Insurance Coverage for the Coronavirus

March 16, 2020

The recent spread of the coronavirus disease (COVID-19) poses risks not only to human health, but also to the financial wellbeing of many businesses. To date, businesses have been forced to take significant actions in responding to the disease, including cancelling events and even ceasing or suspending operations altogether. As the coronavirus and its ripple effects continue to impact day-to-day life and commerce, businesses may face additional disruptions that could significantly affect their operations and finances.

In addition to taking steps to ensure the safety and health of their employees and customers, many businesses may be questioning whether they have insurance coverage for coronavirus-related losses. The answer depends on the facts and the specifics of each business’s insurance policy. This article provides general information and guidance regarding the types of insurance coverage that may be available, including potentially business interruption, contingent business interruption, civil authority, commercial general liability, and workers’ compensation coverage.

Commercial Property Policies and Business Interruption Coverage

Businesses should review their commercial property policies to determine whether they have coverage for coronavirus-related losses. Many of these policies contain coverage commonly known as “business interruption insurance.” This type of insurance is typically structured to reimburse businesses for losses associated with an unexpected interruption of operations, including lost revenue, expenses, and the cost of temporarily relocating operations. At first glance, such provisions may seem to provide coverage for an unexpected shut down due to a viral outbreak like the coronavirus. However, some insurers have tightened their policies after prior outbreaks like SARS, H1N1, and Ebola in an effort to limit business-interruption coverage associated with viral outbreaks. Available coverage may vary from policy to policy.

Many policies with business interruption coverage also have a “direct physical loss or damage” requirement. This typically requires that the business sustain physical damage or loss to its property before business interruption coverage is triggered. Although physical loss usually occurs when property is damaged as a result of a fire or some other natural disaster, structural damage is not always necessary. In some cases, physical damage may include contamination of equipment, for example. In addition, some courts interpret the physical loss requirement differently than others. Consequently, it is important to analyze both the policy language and the applicable law in evaluating coverage under these provisions.

Policy exclusions must also be considered. Many commercial insurance policies contain exclusions for losses due to epidemics, pandemics, or contamination and pollution, including viruses. These might be implicated for losses related to the coronavirus. On the other hand, some policies may not contain these exclusions, or may expand coverage through an endorsement for certain losses, including non-physical losses and communicable diseases. While these endorsements are less common, businesses should still carefully review all of their policies and endorsements for potential coverage.

Finally, many policies that contain business interruption coverage have a “period of restoration” limitation. This limits the duration of coverage for a loss. The period is typically measured by the reasonable amount of time it would take a prudent business acting with due diligence to repair or replace the damaged property. Businesses should thus act diligently in responding to the commercial impacts of the coronavirus.

Contingent Business Interruption Coverage  

Commercial property policies also sometimes contain “contingent business interruption” coverage. This typically provides coverage for certain losses caused by the disruption in the business operations of an insured’s supplier, as opposed to the insured’s business itself. This coverage may apply, for example, when a business suffers a loss because a vendor is forced to limit or reduce its supply of goods to the insured as a result of the coronavirus. Many such policies require that the underlying supplier sustain a “direct physical loss or damage” to trigger coverage. As discussed above, this could present issues for the insured business in seeking coverage under these provisions, depending on the policy language and applicable law.

Civil Authority Coverage

Some commercial property policies contain “civil authority” coverage. This coverage may be triggered if civil or military authorities issue an order prohibiting a business from accessing its property as a result of covered physical damage. Like business interruption coverage, traditional civil authority coverage usually requires a cessation of business due to physical damage at or near the property, which could potentially pose issues in obtaining coverage. As government authorities continue to take action in response to the coronavirus, businesses should review their property policies to determine whether they have civil authority coverage and identify the triggering conditions that may apply.

Commercial General Liability Coverage 

Businesses should also review their commercial general liability (CGL) policies. These policies typically provide coverage when a third party makes a claim for damages against the insured business for bodily injury resulting from the insured’s unintentional acts. In the present context, this could include, for example, a customer or visitor claiming they became ill from contracting the coronavirus at the business’s location. If any such claim is made, businesses should, in addition to taking the appropriate steps to ensure the safety and health of their customers, employees, and the general public, check their CGL policies for potential coverage and timely notify their insurers, as appropriate.

Workers’ Compensation Coverage

Workers’ compensation insurance may also be implicated, including, for example, by claims made by employees that they contracted the coronavirus at work. Many such policies cover “occupational diseases,” which generally include diseases contracted from a particular kind of work, and not an ordinary disease that can be contracted by the general public. The distinction between an “occupational disease” and “ordinary disease” is not always easy to make, however. The policy language and applicable law must be consulted.

Conclusion

The Centers for Disease Control and Prevention (CDC) has issued helpful guidance for businesses responding to the coronavirus. The CDC’s guidance can be found here.

In addition to taking the appropriate steps to ensure the health and safety of their employees and customers, businesses impacted by the coronavirus and its effects should also identify their insurance policies, determine the types of coverage available, closely review the policy language, and quickly assess whether insurers should be placed on notice of any potential claims or losses. Businesses impacted by the coronavirus should also document and closely track any costs and expenses they may be incurring, including especially any costs or expenses associated with responding to the coronavirus or related circumstances, such as relocating operations or employees or responding to closures or cancellations.

Although this can sometimes be a difficult and complex task, especially given other pressing health concerns associated with the coronavirus, businesses can turn to their counsel or qualified insurance professionals for guidance and assistance on insurance issues. If you have any questions regarding your insurance policies or any potential insurance claims associated with the coronavirus, please contact one of the authors above or another member of Lewis Rice’s Litigation Practice Group.

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