“You don’t want to be complacent. You always want to be ahead of the curve.” Dr. Anthony Fauci, M.D., Director of National Institute of Allergy and Infectious Diseases
Given the uncertainty and fluidity of the effects of this global pandemic, it can be challenging for companies to look beyond how to overcome the issues presented by the virus today, including possible insurance coverage for losses sustained as a result of the coronavirus outbreak.
Insurance Coverage Issues
Given the potential severity of the economic impact of coronavirus, businesses will no doubt look to their insurance coverage as a source of mitigation. While we anticipate that many claims will not be covered by standard insurance policies, we highly recommend a thorough review of available coverages and a conversation with an insurance attorney or knowledgeable broker to determine what, if any, coverage might be potentially available for any particular claim. The following describes some of the typical policies carried by most businesses, and the initial issues that are likely to arise with respect to claims under them (of course, other coverages, such as workers compensation policies, could come into play for any particular claim as well).
1. Business interruption coverage
The most obvious source of insurance recovery may appear to be from the business interruption and extra expense coverage that is often included as part of many companies’ commercial property insurance package policies (but which might also be provided in stand-alone policy). Unfortunately, most business interruption and extra expense insurance requires some sort of physical injury or physical damage to other business property as a trigger to coverage. In other words, the coverage is typically designed to apply where a physical event (e.g. a building fire) shuts down operations for a period of time. It is unclear if a claim would be covered, if it is premised on the physical illness of people necessary for business operations, but this issue should be examined on a policy by policy basis.
2. “Civil Authority” protections may provide coverage for certain losses related to Coronavirus.
While still somewhat uncommon, so-called “civil authority” coverage can be found in certain business insurance policies. These clauses were designed to insure against losses arising out of loss of income and extra expenses incurred in the event civil authorities prevent access to the business due to civil unrest or other emergencies. Coverage will vary wildly depending on specific wordings used, but insured business-owners should examine their coverage carefully to see if such protection exists.
3. Event Cancellation Insurance
While not as common as some of the other forms of insurance coverage, businesses in the travel and entertainment industries, in particular, often carry some form of Event Cancellation insurance coverage. These policies are all written on non-standardized, manuscript policy forms and should be carefully reviewed for potential losses associated with a cancelled or postponed event. While many of the policies may contain some form of pandemic-related exclusions, depending on the exact facts and circumstances there may or may not be coverage for any particular losses.
4. Commercial general liability insurance
In addition to seeking first party coverage for business interruption and/or extra expenses, businesses may need to seek coverage from insurers for third party claims related to coronavirus. For example, customers or others may raise claims that a business was negligent in maintaining a clean environment and as a result of that negligence, the claimant has contracted coronavirus. While the ultimate merits of these claims are not really relevant, what is relevant is whether insurers will recognize the potential for coverage and at least provide a legal defense. While these types of claims could be pled in a way that triggers coverage (or the potential for coverage), there is also a chance that the claim would be excluded from coverage under a relatively “standard” biological or pollutant exclusion – depending on how broadly the exclusion is drafted. Additionally, some commercial general liability policies may also contain pandemic exclusions or force majeure exclusions that could be triggered. In any event, as soon as a business becomes aware of an actual or potential claim of this nature, it should immediately review its coverage and consider tendering notice to its carrier.
5. D&O insurance policies also may come into play—check what they say about bodily injury and coverage, as well as conduct exclusions
Directors and Officers (“D&O”) liability insurance is primarily designed to provide protection to individual executives for alleged wrongdoing, and to provide protection to businesses that have to indemnify individual executives for wrongdoing. However, most D&O insurance also includes coverage for claims brought against the business entity. For publicly traded companies, this entity coverage will usually be limited to only coverage for securities claims. However, for privately held companies, the entity coverage is often very broad and, subject to policy exclusions, will afford coverage against the entity for claims based on any actual or alleged “wrongful act.” As with all insurance, the policy should be carefully reviewed to determine the full scope of potential coverage. It is possible that this coverage may be triggered by the coronavirus pandemic. Examples of possible claims situations include: shareholder derivative suits against management for mismanaging the crisis; individual claims against directors or officers for breaching their legal duties related to the crisis; HR claims arising out of an unsafe workplace; or even claims brought by customers or suppliers for economic losses arising from the pandemic. The language used in D&O policies varies significantly from one insurer to the next (there are no standardized forms), and the potential claims are equally numerous. Therefore, a review of a business’ D&O policy should be undertaken for any coronavirus-related third party claims.
For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the CDC and the World Health Organization. .
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