Coronavirus Insurance Summarized In 600 Wordsshoke2013
Business Interruption / Event / CGL / D&O / E&O / Workers’ Compensation
Business Interruption and Event coverage is frequently provided as part of a policyholder’s commercial property insurance and provides coverage for financial loss suffered due to “direct physical loss or damage” to an insured property. Contingent Business Interruption coverage insures the policyholder for financial losses resulting from a disruption of the same kind to its customer or suppliers. Courts throughout the U.S. have struggled with what constitutes “physical loss,” all but guaranteeing further litigation.
Event cancellation policies typically respond when it is legally or physically impossible to hold an event. Many such policies contain exceptions for infectious diseases. The coverage may not be triggered if the cancellation is due merely to the possibility of exposure, and the policy may require the insured to attempt to reschedule.
Certain types of insurance and standard property policies, such as those in the healthcare and nursing home industries, expressly provide coverage for “communicable or infectious diseases” even in the absence of “physical damage.”
Many commercial property insurance policies are triggered when a “civil authority” prohibits or impairs access to the policyholder’s property. Many of these property policies cover business income losses. The “civil authority” coverage might depend on whether access is denied because of “physical loss” due to a “covered cause.” Thus, business interruption coverage may be available even if the “physical loss” is not to the policyholder’s own property, as long as it is based on a governmental order limiting access to an area deemed affected by the coronavirus.
General Liability (“CGL”) coverage may be triggered to the extent that there are third-party bodily injury allegations that a policyholder unreasonably exposed guests and others to coronavirus. CGL policies typically should respond to these claims. Policyholders may also have success persuading courts in certain jurisdictions that CGL policies provide coverage for expenses incurred in preventing coronavirus exposures, rather than only responding to a specific third-party bodily injury claim.
Workers’ Compensation coverage may be implicated when an insured’s own employees are exposed to coronavirus. While workers’ compensation laws provide coverage for “occupational disease,” non-occupational diseases that are not unique to the workplace generally are excluded. However, this limitation can expect to be tested if there is a direct causal connection to the workplace.
E&O Coverage for Healthcare, Hospitals & Nursing Homes is also likely to be implicated by coronavirus. Errors and Omissions coverage responds to bodily injury arising out of the alleged failure to provide adequate medical or healthcare services. With the exception of employee claims, this coverage generally should provide coverage for coronavirus claims.
Directors and Officers coverage responds to lawsuits alleging that the company unreasonably responded to the coronavirus threat causing unnecessary loss to the company. This may include failure to properly plan for or respond to the threat of the pandemic. Or, that it failed to adequately disclose the risk of the pandemic or the coronavirus when advising of its financial condition.
These alleged harms would appear to circumvent most D&O policy provisions that exclude or otherwise preclude bodily injury. 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.
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. The presence of either bodily injury exclusions or misconduct exclusions in a D&O policy can be a problem as to whether an insurer will provide coverage for a coronavirus claim.
Conclusion: While certain industries, such as healthcare and nursing homes, may have relatively more robust business interruption coverage for certain types of coronavirus losses, the sheer weight of the potential losses and the unprecedented nature of the crisis, all but guarantees a surge of insurance disputes and coverage litigation under all different types of coverage. The scope and duration of this coming litigation wave may be limited only by the potential stakes to insurers and policyholders alike.