By Lisa Hudson Kim

Facing COVID-19 Head On: Inventory and Analyze Insurance Coverage and Relief Solutions Upfront

Legal and insurance professionals have been inundated with inquiries about what insurance relief may be available in the face of losses and shutdowns as a result of reactions to COVID-19. This is a timely and important consideration for businesses, if not one that may involve ultimately viability, inasmuch as voluntary and involuntary business closings have occurred in many business sectors in the pandemic’s wake.  

This sweeping, global pandemic has forced insurers, agents, brokers, and insured businesses to inventory and closely examine insurance coverage(s) under commercial business policies like a Business Owner Insurance Policy for available relief. Additional coverage analysis under business interruption, contingent business interruption, civil authority, workers’ compensation, short and long-term disability, general liability, errors and omissions, and directors and officers policies are equally worthwhile considerations. Specific policy endorsements and exclusions heavily weigh into this detailed analysis and often require physical damage for a covered peril or loss to the business structure and may expressly prohibit coverage for losses associated with viruses after the SARS and H1N1 epidemics.  

Multiple suits across the country are testing the legal waters with declaratory judgments seeking a judicial determination of commercial insurance coverage for business losses occasioned by the coronavirus, particularly to restaurants and casinos.  See, e.g., Oceana Grill v. Certain Underwriters at Lloyd’s, London, et al., No. 20-02558 (La. Civ. Dist. Ct. (Orleans Parish) Mar. 16, 2020); Chickasaw Nation Dep’t of Commerce v. Lexington Ins. Co., et al., No. 20-35 (Ok. Dist. Ct. (Pontotoc Co.) Mar. 24, 2020); Choctaw Nation of Oklahoma v. Lexington Ins. Co., et al., No. 20-42 (Ok. Dist. Ct. (Bryan Co.) Mar. 24, 2020).

First Stop: Business Loss Coverage.    
Business interruption coverage is commonly part of a commercial property policy of the insured. That is why physical damage to an insured property is usually required as a coverage trigger. There is probably no business interruption or loss coverage available for many insured business owners under their commercial property policies because no direct physical or structural damage occurs with COVID-19. Instead, businesses close voluntarily under precautions to prevent the spread of the virus. To have a successful claim and recoverable business interruption loss, an insured needs to establish physical damage to insured property caused by a covered peril, resulting in a quantifiable business interruption loss during the period of time it takes to restore the damaged property. If there is no causal link of lost business income to physical damage for a covered peril to the business structure, then coverage is likely unavailable.  

Another Avenue: Civil Authority Coverage.
There is generally no civil authority coverage as a result of governmental orders issued to deal with the coronavirus. If there is no physical loss or damage, then there is likely no coverage in a civil authority context. The damage must stem from a covered loss. Civil authority closures that are precautionary and not mandatory (as is the case in some jurisdictions), which are not related to property damage and do not contain the required causal connection to physical structural damages sustained are not sufficient in most cases to trigger coverage.  

A Further Option: Contingent Business Interruption Coverage.   
Contingent business interruption coverage protects against economic losses resulting from damage to property of a person on whom the insured depends for business, such as suppliers or customers. Businesses are suffering from global supply chain issues like disruptions, slowdowns, closures, and increased prices. However, consequences amounting to slowdown, loss of revenue, disruptions in the supply chain or customers, and added expense, efforts, and/or delays to disinfect are unlikely to be considered the result of physical damage to the business of the insured by a covered loss or peril. These factors would not likely trigger business disruption coverage.  

Other Coverages to Explore: General Liability Policies. 
Coverage for defense of suits by third-parties may be afforded under a general liability policy. There is possibly general liability policy coverage for legal defense of claims associated with a business’ liability for failing to protect customers, vendors, suppliers, and the public from exposure to the COVID-19 virus at the insured’s premises.  

Workers’ Compensation Policies. 
Coverage for injuries to and/or illness of employees and staff may be available pursuant to workers’ compensation policies if the injuries and/or illness are specifically and directly related to the performance of job duties. To have workers’ compensation coverage, the employee must contract the coronavirus due to work-related exposure and the injury or illness has to be related to the job and the employee’s performance of duties.  

Short and Long-Term Disability Policies.
Short and long-term disability insurance is available in specific, limited settings and may apply to outages and injuries or illness associated with COVID-19 if those outages are longer in duration.  Disability income insurance may cover the claim if you are ill long enough after a requisite waiting period.  

Errors and Omissions and Directors and Officers Policies.
Errors and Omissions and Directors and Officers insurance may provide coverage if professionals in management and decision-making roles fail to meet a requisite standard for the duty of care and financial losses result. Those losses may stem from mismanagement in response to the pandemic itself, as well as from the unique and specific risks and dangers it presents.

Virus Endorsements and Exclusions Eviscerate Coverage. 
There is an express denial and exclusion of coverage for viruses in some policy endorsements, as well as for contaminants, pollution, and bacteria in the wake of past epidemics like SARS and H1N1. After sweeping insurance claim payments from prior epidemics, coverage previously afforded was specifically carved out of some standard policies and insurance forms for virus-related losses. Those businesses which did not specifically negotiate a tailored policy with virus coverages added back in – at additional cost – may find the coronavirus affords them no coverage due to the express exclusion.  

The Devil is the Details.
The analysis of your commercial policies with their endorsements and exclusions is factually specific. Ultimately, coverage decisions will be made on a case by case basis when claims are filed. There are also external factors like lobbying efforts, legislative reforms, and political aid measures that may change, sway, or even mandate different outcomes in claims coverage determinations. It behooves an insured company to file an insurance claim(s) as early as possible with meticulous, detailed documentation of losses, financials, mitigation efforts, expenses for clean-up, and precautionary measures taken, with pictures and video included if at all possible. Prompt notice by the insured to the insurer is prudent to remove any argument of lacking or late notice as a basis for claim denial. There are specific pandemic insurance coverage packages offered in response to this crisis but most are prospective in coverage, not retroactive, and their pricing mid-crisis may be prohibitive. Advocates and politicians are lobbying for reforms constantly, so this is an evolving landscape.  Prevailing pressures may cause things to be reformed and for there to be more ultimate leniency afforded in coverage determinations. Avoid making the coverage determination as an insured for the insurer and self-selecting out of filing a claim that may ultimately be covered.  

The Prudent Course of Action.
To navigate these complex waters in a timely, efficient, and prudent manner, consider consulting with legal and insurance professionals who can help guide your policy review for applicable coverage(s), assist with insurance claim filing, as well as with other relief and contingency planning measures, and stay abreast of the quickly-evolving regulatory and legislative reforms at the national and state levels.  

The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2024.