Insurance Coverage and the Coronavirus

Virtually every business is suffering losses due to the coronavirus pandemic, and many are looking to their insurance policies in hopes of relief. Whether coverage will be available will depend on the types of policies in place, as well as the specific coverage wording and exclusions to each policy. Every insurance policy is different, and policyholders will need to review their policies carefully to determine if any coverage is available. The following is a summary of some of the types of coverage that may be available and a discussion of some of the common policy provisions.

Event Cancellation Coverage

If your company had to cancel or postpone an event due to the pandemic, Event Cancellation or Non-Appearance policies may cover your losses. These policies’ wording varies widely, and coverage may depend on whether the insured voluntarily canceled or postponed the event (due to fear of coronavirus transmission or lack of attendance) or whether, for example, government orders required the event to be canceled or postponed.

In addition, many event policies contain standard exclusions for loss or damage caused by or resulting from a virus or bacteria. Some policies may contain an exclusion for communicable diseases and associated quarantines and travel restrictions. In addition, many event policies which were issued after the virus emerged and began to spread in mid-December 2019 contain specific language excluding coverage for any losses associated with the coronavirus pandemic. The existence of any or all of these exclusions may be a barrier to coverage.

Communicable Disease Coverage

Communicable Disease coverage is often purchased with a Commercial Property policy. These policies provide coverage for loss of business income sustained as a result of business operations shutting down or being suspended by a government order, as a result of an outbreak of disease at the insured premises. Many policies contain an expansive definition of “communicable disease” that may be interpreted to include COVID-19, the disease caused by coronavirus. Clean up and public relations costs may be covered as well.  These policies commonly impose lower sub-limits on coverage.

Business Interruption Coverage

Business Interruption coverage is commonly purchased with a Commercial Property policy. Several provisions may impact whether business losses are covered.

Many policies provide that the insurer will pay for losses due to a suspension of operations caused by “direct physical loss or damage” to insured property. Business Interruption policies may also provide coverage for the costs of decontaminating property, if necessary. The question arises whether viral contamination (or fear of contamination) constitutes “physical loss or damage,” especially if the insured does not have proof of the presence of viral contamination. Under other circumstances, some state courts have held that the inability to use an insured property due to a contaminant could be sufficient to constitute “physical loss or damage” as defined in an insurance policy.

Whether the inability to use property due to the current pandemic, including loss of use due to feared, potential, or actual contamination, constitutes “physical loss or damage” and therefore triggers coverage will undoubtedly be the subject of a great deal of dispute between insurers and policyholders. In fact, policyholders in Louisiana and California have already filed lawsuits in March 2020 asking the courts to provide guidance as to the scope of coverage for coronavirus-related losses to hospitality businesses.

Contingent Business Interruption Coverage

Contingent Business Interruption coverage may cover the policyholder’s lost profits resulting from supply chain disruptions. Again, these policies often require “direct physical loss or damage” to the insured’s suppliers’ or customers’ property, and may be subject to exclusions for virus or communicable disease.

Civil Authority Coverage

Commercial Property and other types of policies may include a Civil Authority coverage extension. Civil Authority coverage may be available to reimburse business interruption losses and expenses where a government entity has issued an order resulting in denial of access to an insured premise. Depending on the policy wording, “direct physical loss or damage” to the insured property may or may not be required. Civil Authority coverage is often limited in time (for example, coverage may only be available for losses or expenses incurred within 72 hours after the order is issued) and is often subject to separate deductibles and sub-limits of coverage.

Ingress/Egress Coverage

In some policies, Business Interruption insurance is extended to losses where “ingress or egress” (i.e. access) to insured property is prevented. Depending on the policy language, a government quarantine or stay-at-home order may trigger this coverage. Again, depending on the policy wording, “direct physical loss or damage” either to insured or uninsured (usually neighboring) property may be required.

Exclusions

As discussed above, many policies contain an exclusion from coverage for losses due to viruses or bacteria; some policies issued in recent months contain exclusions specific to coronavirus-related losses, and some policies contain an exclusion for Communicable Disease and associated losses.

Possible Legislative and Legal Developments

In a March 18, 2020 letter to insurance industry groups, a bipartisan group of Members of the United States House of Representatives requested that insurers agree to retroactively provide coverage for a wide variety of business interruption losses due to the coronavirus pandemic, regardless of policy exclusions or arguments that the virus and associated quarantines do not cause direct physical loss or damage to property. The insurers declined to do so, responding that business interruption policies are not designed to provide coverage for losses related to communicable diseases. Similar legislation has recently been proposed on the state level in New Jersey. It has recently been reported that insurers may propose the creation of a coronavirus fund to cover pandemic-related business losses, similar to the victims’ compensation fund set up after the 9/11 terrorist attacks. In the meantime, policyholders have filed suit in Louisiana and California requesting clarity on the interpretation of common policy provisions in light of the pandemic.

The interpretation of insurance policy coverage provisions and exclusions, as applied to coronavirus-related losses, will undoubtedly be the subject of a great deal of dispute, litigation, and possibly legislation in the coming weeks and months. Policy language varies widely, and its application and interpretation in the context of the current pandemic is evolving. Policyholders should carefully review their policy provisions, consult an attorney if appropriate, and consider their options in order to determine the best course of action regarding any potential insurance claims.

Jill Haley Penwarden, a Partner in Rimon’s Litigation group, has two decades of experience representing and defending sports and recreation providers in high-stakes litigation. She has represented clients including ski areas, golf course operators, mountain bike parks, and cruise ship operators in California and federal trial and appellate courts, as well as in arbitration and mediation. Ms. Penwarden also serves her clients as an advisor on risk management and insurance matters.  She has completed a 40-hour mediation training, works as a private mediator, and acts as a volunteer mediator in the Nevada County courts. Read more about Jill here.

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