Do I Have Business Insurance for Coronavirus Losses?

By Susan Boyles

The coronavirus has turned all of our lives upside down in the past two weeks. Who would have dreamed that we would be required to work from home, courts would be operating on a drastically reduced schedule, the NCAA Tournament and the Summer Olympics would be cancelled, and toilet paper would become more valuable than most stocks? (I don’t even want to look at my 401K plan right now!)

While we are waiting for the world to go back to “normal,” I have been pondering what all of this disruption means for insurance claims. Initially, there may be little increased claims activity as businesses focus on how to react to the ever-changing economic climate and try to keep their employees healthy. However, after the threat of the virus is diminished and business stabilizes, many companies will step back and gauge the real impact on their bottom line and ask the question: “Do I have insurance to cover this?” The answer is “maybe,” based on the type of policies purchased before the virus and the terms of each policy. However, if you’re trying to find coverage, here are some places to look:

Event Cancellation: This type of coverage is typically found in a standalone policy that is event-specific. Many companies will purchase such coverage if they have a recurring, large event that generates significant revenue for it – a trade show, for example. Some of these policies do have a communicable disease exclusion that may be triggered by a quarantine or travel advisory. However, not all do. Customary insuring language will provide coverage if an insured event “is necessarily cancelled, abandoned, postponed, interrupted, curtailed or relocated as a sole and direct result of a cause not otherwise excluded by this policy, occurring during the period of insurance, which is beyond your control or the control of your employees or agents, the event organizer, sponsors, participants or financial supporters.” Some policies may also provide coverage if the event is held, but attendance is reduced because of an insurable event. Check the policy language carefully.  Litigation issues are likely to center on whether the cancellation was voluntary or forced.

Travel Insurance: The coronavirus threat has caused many trips – business and personal – to be cancelled. In some instances, the traveler had no choice because of federally-mandated travel bans to certain countries. In other cases, travelers chose to cancel their trip because of concern about the spread of the virus and the potential for a quarantine when they return home. I was forced to read the fine print in my own travel insurance policy for the first time when my family cancelled our long-awaited Spring Break trip to the U.S. Virgin Islands this week. It’s no surprise that voluntary cancellations are not covered. Plus, most travel insurance policies contain an exclusion for an “epidemic,” even if there was a forced cancellation. The timing of the travel and when the coronavirus became an “epidemic” are important points to consider. If a traveler left the U.S. before travel restrictions were imposed and the trip was interrupted because of later-enacted travel restrictions when the coronavirus had been declared an “epidemic,” then coverage is more likely. Of course, if a traveler had paid the much higher premium for a Cancel For Any Reason policy, then coverage should exist, regardless of the circumstances.

The good news is that most airlines, hotels, and VRBO hosts are being somewhat accommodating. In my own situation, the airline is giving me a credit against future travel, but the travel must occur within one year from when I purchased the original tickets. My VRBO host is also giving me a credit for a future stay, which must be booked within a certain period. It’s not as good as a refund, but it looks like my family’s Spring Break trip for next year is planned and paid for now!

Business Interruption: A traditional property policy contains some coverage for business interruption, but it generally is not triggered unless there is direct physical loss to the property. These policies were designed for coverage if there is, for example, a fire, and the property cannot be used for some period of time while it is being restored. However, the language of some policies may be broad enough to provide coverage for recent events under the right circumstances. For example, what if a known case of coronavirus at the insured’s facility causes a shutdown of the plant and the insured must undertake extensive decontamination procedures before it can re-open? Could this be covered because the property is deemed unfit for use until it is cleaned? Or will an insurer try to argue that the virus is a “pollutant” and invoke the pollution exclusion? This area is ripe for litigation.

Alternatively, the “Civil Authority” clause may come into play if the government mandates that certain businesses must close or curtail services. Think about all the restaurants and hair salons that have been required to shutter their doors in the past week. However, this coverage traditionally has been applied when there is physical damage to property and it cannot be safely occupied. There are also usually time limits on how long the insurer will pay for any losses associated with the shutdown, such as 30 days. However, in this unprecedented time of state and local authorities ordering certain businesses to shut down to stop the spread of the coronavirus, the language in some policies may be broad enough to cover some of those losses, even if it’s only for a brief period.

