Policies that May Provide Coverage for Coronavirus
Public and private entities carry a variety of insurance policies that may help mitigate business losses related to COVID-19. Such losses may include slowdown or suspension of business operations and damage to commercial property. Below is an overview of general policy types that could provide coverage in relation to COVID-19 losses.
1. Business Interruption Insurance
Business interruption coverage is often built into commercial general liability policies or property policies, or can be a separate policy. As the name suggests, BI policies provide coverage for lost profits and related costs when a business cannot continue its normal business operations. The interruption, however, must result from direct physical loss or damage to the business’ property. In connection to COVID-19, an argument may be made that there is “direct physical loss” when a business property is forced to close due to contamination.
To date, at least one case concerning COVID-19 and insurance coverage has been filed. In Oceana Grill v. Certain Underwriters at Lloyd’s London, now pending in Civil District Court for the Parish of Orleans, La., the insured, Oceana Grill, seeks coverage under a risk policy that requires direct physical loss or damage to the insured property within the policy period. Oceana Grill argues that the presence of coronavirus creates a physical loss or damage of property because the virus physically infects and remains on surfaces until cleaned with disinfectants.
Notably, many BI policies contain exclusions for property damage arising from communicable diseases as well as viral and bacterial transmissions. Such exclusions would likely preclude coverage.
2. Civil Authority
Some BI policies include endorsements and extensions that provide coverage for loss of business income due to civil or military orders that impair business operations. Thus, a quarantine order or an order requiring non-essential businesses to close to prevent further spread of COVID-19 may trigger coverage, so long as there is physical loss or damage to the property.
3. Supply Chain Risk Policy / Trade Disruption Policy
Specialized insurance, often called “supply chain risk insurance,” may cover business interruption resulting from a disrupted supply chain and does not require any losses to physical property. With this coverage, if a factory’s supplier shut down due to a disease outbreak, the factory could be covered for any lost income, regardless of whether there was any property damage that caused the disruption.
Coverage in connection to supply chains may also appear as endorsements or extensions in some BI policies, often referred to as Contingent Business Interruption. However, note that such endorsements still typically require physical loss or damage to property.
4. Premises Environmental Coverage (Also Known as Pollution Policies)
Some environmental premises policies provide coverage for losses and remediation costs in connection to a sudden, accidental or gradual release of a pollutant, which could include viruses depending on the specific policy language. These policies may cover business interruption costs and costs related to decontamination of operation sites.
Many such policies, however, include express provisions excluding viruses and bacteria as pollutants, while other policies restrict recovery to only remediation costs.
Pollution policies are frequently “claims made” policies, and insurers strictly enforce requirements relating to notice and for the prompt tender of claims.
5. Third-Party Liability Policies
Third-party claims for damage against a business for actions (or lack of action) taken during the pandemic may trigger coverage under a variety of liability claims, including Commercial General Liability, Directors and Officers Liability, Employment Practices and Workers’ Compensation.
As thousands of businesses across the country are forced to temporarily close in response to government action to combat the spread of COVID-19, losses will undoubtedly be staggering, and insurers will likely seek to avoid bearing the brunt of these losses. As such, it is anticipated that insurers will adopt narrow interpretations of coverage provisions and broad interpretations of exclusions. Thus, it is important for policyholders to thoroughly review their policy language, as insurance policies vary in scope and often include exclusions unique to a given business.
The issue of insurance coverage for COVID-19 claims has already attracted the attention of Congress. On March 18, members of Congress penned a letter to leading insurance associations, urging member companies and brokers to make financial losses related to COVID-19 part of their commercial business interruption coverage for policyholders. The letter states:
"During times of crisis, we must all work together… Business interruption insurance is intended to protect businesses against income losses as a result of disruptions to their operations and recognizing income losses due to COVID-19 will help sustain America’s businesses through these turbulent times…"
In response, the insurance groups stated that they are working to provide relief to policyholders, but not through the coverage in question:
"Standard commercial insurance policies offer coverage and protection against a wide range of risks and threats and are vetted and approved by state regulators. Business interruption policies do not, and were not designed to, provide coverage against communicable diseases…"
These communications likely preview upcoming disputes between insurers and their policy holders regarding coverage for COVID-19 claims.
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