Issues Facing Senior Care Policyholders

Long-term care providers may be facing a “Perfect Storm” of tort and insurance risk. First, it was the ongoing assault on profit margins by regulation, “social inflation” in jury awards, and plaintiffs’ attorneys who have targeted the industry. And now, these risks are about to merge into the coronavirus crisis, creating virtually overnight existential risk to policyholder providers. This article discusses the current insurance / legal environment for long-term care providers identifying the principal challenges that lie ahead and how the industry may best weather the storm.

Index:

1. GLPL Senior Care Coronavirus Legal Coverage Issues: Claims-Made, Fines, Punitive Damages, Pollution, “Contaminant,” Disinfection, Claims Outlook. Read More
2. Workers’ Compensation Senior Care Coronavirus Insurance Issues: “Occupational Disease,” “Bodily Injury by Accident”. Read More
3. Business Interruption Senior Care Coronavirus Insurance Issues: “Physical Loss,” “Civil Authority”. Read More
4. “D&O” Coronavirus Senior Care Insurance Issues: Exclusions, Claims-Made and Renewal. Read More
5. Federal Senior Care Guidance and Immunity: Exposure Guidelines and Limited Tort Immunity. Read More

1. GLPL Senior Care Coronavirus Legal Coverage Issues

GLPL Policies Generally – Coronavirus:  Senior care facilities are likely to face many of the same coronavirus and COVID-19 related claims as other healthcare providers.  Senior care facilities typically have general liability (“GL”) and professional liability (“PL”) coverages in a combined single GLPL policy.  The GL coverage may provide a defense and indemnity in connection with third-party bodily injury lawsuits by residents and other non-employee plaintiffs alleging bodily injury due to COVID-19 diagnosis.  Senior care facilities may face liability claims brought by individuals who assert they were infected with coronavirus while on the business’s property or because of some alleged action or inaction.  The PL coverage is designed to cover losses related to claims alleging errors or emissions in providing or failing to provide medical and other defined professional services to residents and other people under their care.

Contaminant Exclusions:  Many liability policies include fungi or bacteria exclusions, sometimes referred to as mold exclusions.  These exclusions are not likely to apply to coronavirus / COVID-19 claims because it is a viral infection and not bacterial.  However, it is less clear that an exclusion related to microbes or microorganisms may apply to exclude coverage for coronavirus claims.   Although not as common as in the commercial property context, there are various forms of policy exclusions specifically related to communicable diseases and viruses.  Each component of any such exclusion should be carefully scrutinized with special attention paid to what is a contaminant in the context of the current state of medical knowledge.

Pollution Exclusions:  Some state jurisdictions may find that the coronavirus is a “contaminant” or “pollutant” under a standard or other pollution exclusion.  This is particularly true if the policy has an expanded pollution exclusion that includes “virus” within its definition of pollutants.  As set forth above, the precise wording of how the policy and pollution exclusion defines “pollutant” or “contaminant” should be carefully scrutinized.  The scope of these terms has been the subject of coverage litigation for years, and the coronavirus pandemic has unique characteristics that guarantee that these same coverage disputes will continue into the future.  As in previous such cases, particular attention should be paid to whether the insurer clearly and consistently defined and used the relevant terms throughout the policy.

Fortuity and “Accident”:  In cases in which a facility is alleged to have acted recklessly or worse in allowing the coronavirus to spread, an insurer might deny coverage for third-party bodily injury claims on the basis that the circumstances do not satisfy the requirement that the loss was an “accident.”  An insurer is more likely to resort to a “non-fortuity” or “expected and intended” defense if the plaintiffs in the underlying cases make credible and substantial allegations that a senior care facility had reason to know of a specific risk or did not heed to warnings related to the novel coronavirus.  While relatively rare, such defenses are more likely in a high-exposure claim situation, such as for claims related to the coronavirus.  Regardless, insurers that aggressively assert these defenses have a difficult factual and legal burden and are unlikely to succeed.

