In this time of the COVID-19 pandemic, there are many questions about insurance coverage. Because each policy is different, it is very difficult to generalize about insurance coverage. However, one thing we know to be true is that policyholders or insureds will be advocating for losses, primarily business losses, to be covered, while the insurance companies will be arguing the insurance policies preclude coverage either due to policy definitions or due to policy exclusions.
The main coverage implicated is Business Interruption, which is typically not a standalone coverage, but is a subset of property damage coverage. Accordingly, most policies require “direct physical loss of or damage" to property to occur before coverage will be triggered. In addition, many, if not all, policies contain a "virus" exclusion that prohibits coverage for damage caused by viruses.
Courts may try to apply the "reasonable expectations" doctrine in order to find coverage. The Supreme Court of Appeals of West Virginia has held the "reasonable expectations" doctrine provides the "objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations." Syl. pt. 8, National Mutual Insurance v. McMahon & Sons, 177 W. Va. 734, 356 S.E.2d 488 (1987) (overruled on other grounds). Other states define this doctrine to provide "that coverage which a layperson would have reasonably expected from a lay interpretation of the policy terms." However, because most insureds develop an expectation that every loss will be covered, the reasonable expectation doctrine “must be limited by something more than the fervent hope usually engendered by loss.” State Farm Fire & Casualty Company v. Bongen, 925 P.2d 1042, 1047 (Alaska 1996) (citations omitted).
Courts in many states hold that for the "reasonable expectations" doctrine to apply, the language in the policy must be determined to be ambiguous. West Virginia adheres to this interpretation somewhat. However, West Virginia law allows, in certain circumstances, for an agent of the insurance company to create coverage if he or she acts in a way that creates a reasonable expectation of coverage. The type of conduct required to create coverage may be a jury decision.
Given the current climate, the insurance questions involved in this pandemic are tricky ones. As this pandemic continues to unfold and businesses are affected across the board, the government and courts will be looking for an escape hatch to pay for the losses that are sustained, and that escape hatch could very well be insurance policies.
