Insurance Coverage and COVID-19
April 1, 2020
Understanding the fluid environment amidst the turmoil of COVID-19, business closures and lost sales naturally give rise to questions around business insurance and coverage, including property damage, business interruption, dependent property, general liability and workers’ compensation.
There is a high degree of variability across commercial property policies. Property policies can be individually negotiated based on the unique needs of the client. Generally, however, a standard property unendorsed policy would probably not cover losses resulting from the spread of the COVID-19. However, courts are considering novel arguments by coverage counsel, such as an assertion that non-physical impairment to property should now be interpreted as traditional property damage.
Business Interruption Coverage:
Business interruption coverage normally flows from property policies with a physical damage trigger. Commercial property policies will often include business interruption coverage to pay out lost income and extra expenses incurred from a covered loss to the insured property. In the case of COVID-19, without the physical damage trigger, the business interruption coverage probably does not extend to disease outbreaks. Having said that, some property policies contain business interruption wording associated with infectious disease with a sub-limit.
Communicable Disease Response Coverage:
Coverage may be afforded as a sub-limit and/or annual aggregate if a location owned, leased or rented by the insured has the actual, not suspected, presence of communicable disease and access to such location is limited, restricted or prohibited by: 1) an order of an authorized governmental agency regulating the actual not suspected presence of communicable disease; or 2) a decision of an officer of the insured as a result of the actual not suspected presence of communicable disease. Typically the policy would cover the reasonable and necessary costs incurred by the insured at such a location for cleanup, removal and disposal of the actual presence of disease.
Crisis Management Coverage:
Provides coverage for interruption or interference with business of the insured as a consequence of infectious or contagious disease contracted or manifested by any person while on the premises of the named insured. Coverage maybe afforded as a sub-limit or on a per occurrence/annual aggregate basis.
Contingent Business Interruption Coverage:
Many property policies include contingent business interruption coverage. However, the same physical damage trigger applies to contingent business interruption coverage, which pays out lost income resulting from a covered loss to an insured’s customer or supplier.
- Property coverages will probably not extend to lost income or expenses from a disease outbreak, since they typically require physical property damage.
- It’s not likely that COVID-19 will permit a one-size-fits-all determination when it comes to a direct physical loss. It’s more likely that each claim will be evaluated on its own individual fact pattern and circumstances.
- Communicable Disease Response Coverage may be afforded as a sub-limit and/or annual aggregate if a location owned, leased or rented by the insured has the actual, not suspected, presence of communicable disease and access to such location is limited, restricted or prohibited.
- Courts are considering novel arguments by coverage counsel, such as an assertion that non-physical impairment to property should now be interpreted as traditional property damage.
Workers’ compensation coverage presents a more nuanced coverage discussion due to differences based on state, worker’s role and industry. Workers’ compensation insurance responds when an employee is injured during the course and scope of their employment. For COVID-19, most workers would not be exposed in the course of their employment under a strict interpretation of their job role, unless they were working in the health care/medical field and would be exposed to the disease through the course of their job. Workers’ compensation may be available for COVID-19 in other circumstances, to the extent exposure occurred in the course of employment, but any coverage available would be dependent on the facts and circumstances involved.
For casualty based claims, the primary factor is negligence in a company’s handling of customers or invited people on their premises. For most organizations, the coverage would not respond for a customer or invited person who contracted COVID-19 unless it was shown that the business acted negligently in some capacity that caused the person to contract the virus. Health care and hospitality industries are likely to be most vulnerable to third-party claims.
There are additional insurance policies that should be evaluated/considered to determine coverage for COVID-19. These include the following:
- Directors & Officers Liability (D&O)
- Employment Practices Liability (EPL)
- Environmental (contamination/remediation)
- Business Travel Accident
- Foreign Voluntary Compensation
- International Insurance