INSURANCE CLAIMS AND COVID-19

InsuranceCOVID-19

Apr 7

Insurance Coverage – COVID-19 Related Issues

No one has been left unscathed as a result of the ongoing coronavirus pandemic. Even essential businesses and those able to remain open on a limited basis have been significantly impacted. Most businesses out there have suffered substantial interruptions resulting in great losses. As the severity of the situation continues to unfold the reality is that many businesses may not be able to survive this unprecedented state of affairs. As such, businesses suffering losses should look to their insurance coverage to mitigate whatever damages they can with regards to the coronavirus pandemic. Business interruption policies may cover lost income, fixed costs, extra expenses and in some cases losses due to forced closures or temporarily relocation costs. Currently, there is much confusion and uncertainty as to whether policy holders will be covered for business losses related to the COVID-19 crisis.

Policyholders should keep in mind that each situation is unique and whether coverage will exist will vary from case to case, depending on the exact policy language, factual circumstances and applicable state law. Businesses should consider the following insurance coverages that may be triggered by COVID-19 related losses or claims:

Business Interruption Coverage
Contingent Business Interruption Coverage
Civil Authority Coverage
Directors and Officers Liability/Employment Practices Liability Policies
Workers Compensation Coverage
Commercial General Liability Coverage

For business interruption coverage to be triggered there must be a “physical loss” or “damage” to the business premises. Typically, business interruption coverage is only triggered if you have direct physical property loss that leads to the business interruption. The issue many businesses will be facing is whether a bacterial contamination such as COVID-19 will qualify as a direct “physical loss” or “damage” under their policy. The law is unsettled on this issue and courts vary from jurisdiction to jurisdiction on contaminations and physical loss for the purpose of business interruption coverage. Each case will depend on the exact language under the policy, the circumstances of how the business was affected and whether the policy has a virus exclusion which may ultimately prevent coverage. Be aware that many policies specifically exclude business interruption losses that are caused by infectious diseases. The same analysis would apply to contingent business interruption coverage in the event of a suspension of business operations by a supplier. If a third-party supplier cannot perform due to a covered loss and that nonperformance interrupts your business, then coverage may be available.

Some policies have civil authority coverage which will cover losses in the event of a government order that restricts access to an insured property. This type of coverage also requires some “physical loss” or “damage” to the business and usually applies when the order is a direct result of such damage. In the past, some courts have recognized environmental contamination as a “physical loss” and whether or not the “non-essential” business closure and “stay-at-home” order issued by the Governor of California in light of the COVID-19 virus will trigger coverage again will depend on the exact language in each particular policy and any exclusions contained therein. Therefore, every business should examine the terms of their policy and go through it in detail to determine if there might be coverage.

Directors’ and officers’ policies/employment practices liability policies may provide “crisis coverage” to assist businesses in the event of a mass layoffs, and economic loss claims that could arise out of management-level decisions in dealing with the COVID-19 crisis. Directors’ and Officers’ liability policies will also come into play in the event of a potential securities lawsuit for any alleged failure to disclose actual or potential coronavirus concerns.

Commercial general liability policies may provide coverage in the event of any negligence claims for failure to properly respond to the COVID-19 pandemic or failure to have a proper plan or procedure in place. Many businesses will face claims by customers alleging negligence in failure to warn or protect of the risk of exposure to the outbreak. Lawsuits have already been filed against cruise lines and hotel chains on this exact issue. The procedures (or lack thereof) that business take in wake of the COVID-19 crisis may give rise to a potential liability.

Workers compensation policies may be utilized to cover claims arising in the workplace if an employee contracted the coronavirus at work. For coverage to apply the policy holder will have to hurdle the causation issue and be able to prove that the employee contracted the virus from work and not from the community. Coverage will vary from policy to policy and state laws as well as an exclusive remedy laws may also come into play.

The government has also alluded to the idea that they might step in and intervene in the form of some type of assistance or public policy on the matter regarding insurance coverage and COVID-19 forced closures. On March 26, 2020 the Insurance Commissioner for the State of California ordered insurance companies to submit data to the California Department of Insurance regarding coverage of business interruption coverage, civil authority coverage, contingent business interruption coverage, and supply chain coverage related to COVID-19 so that they can assess the current situation. See (BIS-2020) Notice. Commissioner Lara has also sent a letter to Speaker Nancy Pelosi and California’s Congressional delegation alerting them to the scale of the business interruption crisis and calling on them to take immediate action now to protect these businesses and their workers.

When it comes to insurance policies and coverage of loss due to COVID-19 there are no clear-cut answers. Insurers have preliminary reported to lawmakers that most business interruption policies “do not, and were not designed to, provide coverage against communicable diseases such as COVID-19”. This could very likely lead to government intervention on state or federal levels. What is true today may not be the case tomorrow and it is important to stay informed with developments in the law and this ongoing crisis. The Law Office of Nicollette Alvarado strongly encourages businesses to review their policies, including policy exclusions, coverage limits, applicable deductibles, and notice requirements. When necessary policy holders should seek professional assistance as insurance policies can vary significantly and even the subtle variations in policy wording can make a difference between a covered or uncovered claim.

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