Claims-Made and Notice of Circumstances:   Many liability policies are written on a “claims-made” or “claims-made and reported” basis, which impose strict limitations allowing coverage only for claims first asserted against the insured and noticed to the insurer during the policy period and/or within an “extended-reporting period.”  Failure to timely make and/or report a claim is fatal to coverage.  When and if a claim was made during the policy period is always a potent source of conflict and litigation between insurers and insureds.  Policies can have onerous time periods for advising the insurer of a potential or actual claim and can define a “claim” more broadly than a policyholder might assume.

One issue that is likely to be a source of litigation is when an insured has a duty to provide notice or “notice of circumstances” to the insurer.  This duty is distinct from the reporting of the claim when made and can come with prescribed and frequently short time periods.  For example, does a single suspected or confirmed coronavirus diagnosis trigger the notice requirement in the policy?  Senior care facilities should carefully review their liability coverage notice requirements and pay close attention to whether there is a potential claim circumstance that requires reporting to the insurer.

During renewal, insureds should also take care to review their expiring policy to ensure that they preserve any potential claims or “notice of circumstances” so that they do not unknowingly miss an opportunity to preserve a viable claim under a more favorable expiring insurance policy.  Of course, if possible, policyholders and their brokers should negotiate as aggressively as commercially feasible during the renewal process to eliminate or lessen the impact of the anticipated coronavirus exclusions.

The Senior Care Facilities’ Liability Claims Outlook:  Coronavirus claims hold a better than average likelihood of being subject to the relatively rapid increase in judgments and damage awards.  In the heated post-crisis litigation environment, creative plaintiffs’ lawyers will attempt to hold long-term care defendants to a higher standard of care based on 20/20 hindsight.  Arguments will be made that the facilities didn’t adequately plan for a pandemic, especially in the context of previous outbreaks, such as SARS and swine flu.  Claimants likely will allege that the facilities did not have adequate equipment to diagnose and respond to coronavirus.  After Hurricane Katrina, Tenet Healthcare Corp. paid $25,000,000 to settle a class action brought by families of residents that perished in its facility because the company allegedly failed to prepare adequately for the storm.  Of course, attempts by plaintiffs’ lawyers to exaggerate the standard of care will largely depend on the jurisdictions in which the claims are brought.  Courts that regularly produce large verdicts will continue to do so with respect to coronavirus claims.

Pollution Liability / De-Contamination Expenses:  Pollution policies should be closely reviewed to determine to what extent, if any, there is potential recovery for responding to coronavirus issues at a facility.  These policies tend to be heavily manuscript, making them materially different with respect to many critical issues.  And, these differences frequently are contained in the minutiae.  Generally, pollution policies provide response and remediation expenses in the context of a defined “pollution incident” or the like.  This will or may include disinfection expenses, possibly via a defined sublimit.  At a minimum, the insurers will likely demand that there be at least a confirmed coronavirus case on-site before accepting that there may be a “pollution incident” or a “disinfection event.”  One thing that is clear is that coverage battles regarding whether COVID-19 is a defined “contaminant” under the policy are highly likely, as are other battles over the scope of other Definitions throughout the policies.

If the presence of COVID-19 is a “Pollution Incident,” pollution policies may provide coverage under various provisions and/or sub-limits for remediation expenses, bodily injury and property damage, emergency response expenses, business interruption and other expenses.  Emergency response expenses may require an “imminent and substantial threat to human health” or something similar.  Business Interruption coverage may require direct physical loss and/or the existence of covered remediation expenses before it must respond.  Again, likely recovery may require a confirmed on-site coronavirus diagnosis.  “Disinfection events” may also separately be provided coverage, usually under a smaller sub-limit.  The highly manuscript nature of available pollution coverage makes it difficult to generalize other than to stress that each policy should be carefully scrutinized to determine if there is coverage for coronavirus issues.

Insurability of Fines, Penalties and Punitive Damages:  The Life Care Center of Kirkland, Washington nursing home, in which at least 37 people associated with the nursing home have died due to COVID-19, has been fined more than $600,000 and other sanctions after federal and state inspectors indicated that they discovered various regulatory issues in relation to the response to the coronavirus pandemic.  The Centers for Medicare and Medicaid Services (“CMS”) officials levied $13,585 per day fines for six weeks of non-compliance.  CMS also indicated via letter that the facility may be terminated from Medicare and Medicaid participation if it is unable to come into compliance with federal regulations by September 16, 2020.  The Washington Department of Social and Health issued its own findings that Life Care did not have an adequate infection control system in place and failed to provide quality care.  It also barred the facility from accepting any new residents.

