Businesses are incurring losses resulting from business interruption—due to supply chain interruptions or temporary shutdown of operations, the inability to perform under contracts, and event cancellation. For companies in the retail and hospitality industries there is also concern about facing claims from customers alleging negligence in failing to warn of, or protect against, exposure to COVID-19.
While insurance might provide much needed relief in some circumstances, there are many considerations that could affect coverage.
General Liability Insurance
Commercial general liability (CGL) policies provide coverage for an insured’s liability to a third party for lawsuits asserting claims of bodily injury or property damage. Given the scope of coverage, CGL policies generally will not provide relief for claims for economic losses associated with contract performance or event cancellation due to COVID-19 because actual physical injury to tangible property or bodily injury is required to trigger coverage.
Businesses in the retail and hospitality industries potentially could have coverage for claims asserting liability for exposure to COVID-19, if the customer claims they became infected with the virus as a result. But be aware that many insurers have been adding exclusions for claims arising out of the exposure to viruses or bacteria in order to preclude coverage for such claims. The application of such exclusions must be considered on a case-by-case basis to evaluate the relevant policy language and facts.
Event Insurance
Event insurance is a nonstandard form of insurance written to protect the insured from various risks associated with large events such as weddings and seminars. The governors of Oregon, Washington, and California and many other states have issued orders prohibiting gatherings of varying sizes. Many businesses, non-profit organizations and other groups have been, or will be, forced to cancel events, some on extremely short notice.
Those organizations impacted by event cancellation may be able to recover under event insurance policies for certain losses, including amounts paid to reimburse vendors, pay speakers, and even lost profits. Importantly, however, most of these policies have a list of covered reasons for the cancellation. While some do cover events such as pandemics, other policy forms expressly exclude cancellation due to communicable or reportable diseases.
Business Interruption Coverage
There are many business interruption implications arising out of COVID-19 and the social distancing that it requires. Unfortunately, most insurance policies providing business interruption coverage are property insurance policies and typically require the interruption to be caused by physical damage to insured property. There may be some litigation regarding whether contamination or potential contamination of real property with a virus constitutes damages to real property in order to trigger the coverage as a result of this pandemic.
In addition, there are some standalone types of business interruption policies that may provide coverage when the interruption is caused by orders from a civil authority—for example, when a government entity denies access to covered property. Often the coverage requirements where the interruption is caused by a civil order are very specific and require careful examination of the policy language.
