As governments, health officials and private companies work to mitigate and contain the threat of a potential COVID-19 pandemic, businesses also should be mindful of managing their risk through insurance. Several different types of coverage may be implicated, and to maximize protection, companies should assess their existing coverage and have a plan for giving notice to carriers and asserting claims if required.
Business Interruption Coverage
Property and Casualty (P&C) policies may provide coverage for business interruption due to damage to or loss of covered property. In the COVID-19 context, there will be issues as to whether the presence of infectious disease at covered property, such as a business premises, constitutes a sufficient impairment to trigger coverage. Policies often require losses to flow from “physical damage” or “direct physical damage” to covered property, but some courts have construed this language broadly. Policies may provide business interruption coverage for loss of access to covered property. Some P&C policies may also have express coverage for lack of access to or use of real property due to government action, such as an order from a civil or military authority.
Contingent Business Interruption Coverage
Contingent business interruption (CBI) coverage is also offered in conjunction with P&C policies. It provides protection for losses a business incurs due to disruption of its suppliers or customers. Claims made against such policies can be complex to establish, and coverage determinations can be very fact-specific. CBI coverage is similar to business interruption coverage in that it is based on damage to property. CBI claims related to COVID-19 will raise issues about whether the presence of an infectious disease is sufficient to impair the property of customers and/or key suppliers. There may be a lack-of-access element to this coverage, as well. The key, as always with insurance coverage, is to carefully read the policies.
Commercial General Liability Coverage
Commercial General Liability (CGL) policies may be implicated in a COVID-19 outbreak if customers or other business invitees become sick and allege they were infected on a company’s business premises. Such a fact pattern would set up a negligence claim, and while the standard of care and proof of causation might present substantial obstacles to potential plaintiffs, companies would still face defense costs and the threat of adverse verdicts in plaintiff-friendly jurisdictions. Potential coverage issues include exclusions or endorsements for infectious disease, as well as additional insured status for contractors and building owners/managers.
Directors and Officers Liability Coverage
To the extent that a business suffers substantial losses related to COVID-19, whether from loss of revenue or from tort claims, there is a follow-on risk of securities and shareholder-derivative suits against officers and directors alleging mismanagement and malfeasance. Such claims implicate the company’s Directors and Officers (D&O) coverage.
What Companies Need to Do
Companies should take immediate stock of their insurance programs with COVID-19 in mind. Carefully review existing policies to determine what coverage is available. Do not rely on verbal assurances or written summaries prepared by a broker or agent. Companies should be aware of the notice provisions in each policy and be ready to put each carrier on notice as soon as claims arise.
It is also important to be mindful of when policies renew, as carriers can be expected to include COVID-19 exclusions with their renewals. If that turns out to be the case, then giving notice under the pre-renewal policies of “circumstances” and potential claims will be important to help secure available coverage. Of course, failure to give timely notice may forfeit coverage entirely. Finally, companies should seek experienced coverage counsel if an insurer denies or reserves rights on a claim, as many such denials and reservations are wrongful.