The state findings included the following: “The facility failed to ensure timely interventions for a respiratory outbreak resulting in multiple acute changes leading to hospitalization and resident deaths.”  Federal regulators accuse the facility of failure to notify officials of the rapid rate of respiratory infections among residents, failure to have a redundancy plan when the facility’s primary clinician became sick, and failure to promptly and adequately respond to residents when they became ill, and a number of other record-keeping issues.  Life Care asserts that because it was at the front-end of the pandemic, it had no reason to have identified the illnesses as dangerous, particularly in light of the flu season.  The facility generally had excellent ratings from the federal government, although it did receive less impressive ratings for “health inspections.”

With respect to punitive and exemplary damages, any citations and findings by state and federal regulators could form the basis for allegations of reckless or willful or wanton behavior.  Crisis situations, such as coronavirus, enhance the likelihood a jury might chose to award special damages.

Whether punitive damages or fines, such as those issued in Kirkland, Washington, are covered under an otherwise applicable insurance policy will depend on the policy language and the jurisdiction.  Most policies contain exclusions and other language that seek to exclude or limit insurers’ responsibility for fines and punitive damages.  If the insurance policy or applicable public policy is not dispositive, whether the sanctions or damages are insurable will depend on several factors, including:  a) the facts of the claim; b) the legal basis for imposing the sanctions or exemplary damages; c) the applicable policy language; and d) applicable state law in regards to a) – c).

Standards for what conduct can form the basis of a fine, penalty, sanction or punitive damages differ between jurisdictions.  For example, if a lawyer defending the policyholder on behalf of its insurer is sanctioned for alleged discovery abuse, the exact nature of the sanction may need to be analyzed in order to determine if it is fairly considered wholly punitive in nature and thus excluded as against public policy or whether it is a component defense expense.  Small differences in the applicable legal standards can be dispositive.  Note, that many of the jurisdictions that deem punitive damages uninsurable due to public policy do have exceptions based on whether the liability is vicariously or direct.

2. Workers’ Compensation Senior Care Coronavirus Legal Coverage Issues

Senior care facilities and nursing homes may also face claims from their employees regarding exposure to the coronavirus at work.  Workers’ compensation (“WC/EL”) policies are designed to address such claims.  To the extent that workers’ compensation applies, the employee cannot sue in the regular tort system seeking more generous damages from a jury.  Conversely, there may be disputes about whether a claimant is eligible for recovery under workers’ compensation laws, such as whether someone is an employee or whether their injury or disease was contracted in the course of their employment.  In the coronavirus context, this raises questions as to when and how the employee contracted the illness.  As a general rule, the employee would have to show that he or she was exposed while working and that the job presented a peculiar risk of exposure beyond the risk to the general public.  Because most nursing home employees cannot work from home, if there is a confirmed coronavirus diagnosis in the facility it should be relatively easy to demonstrate the required causation necessary to implicate workers’ compensation insurance.

Workers’ compensation laws are state-specific, and while they share many common characteristics, there are many outcome-determinative differences on individual issues.  While workers’ compensation laws provide coverage for “occupational disease,” non-occupational diseases that are not unique to the workplace often are excluded.  State laws differ as to whether a non-occupational or “ordinary disease” – one which the public is generally exposed to irrespective of employment – are subject to workers’ compensation limitations and remedies.  One test is whether the employment poses a “particular risk” for the disease.  For long-term care and nursing home workers working in a facility with a confirmed coronavirus case, their employment arguably presents a “particular risk” of contracting the illness.  In such cases, it is likely that the worker will be subject to both the rights and limitations of applicable workers’ compensation laws.

Most employee coronavirus claims should fall under the WC/EL policy limits for bodily injury by disease.  However, while the details are beyond the scope of this article, it is important to note that WC/EL policies can have separate limits for “bodily injury by accident” that may invite disputes.

