Insurance coverage claims for Coronavirus losses are exploding. Insurance companies and policyholders are already battling over coverage due to the outbreak of COVID-19, as companies hemorrhage money caused by the nationwide and international business shut down.
For example, major professional sports have suspended play, the NCAA has canceled winter and spring seasons, casinos and resorts have closed or limited operations and Disney has closed its theme parks. New York Bars and restaurants are closed.
Here are some of the primary losses and potential for insurance benefit reimbursement, as well as the battle lines over coverage for these losses.
Event Cancellation Claims
As the number of confirmed cases continues to rise in the U.S. and around the globe, major event cancellations are now the norm. Lawyers are inundated with inquiries from policyholders and insurance companies seeking guidance on disputes over coverage under event cancellation policies, which can cover at least some of the policyholder’s lost revenues and out-of-pocket expenses.
These policies typically contain a list of covered causes for coronavirus-related cancellations. Coverage may be available if the list of covered causes includes communicable diseases or, even more specifically, pandemics. The reason for the cancellation will often trigger a coverage dispute with the insurance company, however.
“An insured cannot cancel an event strictly out of an abundance of caution and get coverage, as prudent as this may seem,” said Michail Hack, a Partner at Schwartz, Conroy & Hack, P.C., who represents Policyholders. “These policies are triggered when there is a legal or physical impossibility of holding an event.”
As such, if an Insured cancels an event due to an official ban on large public gatherings, such as those recently announced by New York and California, they are much more likely to be eligible for coverage.
Significantly, many cancellation policies also require the policyholder to attempt to mitigate losses by, for instance, making a good-faith effort to reschedule the event before calling it off.
Founding Partner Evan Schwartz cautions clients and lawyers, “there is no substitute for reading your policies and seeking guidance from qualified coverage counsel. These are challenging times and experienced counsel is essential to protect your interests.
Clients should pay close attention to exclusions and riders for recently procured policies that specifically exclude pandemic or coronavirus caused losses. These recent policies may not comply with state insurance laws, if there is no reduction in premium based on the exclusion.
Business Interruption Claims
Although many companies have instituted work from home policies, there are entire sectors of the economy that simply cannot operate in the current climate. Bars, restaurants and health clubs have been ordered closed by New York as well as Massachusetts, Washington, Ohio and Illinois, with more states expected to follow suit.
These closures have generated disputes over two types of commercial property insurance: business interruption coverage, which covers a policyholder’s losses from having to shut down abruptly, and contingent business interruption, which kicks in when losses result from the closure of a policyholder’s supplier.
For either type of insurance to apply, policies almost always require proof of a “direct physical loss” to a property — in the case of business interruption coverage, a direct physical loss to the policyholder’s property, or in the case of contingent business interruption, a direct physical loss to the supplier’s property.
If a property has been shuttered merely due to fears of the coronavirus, but the building remains habitable, the direct physical loss requirement will not be met, and insurance coverage will not be available, according to some attorneys.
“We’re shutting down as a global community not because property is impaired but because people are impaired,” said Wilson Elser Moskowitz Edelman & Dicker LLP partner Paul S. White, who represents insurers. “The practical nature is that there may be some direct physical damage or physical loss to some property, but it is probably going to be the exception to have a direct physical loss rather than the rule.”
One avenue around this coverage limitation is where an infected person has been inside of a property and physically contaminated it. While this is somewhat novel, it may be enough to meet the direct physical loss requirement contained in most insurance policies.
“Research on COVID-19 is a moving target,” says Matthew Conroy, a Partner at Schwartz Conroy & Hack, P.C. “To the extent new research emerges which demonstrates that the virus lives on surfaces for longer periods of time or is airborne inside the facility, rendering it dangerous to its occupants, it may be a strong position that the physical business space is not habitable, regardless of the cleaning and disinfectant measures instituted by the insured.”
Even if the initial threshold for a direct physical loss is met, the policyholder can still run into other impediments to coverage, depending on the specific language of the policy.
Some commercial lines policies with business interruption coverage contain exclusions for property damage arising from organic pathogens, bacteria, viruses and other disease-causing agents.
“These exclusions and their specific language may very well come into play in a coverage dispute, in a scenario where an infected person has been inside of a property,” Conroy said.
Workers’ Compensation Claims
Workers’ compensation insurers may soon face an increase in claims by workers who say they contracted COVID-19 while on the job.
A recent report by Michel Leonard of the nonprofit Insurance Information Institute predicted that workers’ compensation insurers would be one of two categories of insurance companies to experience the greatest impact from the coronavirus pandemic, along with health insurers. According to the report, the brunt of that impact will be felt by carriers providing workers’ compensation coverage to hospital workers, EMTs, police officers and firefighters, as well as workers in “high-risk” sectors such as entertainment, manufacturing, transportation and retail.
The success of these workers’ compensation claims will depend on whether the employees’ exposure to the virus was sufficiently tied to their work. That test is known as “work relatedness.”
“Generally speaking, when an employee contracts an illness, like the flu or a cold, in the workplace, Workers Comp does NOT cover these losses, as it is not sufficiently tied to their job duties,” cautions Conroy.
But in the case of first responders and medical personnel, it should be fairly easy to demonstrate work relatedness, given that they regularly deal with populations that are more vulnerable to infection. For other workers, however, even those in customer-facing roles, it may be more of an uphill battle for them to prove that their exposure to the coronavirus occurred at work.
“Tracing the origin of the illness will be a real factual problem for claimants,” Conroy said.
General liability insurance companies are also going to be in the mix, as businesses face lawsuits and claims that companies have failed to protect customers from contracting the virus.
On March 9, Princess Cruise Lines Ltd. was hit with a first-of-its-kind suit by a South Florida couple who claimed Princess acted with gross negligence by failing to take precautions to prevent a coronavirus outbreak on one of its ships, after two passengers on the previous sailing disembarked with symptoms. Similar litigation is almost certain to follow as the pandemic unfolds.
The policies and protocols adopted by businesses and the timing of such a response may well be the evidence of negligence or lack thereof.
Claims of negligence resulting in bodily injury typically fall under “Coverage A” of standard general liability policies. However, one of the prerequisites for coverage under that prong is that there be an accidental “occurrence,” and some plaintiffs will argue that companies deliberately ignored critical information that could have prevented the spread of the virus.
Insurance companies will no doubt argue that these claims are not based on an “accident” for purposes of coverage.
Depending on the circumstances, businesses may also be able to turn to “Coverage B” of their general liability policies, which includes coverage for the personal injury offenses of false detention and imprisonment.
In addition, some insurance companies will likely invoke standard exclusions for claims of property damage or bodily injury stemming from exposure to a “pollutant” or “contaminant,” as courts could read those terms broadly enough to encompass the coronavirus.
The attorneys are Schwartz, Conroy & Hack, P.C. are here to assist you in all aspects for planning and response to losses your business has and continues to suffer as a result of the coronavirus.
Next Up—Coronavirus-related claims and Civil/Governmental Authorities Insurance Coverage.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack