For companies struggling with the loss of business caused by the COVID-19 crisis, insurance coverage can mean the difference between survival and extinction. While many companies had the foresight to buy pandemic or even business interruption insurance before this crisis, some have not, and they are left to consider whether property or even commercial general liability policies will provide coverage. Even those companies that purchased business interruption insurance have received coverage denials from their insurance companies for claims related to COVID-19 losses. For example, restaurants ranging from Chicago’s legendary Billy Goat Tavern to California’s high-end French Laundry and Per se have been forced to sue their insurance companies to enforce their rights to business interruption coverage under their insurance policies.
Insurance law can be complex and even intimidating to people who are not already well versed in its intricacies. But here are a few things that every policyholder should consider when evaluating their available insurance in this time of crisis:
Pandemic Coverage. This is the logical first place to look for coverage from COVID-19 losses. Unfortunately, it is a very niche market. If you were prescient enough to purchase this coverage, you are likely in a good position to find some coverage for your business losses. You should commend your risk manager or broker for their efforts and quickly organize your loss materials and submit your claim.
Business Interruption Coverage. Many companies have business interruption insurance and most executives may think that they have coverage under such a policy for business interruption losses resulting from a pandemic like COVID-19. But, like nearly every issue in insurance coverage, it depends on what your policy says.
Business interruption policies generally cover lost income and extra expenses that a company suffers when a "covered peril" (like an explosion, fire, wind, or falling objects) causes direct physical injury or damage to the policyholder’s real or personal property. Some business interruption policies may provide coverage for indirect losses that result from "Civil Authority" or "Supply Chain" disruptions. Other business interruption policies, however, contain an exclusion for a viral pandemic. In cases where there is no viral pandemic exclusion, the key issue is whether the policyholder’s lost income and extra expenses from the COVID-19 shutdown were caused by direct physical injury or damage to a policyholder’s real or personal property.
In the French Laundry Restaurant’s Complaint, the restaurant alleges that COVID-19 has physically impacted "public and private property, and physical spaces in cities around the world and in the United States" because it "physically infects and stays on surfaces of objects or materials, fomites,’ for up to twenty-eight days." (French Laundry Partners, LP dba The French Laundry, et al. v. Hartford Fire Insurance Company, et al., Superior Court for the State of California, County of Napa, Case No. ¶¶ 20 and 26.) Insurance companies, not surprisingly, have taken the position that the COVID-19 virus does not cause direct injury or damage to the policyholder’s real or personal property, notwithstanding the injuries it causes to human beings. (See www.cnn.com/2020/03/27/business/thomas-keller-lawsuit-coronavirus-losses/index.html)
The insurance industry will be monitoring the French Laundry case very carefully. The restaurant’s complaint in that case articulates some insightful theories that may be useful to similarly situated policyholders.
As is the case with any loss, policyholders must read their policies very closely to determine the scope of coverage available for their losses resulting from COVID-19 business interruptions.
Property Coverage. Similar to business interruption insurance, property insurance provides a company with coverage for direct physical damage to the company’s property. For example, in a fire, the loss of the building and the equipment inside the building are likely covered by the property insurance policy. Some policyholders might argue that the presence of COVID-19 on the surface of their desks, tables and equipment caused damage to their property that is covered by a property policy. Insurance companies will likely fight hard against coverage for these property claims and will disagree that the virus has caused physical injury to the policyholder’s property.
Commercial General Liability Coverage. Nearly every company has a commercial general liability policy. It provides companies with coverage for "bodily injury," "property damage," or "personal injury" that a company allegedly causes a third person. This coverage typically includes a duty to defend (coverage for attorney fees incurred by the company in defending the third party’s lawsuit) and a duty to indemnify (coverage for a judgment or settlement in the amount of the damages suffered by the third party.)
One type of claim likely to arise out of the COVID-19 crisis is a suit alleging that a company transmitted the virus to a customer or to some other person. For example, you can imagine a scenario where a UPS, Amazon or Uber driver is sick with the virus and allegedly transmits the virus to another person who is not an employee. In this case, the infected person may allege that UPS, Amazon or Uber are responsible for the person’s losses resulting from the virus. This type of claim could be considered a "bodily injury" under a commercial general liability policy. If a company is sued for these types of claims, they should tender the claim to their commercial general liability insurer.
The insurer may try to deny coverage based on a policy exclusion like the "pollution exclusion." Again, the outcome of this coverage dispute will depend on the scope of the "pollution exclusion" and the definition of a "pollutant" in the policy. "Pollutant" is generally defined very broadly to include just about any type of irritant or contaminant like smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. (See www.irmi.com/articles/expert-commentary/the-cgl-pollution-exclusion) As defined, a pollutant generally refers to traditional environmental pollutants like ammonia, asbestos, benzene, carbon dioxide, carbon monoxide, chemical fumes, DDT, gasoline, heating oil, insecticide, lead paint, PCB, and TCE. (Id.) Courts likely will reject the insurance company’s "pollution exclusion" argument because a virus like COVID-19 would fall outside the definition of "pollutant." Thus, depending on the coverage exclusions under a commercial general liability policy, there is a good chance that coverage may be available for third party "personal injury" claims due to COVID-19.
In these uncertain times, policyholders will look to their insurance policies to provide coverage for their losses. Policyholders need to evaluate all of their policies closely because there may be coverage for the losses they are experiencing.