It is possible that in cases of alleged egregious behavior by a senior facility, plaintiffs’ attorneys representing employees may attempt to sue the facility in the regular tort system in order to bypass the workers’ compensation more limited compensation scheme.  While the relevant law is state-specific, many jurisdictions allow such tort actions in the case of willful and wanton or intentional behavior.  Plaintiffs’ attorneys may exploit the viral nature of the COVID-19 virus in order to make claims of malfeasance and nonfeasance seeking to sue outside the workers compensation bar to recover punitive damages.  While rare, to the extent such claims might gain more traction with coronavirus in the regular tort system, the claim generally would be covered under the Employee Liability Coverage or Side B portion of your WC/EL policy.  Even then, an aggressive insurer could raise defenses such as non-fortuity, known loss and “expected and intended,” although such arguments would render essentially Coverage B illusory.

3. Business Interruption Senior Care Coronavirus Legal Coverage Issues

Whether business interruption coverage is available for coronavirus is the most frequently asked question of risk management personnel, insurance brokers and coverage lawyers.  Because senior care facilities are essential services that generally cannot shut down, it is perhaps less of a concern for the healthcare and long-term care industries than the anticipated surge of coronavirus liability claims.  Nonetheless, there are aspects of the senior care industry that might trigger insurance for business interruption, such as an inability to admit new patients and limitations on certain other income-producing activities.  Of course, if a nursing home or other senior care facility is ordered completely shut-down, business interruption coverage may be implicated.  You may also have business interruption sub-limits available under your “all-risk” or pollution liability policies.  It is important to note that some business interruption coverage may contain exclusions for property damage arising from pathogens, bacteria, and viruses, such as the coronavirus.

Below, we do a deep dive into some of the insurance coverage legal questions that generally are expected to be the principal subject of coronavirus coverage litigation in relation to business interruption claims: whether coronavirus claims are based on a “physical loss” and whether an insured can successfully assert that they were shut down by order of a “civil authority.”

“Physical Loss”:  Business interruption coverage typically is part of a commercial property insurance policy and is usually only triggered by “direct physical loss” to property.  Potential contamination that prevents you from using your property or a government shutdown may, in some jurisdictions and under certain policy forms, trigger coverage.  Depending on the jurisdiction, “physical loss” can be interpreted in a variety of ways.  “Physical loss” has been qualified by a “loss of functionality,”[1] or by the inability to occupy or use the structure,[2] and

even by the change in a property that was in a “satisfactory state” before an unforeseen event caused it to become “unsatisfactory for future use.”[3]  Even though the most common form of “physical loss” for a property is presented by a “distinct, demonstrable, and physical alteration of its structure,”[4] courts have found that a “physical loss” can also occur without a visible change to the structure.[5]  

For instance, a federal appeals court has held that the presence of a microscopic or intangible substance on a property that eliminates or destroys the function of a property, makes a property useless or uninhabitable, or causes a loss of utility due to a threat of exposure to the substance can be considered a “physical loss.”[6]  In that case, the court found the presence of large quantities of asbestos in a property rendering it uninhabitable constituted a “physical loss.”[7]  The presence of E.coli bacteria in a property’s water supply that caused the building’s inhabitants to become ill could be considered a “physical loss” in Motorists Mut. Ins. Co. v. Hardinger.[8]  The presence of high levels of ammonia in a building making it unsafe to occupy has also been held to constitute a “physical loss.”[9]  In sum, just because your property has not suffered structural alterations does not mean your business has not suffered a “physical loss.”  The presence of COVID-19 on a property could be considered a “physical loss” in many jurisdictions and depending on your specific policy.

“Civil Authority”:  If your policy includes a “civil authority” provision, a government “stay at home” order could potentially qualify as an insured business interruption.  Courts have found that civil authority orders that prevent access to a property could invoke coverage as a business loss.[1]  For most of these claims, the courts look for a direct link between the government order and the business loss being claimed.  Insurers are expected to insist that “civil authority” coverage is only triggered in conjunction with a concomitant covered “physical loss,” thus making the policyholder prevail on both legal issues in order.  This issue is expected to be heavily litigated in the coronavirus context as the amounts at stake if there is widespread invocation of the “civil authority” designation are huge.  Regardless, as set forth above, the “civil authority” issue likely will play a relatively less significant role in the senior care sector as most providers are, by nature, not being ordered closed by the government.

