Businesses that are affected by the COVID-19 pandemic will be asking what insurance coverages may be available to them for the damages and losses that they are now or may soon be suffering. Since policies often have strict notice requirements, it would be prudent for businesses who are affected to review their policies now, to see what coverages may be available. Whether an insurer will cover a particular claim or set of losses will depend on the wording of the policy and the facts underlying the claim or loss.
Business Interruption
Business interruption insurance is typically included with first-party commercial property insurance. In a typical policy, the insurer will agree to pay for the actual loss of business income the insured sustains due to the interruption of the insured's operations, while they are being restored, where the interruption was caused by direct physical loss, damage, or destruction to property, which was caused by a covered peril. Thus, physical damage to premises is required, and the business interruption must have been caused by the physical damage. In the case of business interruption that results from the COVID-19 pandemic, it may be difficult to establish that there was such direct physical loss or damage. Also, it is not uncommon for a business interruption policy to exclude perils such as viruses and disease. There may also be issues with proving that the covered peril caused the business losses (as opposed to, for example, the losses being caused by the decision to pre-emptively close the business due to fear of the virus).
That said, some insurers have sold endorsements that provide protection for business interruption caused by a disease, so a business that had such an endorsement in its policy presumably would be in a stronger position. Also available are endorsements that cover loss sustained by the insured while access to its premises is prohibited by order of civil authority. Some insureds may also have bought "contingent business interruption" coverage, which protects insureds from business loss resulting from damage caused by interruption of supply, although often the interruption has to have been caused by damage to the suppliers' property. Again, for those insureds whose policies contain such endorsements, whether the policies will provide coverage will depend on the wording of the endorsement and the nature of the loss.
Given the unusual and widespread nature of the COVID-19 pandemic, some insureds under business interruption policies may choose to test the limits of the policy language in court. Already, according to the March 18, 2020 "National Law Review", a proceeding has been commenced by a restaurant owner in Louisiana seeking a declaration that its insurance policy does not contain an exclusion for viral pandemic. The owner says that the policy should cover the restaurant for any future civil authority shutdowns due to physical loss from COVID-19 contamination; and should provide business income coverage in the event COVID-19 contaminates the restaurant. The owner argues that contamination of the insured premises by COVID-19 would be a direct physical loss needing remediation to clean the surfaces of the establishment. It will likely take some time for this case to make its way through the courts.
Third Party Liability
Some businesses may face claims by people who have become sick or by the families of people who have died as a result of COVID-19. For example, a store or restaurant that remained open while the virus was rampant could be sued by a customer for breaching its duty of care by failing to take sufficient steps to protect him or her from the virus. A commercial general liability (CGL) policy will typically cover "bodily injury" caused by an "occurrence", for which the insured is legally obligated to pay damages to another. "Bodily injury" includes sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom.
There have been suggestions in some on-line commentaries that insurers might rely on the "pollution" exclusion in the standard CGL policy to deny coverage. If this issue is litigated, it will be interesting to see if the definitions of "pollution" in various policies are broad enough to include a virus.
Directors and Officers Liability
Directors' and Officers' (D&O) liability policies typically cover corporate directors and officers for claims that are made against them for alleged errors, misrepresentations and breaches of duty committed in their capacity as directors or officers, and for any other matter claimed against them solely by reason of their serving in that capacity. Such policies also may include the corporation as an insured where securities claims are made against the corporation. These policies may respond in the event a class action or derivative action is brought against a public company or its directors and officers as a result of alleged inadequate disclosure of the risks presented by COVID-19 to their businesses.
Conclusion
Businesses are encouraged to review their policy wordings in light of what they perceive to be their exposures to losses and liabilities as a result of COVID-19. Where they have suffered loss of business income they should take care to preserve all documentation that will support their claim.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