In addition, there are more specialized policies on the market that are designed specifically to cover business interruptions without physical property damage and supply chain disturbances. These may be specific to a particular level of supply (i.e., the insured can’t get the part it needs from a direct supplier to make a machine) or it may go farther down the chain to cover a supplier’s supplier (the insured’s supplier can’t get the specialized screws from China it needs to make the part for the insured). Likewise, the policy may be specific to one element of the supply chain, e.g., a food manufacturer cannot get a particular ingredient needed for it to continue making its product. These policies are often customized for an individual insured, so they require a detailed reading to understand what may be covered.

Emergency/Crisis Response: A common endorsement on some CGL policies provides coverage for crisis response costs, typically with a sublimit. Again, the policy language is important, as many policies may require property damage or bodily injury before they are triggered. The definition of “crisis event” will also be significant. Common definitions include arson, bombing, taking of hostages, and intentional contamination of food or drink. An exclusion for infectious diseases may also be present. However, it’s worth looking closely at this form to see if there may be some indemnity available to deal with unexpected emergency expenses associated with the actions an insured has taken in response to the COVID-19 outbreak.

Workers’ Compensation: Employers are grappling with how to keep employees safe while simultaneously keeping their businesses running. Many employers have mandated that certain employees work from home. Those who must be in the office/plant are told to practice social distancing. But we know that this virus is highly contagious and can be spread easily, despite taking precautions. What if an employee who is required to report to work contracts the virus? Is the employee eligible for workers’ compensation payments? How will the employee prove that he contracted this highly-contagious virus at the office, as opposed to the grocery store? This is not my area of practice, so I just want to raise the issue for consideration and leave it to our workers’ comp experts to sort it out.

Third-Party Claims: I think third-party claims will come, but not immediately. Businesses are too busy dealing with their own internal problems caused by the coronavirus that they’re not looking to sue others right away. However, when things calm down, we’re likely to see lawsuits being filed to collect damages from others. The most obvious category of claims is breach of contract lawsuits, which generally are not covered by insurance. Plus, the force majeure clause in many contracts will provide some protection to businesses that were not able to meet their obligations because of the coronavirus.

However, I can envision some lawsuits that may invoke a defense and coverage under traditional insurance policies because they allege “bodily injury.” Take the workers’ compensation example above. What if the employee who allegedly contracted the coronavirus at work goes home and infects his family? Can the family members sue the employer for their own sickness?  What if a customer or vendor visits the company’s office and becomes infected by the coronavirus while there? Can he sue the company for his sickness?

Employment claims may also increase. Some companies have already taken adverse employment actions, as they reduce their work force in response to the coronavirus outbreak. Some employees may allege that their termination was wrongful, thereby invoking coverage under EPLI policies. Other employees may allege that their employers violated other state and federal employment laws, such as the newly-enacted Families First Coronavirus Response Act, in responding to the coronavirus outbreak. HR professionals should be in close consultation with counsel when making decisions about their workforce during this uncertain time. However, even making the “right” decision now doesn’t mean that it won’t prompt a claim from an employee later.

So what should counsel do now to help their clients pursue insurance coverage for losses associated with the coronavirus?

  • Review copies of all policies. Policy language may vary, and the facts of the individual claim will be important. Like everything else associated with the coronavirus, we’re in uncharted territory. A thorough policy review is essential to identifying all coverages that may be available.
  • Advise clients to document the losses as they go. It will easier to create a spreadsheet now and keep a running total as things happen, as opposed to trying to reconstruct what happened later.
  • Give notice of a potential claim to the insurer sooner rather than later. Timely notice is required under all policies, but some event cancellation policies have defined time limits that must be met to trigger coverage.

Regardless of whether you represent policyholders or insurers, you are likely to be busy in the coming months as coronavirus claims are submitted and coverage decisions are made. Litigation is inevitable, given the extraordinary circumstances in which we find ourselves. For now, though, wash your hands, practice social distancing, and don’t hoard the toilet paper.  Most importantly, though, cherish your good health and enjoy some extra time at home with your family.