De-Contamination Expenses:  Clean-up costs may also be covered by some property policies that include limited communicable/infections disease coverage, usually via a sub-limit.  Coverage is more likely if a government authority prohibits access to a location because there is the actual presence of the novel coronavirus.  If you deep clean your facility or office as a precaution without confirmation of the coronavirus, it may be difficult to recover under a property policy.  However, unprecedented crisis situations can sometimes prompt courts to find coverage where they previously did not.  

4. Directors and Officers (“D&O”) Senior Care Coronavirus Legal Coverage Issues

Securities lawsuits generally follow a crisis and related stock-price drop whether warranted or not.  Public and private companies purchase D&O insurance for just these types of claims.  This includes failure to properly plan for or respond to the threat of the pandemic.  Or, failure to adequately disclose the risk of the pandemic or the coronavirus when advising of its financial condition to shareholders or others that legally rely on the policyholders’ disclosures.

Exclusions:  Senior care facilities and nursing homes should review their existing D&O policies, particularly focusing on the exclusions for property damage, pollution, and bodily injury.  The breadth of such exclusions could preclude coverage for alleged wrongful acts, such as breach of fiduciary duty or misrepresentation.  D&O policies that exclude coverage for misconduct by the insured, such as fraud, dishonesty, and willful legal violations, may also raise novel applications in the context of coronavirus.  Some D&O policies require that the misconduct be “in fact” rather than established by “final adjudication.”  The former may prompt insurers to determine whether the coverage is excluded, while the latter may result in the insurer seeking to apply the determination through coverage litigation.

Some policies contain “absolute” bodily injury exclusions that provide no coverage for claims “based on, directly or indirectly arising out of, or relating to actual or alleged bodily injury.”  Language such as this is likely to be the subject of protracted litigation.  The presence of either bodily injury exclusions or misconduct exclusions in a D&O policy can cause problems in determining whether an insurer will provide coverage for a coronavirus claim.

D&O Claims-Made and Notice of Circumstances:  D&O policies typically are written on a “claims-made or reported basis” meaning that coverage is only available if the claim is first made and/or reported during the policy period itself or a specified extended reporting period.  Claims-made timing issues are always sources of litigation between insurers and insureds, and claims related to the coronavirus will likely be no different.  Failure to timely make and/or report a claim is fatal to coverage.  Policyholders should closely review their policy requirements regarding notice and reporting with special attention to what can be multiple prescribed deadlines for providing the insurer with a “notice of circumstances” and reporting a claim.  Note that what constitutes a “claim” frequently is not limited to lawsuits.

Renewal:  In the wake of this crisis, insurers likely will seek to add more onerous pandemic exclusions during renewal.  Insureds should take care to review their expiring policy to ensure that they preserve any potential claims or “notice of circumstances” so that they do not unknowingly miss an opportunity to preserve a viable claim under the more favorable expiring insurance policy.  Of course, if possible, policyholders and their brokers should negotiate as aggressively as commercially feasible to eliminate or lessen the impact of the anticipated coronavirus exclusions.

5. Senior Care Coronavirus Federal Guidance and Limited Immunity

Federal Guidance on Limiting Coronavirus Exposures for Senior Care:  Senior care facilities are being urged by the Centers for Medicare and Medicaid Services (“CMS”) to take additional measures to control the fast spread of the coronavirus.  The Wall Street Journal reported that as of March 27, 2020, the coronavirus is present in more than 400 long-term care facilities according to the Centers for Disease Control and Prevention.  CMS is levying fines against long-term care facilities due their failed response to the coronavirus pandemic, including failure to have a plan for when a medical doctor was unavailable during a crisis, failure to timely report an outbreak, and failure to provide quality care to residents during an outbreak.

According to new CMS guidelines, all nursing home staff should wear a face mask whenever they are in the facility.  All residents should also cover their noses and mouths when nursing home workers are in their rooms.  Once the coronavirus has spread in a facility, all staff should wear full personal protective equipment (“PPE”), such as gowns, gloves and medical-grade masks, when caring for all residents.

