property at the insured premises to trigger coverage.

There has been some debate in the past about what constitutes a direct physical loss or damage to property. Courts have been split on this topic.

Roughly 15 years ago, in response to the Avian bird flu scare, most U.S. insurers added an exclusion to their commercial property policies to resolve this issue. The exclusion, ISO form COP 01 40 07 06 "Exclusion for Loss Due to Virus or Bacteria," specifically excludes coverage for losses caused by a virus.

Although this exclusion, if present in a particular policy, would seem to settle the question of whether there is business interruption coverage for claims related to COVID-19, there are several factors that may change this result. First, not all policies added the exclusion. In fact, in one of the first cases to challenge a coverage denial for a business interruption loss related to the coronavirus, the complaint alleges that the insurance policy did not include the virus exclusion.

In addition, some policies issued to the healthcare and hospitality industries expressly provide insurance coverage for losses caused by communicable or infectious diseases even in the absence of direct physical damages to the insured property.

Some insurance recovery firms have also pushed the idea that a shelter-in-place order or other government order that shuts down a business (a civil authority exception) may avoid the virus exclusion since the loss would be caused by government action as opposed to being caused by the coronavirus.

Finally, legislators in at least one state (New Jersey) have introduced a bill that would force certain insurance companies to provide coverage for business interruption notwithstanding the virus exclusion. However, shortly after it was introduced, the New Jersey bill was put on hold indefinitely, at least in part because it was unclear whether the bill would be enforceable in the courts should it become law. 

Contingent Business Interruption Insurance (CBI)

CBI insurance generally provides coverage for an insured that suffers lost profits because a critical (and scheduled) supplier is unable to provide necessary supplies due to a covered peril. For those insureds that have purchased CBI insurance and have losses caused by a supplier being unable to provide necessary supplies, it may be easier to recover under a CBI policy than a BI policy. Again, the actual terms of the policy and the circumstances of the claim will be critical to understanding whether coverage is available.

Political Risk Insurance

Some political risk policies may afford coverage for business interruption resulting from government action or regulations. This may be relevant only if the client has properties in foreign jurisdictions impacted by the coronavirus.

Directors and Officers Insurance (D&O)

D&O policies generally cover claims against directors and officers for breach of their fiduciary duties. If a third party brought a claim against the directors and/or officers of a company for breach of their fiduciary duties related to the coronavirus, a D&O policy could potentially respond.

Whether it will respond will depend, in large part, on the nature of the claim and the type of bodily injury exclusion on the policy. First and foremost, the claim must be for damages related to the directors' or officers' breach of a fiduciary duty and not a claim for bodily injury. (Bodily injury claims should be covered under a CGL policy.)

Whether a breach of fiduciary duty type claim related to the coronavirus could be covered depends on the type of bodily injury exclusion on the policy. Some D&O policies have a "broad form" exclusion for claims "based upon, arising out of, or attributable to" any bodily injury. With this broad form exclusion, a breach of fiduciary duty claim could be excluded if it has any relation to a personal injury claim.

On the other hand, if the D&O policy has the more narrow "for" preamble to the bodily injury exclusion (excluding only those claims "for" bodily injury), there is a better chance for coverage for a breach of fiduciary duty claim.

Marine Cargo Insurance

Coverage for goods carried by sea is usually provided by a marine "open cargo" policy. Such coverage is typically for "all risks" of damage to or loss of the goods, i.e., physical damage to the cargo. Other non-physical risks, such as loss of market where the delivery of the cargo is delayed, are usually excluded. Thus, if a cargo of perishable goods were damaged because of a delay in delivery arising from the COVID-19 pandemic, then the typical open cargo policy would respond to the physical damage claim.

Conclusion and Considerations

With so many novel issues raised by COVID-19 and so many variables in the potentially applicable insurance policies, insureds and insurers are well advised to consult with their insurance brokers and a knowledgeable insurance professional about their coverages.

For more information or questions about your organization's specific insurance policy as it relates to the coronavirus, contact Partners Thomas Bentz and John Toriello or another attorney on Holland & Knight's Insurance Industry Team.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact the author or your responsible Holland & Knight lawyer for timely advice.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.