As the number of confirmed cases worldwide approaches 500,000, the coronavirus (COVID-19) is a global emergency that is putting billions of people in a “shelter in place” status. Coronavirus insurance liability questions are being asked by insureds as preliminary estimates project that the virus will not peak until April of 2020. This has already resulted in unprecedented business interruption, and losses in the billions are projected.
Coronavirus Insurance Liability for Business Interruption Claims
Business interruption insurance is designed to protect against income losses that a business may sustain as a result of its operations being disrupted by a “covered peril.” It is typically purchased as a component of a company’s commercial property insurance policy. This coverage is often invoked when the policyholder incurs “direct physical loss of or damage to” insured property by a covered cause of loss.
An Asian outbreak of Severe Acute Respiratory Syndrome (SARS) in February 2003 prompted some insurers to add policy exclusion for outbreaks of infectious disease. SARS spread to North America and more than 20 other countries before subsiding in the summer of 2003.
In the occurrence of a claim for coronavirus-related business interruption, insurance carriers may contest whether the “physical loss” component has been met. Since a clear standard for “physical loss” has not yet been articulated in courts, the determination of coronavirus insurance liability will likely be made by examining individual circumstances on a case-by-case basis.
A New Orleans restaurant is already testing the limits of coverage under an “all-risk” insurance policy from underwriters at Lloyd’s of London, according to ClaimsJournal.com. Oceana Grill requested a declaratory judgment for its insurance policy, which did not exclude virus risks. The restaurant is arguing that the restaurant was ordered to shut down following civil authority rulings issued by the Louisiana governor and the New Orleans mayor’s office.
Some commercial insurance policies may provide coverage in the event of losses sustained from a “civil authority.” This means that if a government authority limits access to a business such as with a quarantine, resulting income losses will be covered and the “physical loss” requirement need not be met. Similarly, “political risk” policies protect foreign entities against losses resulting from the actions of local government authorities in a host country.
The New York Department of Financial Services issued a March 10 order requiring property and casualty insurers to provide policyholders with an explanation of how commercial property and business interruption insurance may apply to losses resulting from COVID – 19. Click on the link to read our related story, “Business Interruption Coverage Questioned in New York.”
Specialized insurance policies, such as those offering coverage to businesses operating in the healthcare and hospital space, specifically protect against losses caused by “communicable or infectious disease” in many cases.
Coronavirus Insurance Liability
As the coronavirus continues to spread, businesses increasingly face the threat of claims from customers alleging a failure to adequately guard against or warn of the risk of the virus. Commercial general insurance may protect against these third-party claims.
Similar claims may be brought by employees against their employers. If an employee is able to establish a causal connection between the virus and the workplace, it is possible that workers’ compensation coverage may be triggered. This may be most applicable to first responders and healthcare workers.
Employment Practices Liability Insurance (EPLI)
Insurance defense law firms with coronavirus employment defense response capabilities may find that helping employers to answer difficult HR questions can be both a valuable legal service and an effective business development tool. See our related article titled, “Coronavirus Employment Defense as an Entry to SIR Accounts.”
Insurance Industry Response to Coronavirus Claims
The American Property Casualty Insurance Association (APCIA), the primary national trade association for home, auto, and business insurers, issued the statement below on March 20.
“Insurers recognize that American businesses are facing unprecedented disruption. Many standard event cancellation, business interruption, and travel insurance policies do not include coverage for communicable diseases such as COVID-19. Although, some businesses have purchased broader protections through specialized coverage.”
“During this unprecedented era, we remain focused on our promise to our customers — paying claims for motorists, injured workers, homeowners, renters, and businessowners. Many insurers are implementing contingency and continuity plans for pandemics to protect their employees and reduce interrupted service to consumers. Some insurers also are implementing new flexible payment solutions for policyholders, ensuring their homes, businesses, and properties remain protected during times of financial stress.”
The APCIA goes on to emphasize that the stability of the insurance sector could be jeopardized if regulators force insurers to pay for losses that are not covered under an insurance policy.
Considerations for Insurance Defense Attorneys
Panel counsel members will want to work closely with insurers and insureds to identify potential claims and proactively manage potential exposure to coronavirus-related risks. The scope of coverage will depend on the individual language contained in each insurance policy, along with any exclusions or other modifying provisions. An experienced insurance coverage attorney can assist with policy interpretation.
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This article is provided for educational purposes only. It is not to be interpreted as legal advice or an opinion in regard to any topic discussed. The article should not be used as a substitute for legal advice from a licensed attorney in your state. Every situation is different and circumstances vary widely depending on the governing state law, policy provisions, and related considerations.