The lack of availability of PPE and timely testing will likely make it difficult for facilities to adhere to the new guidelines.  CMS has urged state and local health departments to prioritize PPE and lab tests for senior facilities and nursing homes.  CMS also stated that facilities should try to designate separate units, or even separate facilities, for residents who have COVID-19.

Long-term care facilities are likely to face many of the same coronavirus and COVID-19 related claims as other healthcare providers.  Due to the outbreaks in nursing homes, long-term care facilities may face liability claims brought by individuals who assert they were infected with coronavirus while on the business’s property or because of some alleged action or inaction by the business.

Federal Limited Liability for Coronavirus Tort Claims:  The coronavirus has placed an enormous burden on the healthcare system not only to treat, but also to prevent further spread of COVID-19.  Healthcare facilities, including senior care facilities and nursing home, are likely to see an increase in tort litigation as a result.  The Federal Government has issued a Declaration that creates new law, which may provide limited liability to healthcare providers for coronavirus claims.  While the regulations provide welcome relief for providers providing “countermeasures,” the Declaration does not appear to provide immunity for claims of negligent spread of the virus within a facility or other ordinary negligence claims.  It is our understanding that the senior care industry has requested clarification from the federal government regarding the extent to which the Declaration applies to their industry.

On March 17, 2020, the Department of Health & Human Services (“DHHS”) issued a Declaration for Medical Countermeasures Against COVID-19 pursuant to the Public Readiness and Emergency Preparedness ACT (“PREP Act”).  The Declaration is retroactively effective and applies from February 2, 2020 through at least October 1, 2024.  The Declaration provides limited immunity against lawsuits for certain individuals and entities (“Covered Persons”) against any claim of loss caused by, arising out of, relating to, or resulting from the manufacture, distribution, administration, or use of countermeasures (“Covered Countermeasures”) to fight COVID-19.  The Declaration does not provide for immunity for claims involving “willful misconduct” as defined by the PREP Act.  The Declaration may be amended in the future as the threat to public health continues to develop.

“Covered Persons” is defined in the PREP Act to include, among others, the United States, and those that manufacture, distribute, administer, prescribe or use “Covered Countermeasures.”

“Covered Countermeasures” is broadly defined to include “any antiviral, any other drug, any biologic, and diagnostic, any other device, or any vaccine, used to treat, diagnose, cure, prevent, or mitigate COVID-19, or the transmission of SARS-CoV-2 or a virus mutating therefrom, or any devise used in the administration of any such product, and all components and constituent materials of any such product.”  On March 18, 2020, President Trump signed the Families First Coronavirus Response Act (“Act”) into law.  The Act, inter alia, amended the PREP Act’s definition of covered countermeasures to clarify that the Declaration’s immunity applies to National Institute for Occupational Safety and Health-approved masks.

“Administration” is defined as the “physical provision of the countermeasures to recipients, or activities and decisions directly relating to public and private delivery, distribution and dispensing of the countermeasures to recipients, management and operation of countermeasure programs, or management and operation of locations for purpose of distributing and dispensing countermeasures.”

The limited immunity generally applies to those that manufacture, distribute, administer, or use countermeasures to combat COVID-19.  There is a rebuttable presumption that the administration or use of a covered countermeasure was for the threat covered by the Declaration.  Therefore, to succeed in a claim, a plaintiff will have to present evidence to overcome the presumption that a “covered person” is not entitled to immunity.  In the face of tort claims, healthcare facilities, such as senior care facilities and nursing homes, may be able to argue that the limited immunity provided by the Declaration should apply to them.  Those entities that directly administer treatment for COVID-19 are more likely to be afforded immunity under the Declaration than those that are less involved.  However, whether a healthcare facility is afforded immunity under the Declaration will be dependent on a case-by-case basis.  Moreover, the Declaration does not appear to provide immunity for claims of negligent spread of the virus within a facility or other ordinary negligence claims.

Senior care facilities and nursing homes should stay apprised of the legislative changes that are being enacted to address the coronavirus pandemic that may affect their industry.