Coronavirus and Insurance Coverage

The recent coronavirus outbreak has impacted all aspects of society: health, travel, and business. Although it is difficult to calculate the full extent of the damage that will be caused by this emerging pandemic, and how it will ultimately impact various industries, the virus has already led to business closures, suspension and cancellation of travel, and supply chain issues, and we’ve only begun to feel the potentially dramatic repercussions in the stock market. The principal cause has been orders of civil authority that have quarantined vast areas of China.

Various types of insurance may provide coverage for businesses that have been adversely impacted or disrupted by the coronavirus. An in-depth review of the portfolio of insurance policies issued to businesses will assist to uncover any possible coverage for losses suffered and/or liability incurred as a result of the coronavirus. The following discussion sets forth a brief summary of the various insurance policies that may provide coverage in the event an insured suffers loss due to the coronavirus either directly or as a consequence of the virus.

Commercial Property Insurance Policies

Standard commercial property insurance policies typically provide coverage for physical loss of or damage to Covered Property caused by or resulting from a covered cause of loss. This has led certain insurers to state that there can be no coverage under such policies for losses caused by a virus. Significantly, however, this position ignores the fact that there is no uniform rule applied by the courts in determining when an insured has suffered a physical loss. In fact, some courts have found that the loss of use or uninhabitability of property under certain circumstances can provide the requisite “physical loss or damage” to trigger coverage under property policies.

As relevant here, property policies often provide coverage for lost income or extra expenses from “business interruption” that are due to orders of civil authority that impact your business. This means that the insured has suffered loss to the property due to a governmental interference with the running of his business. For example, a quarantine ordered by the government is an order of civil authority.

Similarly, property policies often cover losses caused by the inability to gain “ingress to or egress from” to your property, even without an order of civil authority. Road blockage is an example.

In addition, policies may provide coverage for damage to dependent properties which are, for example, third parties who provide a necessary component for the business. For instance, where property damage to a newsprint supplier prevented a newspaper from printing its edition, this could trigger dependent properties.

Often times these policies contain exclusions for losses caused by a “virus or bacteria.” A careful review and dissection of the policy, as well as an understanding of exclusions in insurance policies, and the purpose behind the virus and bacteria exclusion is required in order to ascertain whether coverage exists for disruption to business due to the Coronavirus under property insurance policies.

Event Cancellation Coverage

Event cancellation policies provide coverage when an event such as a concert, trade show or wedding is cancelled for, among other reasons, equipment failure, illness of the artist, medical emergencies, and bad weather. Although these policies typically do not contain a virus or bacteria exclusion, the exclusions section of the policy should be examined thoroughly to ensure that there is nothing that would exclude coverage due to an unexpected or widespread outbreak of a disease.

Travel Insurance

Travel insurance policies are widely diverse, but generally provide coverage for losses that result from a delay or cancellation of a trip that is caused by bad weather, equipment failure, illness, or a medical emergency. Although these policies typically do not contain a virus or bacteria exclusion, the exclusions section of the policy should be examined thoroughly to ensure that there is nothing that would exclude coverage due to an unexpected or widespread outbreak of a disease.

Life and Health Insurance

The coverage afforded by health and life insurance policies should not be affected by the coronavirus. The exclusions that typically appear in these policies typically relate to personal conduct, such as self-harm, dangerous activities, alcoholism, or suicide. They do not exclude harm or loss caused by environmental factors.

Political Risk

Typical political risk polices may cover currency inconvertibility, expropriation, political violence and other losses. Although unlikely, depending on the specific coverage that is provided by the policy, there is a possible argument that an order by a foreign government that shuts down or impacts an insured’s business may constitute “expropriation.” A careful analysis of the coverage provided in the policy is necessary to determine whether this coverage argument is feasible.

Commercial General Liability Policies

Commercial General Liability (“CGL”) policies provide coverage to insureds for bodily injury or property damage caused to third parties who sue the insured for damages. CGL policies contain numerous exclusions, which may include a virus or bacteria exclusion. These exclusions must be examined carefully to confirm their applicability.

Director’s & Officer’s Liability Policies

Director’s & Officer’s (“D&O”) liability policies do not cover bodily injury or property damage claims. Thus, the question as to whether D&O policies contain a virus or bacteria exclusion is virtually irrelevant with one possible caveat. There is a split of authority as to whether these policies cover negligent decision making that causes bodily injury or property damage.

A client of ours was involved in the sale of a business and allegedly failed to disclose pollution claims at the property being sold; and the buyer filed a lawsuit for damages against the seller. In one case that that we did not handle, the court held that the D&O policy did not apply because the case really was about property damage. The other court disagreed and ruled that the D&O policy did provide coverage because the case really was about non-disclosure by the officers and directors of the pollution. This disagreement typifies the world that I live in – same case, same facts, two different courts, two conflicting decisions.

In conclusion, this is a rapidly evolving area of the law and predictions as to what might or might not be covered have no better odds than a Las Vegas slot machine. Therefore, it would be wise to consult insurance counsel before purchasing new coverage rather than waiting for the problems to arise.