COVID-19: Recommended Insurance Action Items and Potentially Responsive Coverages

The Coronavirus (COVID-19) pandemic is dramatically impacting business operations across the United States and around the world. As companies navigate disruptions to supply chains, business and school closures, conference and event cancellations, travel restrictions, and a volatile stock market, they should carefully examine how their operations have been and may be affected, and whether financial losses and costs as well as exposure to litigation risks are potentially covered by insurance.

Action Items
Businesses should evaluate potential paths to insurance recovery under available policies for COVID-19 risks before losses occur or mount. The steps detailed below increase chances of recovery:

1. Gather and Review. Businesses should determine what insurance they presently own and if it will potentially respond to COVID-19 risks. The types of coverage most likely to be responsive are addressed below. If complete policies are not on hand, businesses should request them from insurance agents, brokers, or insurers so that they can be reviewed for available coverage and for when and how to notice a claim or document and prove a loss. If responsive coverage is not in place, this pandemic presents an opportunity to understand coverage gaps for exploration with a broker or agent when coverages are renewed so that insurance solutions might be purchased to protect against a future outbreak.
    
2. Document. If coverages are potentially responsive to the risks faced, keeping detailed records, including invoices, spreadsheets, communications, and contact information, is critical.  For instance, any lost profit or other expenses incurred as a result of the pandemic should be tracked in order to make it easier to submit a business interruption or contingent business interruption claim.
    
3. Notice. As soon as circumstances that might give rise to a loss or a claim are known, notice should be provided to insurer(s). Follow to the letter instructions detailed in the policies regarding who should receive the notice and how it should be sent. Failure to do so can result in potential coverage disputes down the road. Also, if you are going to hire a lawyer to respond to a claim or will be spending money to reduce or mitigate loss, tell the insurer in the notice what you are intending to do and ask for their immediate acknowledgment and assistance to minimize disagreements on what is or is not covered.

Potentially Responsive Insurance Policies
Coverage may be available under a variety of insurance policies for COVID-19 related losses and costs, some of which are highlighted below:  

1. Business Interruption and Contingent Business Interruption Insurance.
   The most notable insurance coverage implicated by COVID-19 is business interruption (BI) and contingent business interruption (CBI) coverage, which can be stand-alone policies or part of first-party property policies. BI indemnifies the insured against financial losses that occur when its own business operations are unexpectedly interrupted for sustained periods. CBI provides similar coverage, but for financial losses resulting from disruptions to a business's customers or suppliers—not their own operations. In most such policies, coverage is triggered when there is direct physical loss of or damage to the insured property (such as a store, factory, or product).
   
   Policyholders should expect insurers to argue that contagious diseases do not constitute property damage. However, depending on the policy wording, physical damage can include contamination. For example, contamination in a covered HVAC system has been held to constitute property damage. Given recent reports that COVID-19 can live on surfaces (up to three days), coverage may exist. Insurers may also attempt to invoke other exclusions, such as Bacterial/Virus Exclusions and Pollution Exclusions.
    
2. Civil Authority.
   Many commercial property insurance policies contain what is known as civil authority insurance, which provides coverage for business income losses that occur when a civil authority denies access to the insured property. Given China's quarantine of the city of Wuhan and Italy's recent order to close all non-essential shops, U.S. businesses should review their policies to determine whether they contain such coverage. Policies may or may not require damage to insured property. Additionally, policyholders should be aware that depending on the specific policy language, insurers may contest coverage to the extent the civil authority’s order denying access is advisory or voluntary in nature.
    
3. Commercial General Liability.
   Practically all businesses possess commercial general liability (CGL) insurance, which protects against third-party liability claims for bodily injury or property damage arising out of exposure to harmful conditions. To trigger coverage, most CGL policies require showing there was "bodily injury" caused by an "occurrence," which is usually defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." As the pandemic continues to grow, businesses may face allegations from customers that the business failed to protect them against the risk of exposure to COVID-19. For example, a couple stuck on a cruise ship where 21 cases of COVID-19 have been diagnosed recently sued the cruise line for $1 million, arguing that the cruise line acted negligently and the couple is at risk of immediate physical injury. In seeking coverage for such lawsuits, businesses should look to their CGL policies.
    
4. Directors & Officers and Errors & Omissions.
   In addition to lawsuits against the business, directors and officers should be aware of potential shareholder lawsuits alleging they mismanaged the company by failing to adequately respond to COVID-19, contributing to business disruptions, resulting losses, or harm to third parties. Clearly anticipating such claims, the Securities and Exchange Commission has encouraged companies to "provide investors with insight regarding their assessment of, and plans for addressing, material risks to their business and operations resulting from the coronavirus to the fullest extent practicable to keep investors and markets informed of material developments."
   
   In the event a director or officer faces a shareholder lawsuit, there may be coverage under directors & officers (D&O) insurance, which provides liability coverage for directors and officers for claims made against them while serving on a board of directors and/or as an officer. Also, coverage may be available under errors and omissions insurance (E&O), which protects the insured against liability for committing an error or omission in performing professional duties.  

We Can Help
The above information is not intended to be an exhaustive review of coverage options for claims or losses related to COVID-19. Rather, we have addressed the coverages most likely to respond, but other types of policies may apply. Any analysis of coverage potential requires a careful review of the applicable insurance language as well as the relevant facts.

Maslon's Insurance Coverage Group has extensive expertise in advising policyholders regarding insurance coverage for catastrophic losses and events, and representing them in maximizing their insurance recoveries in these situations. Please contact Maslon's insurance attorneys if you have questions or would like assistance with risk evaluation, insurance policy review, insurer communications, and claim and loss documentation and recovery—we are ready to help in this daunting time.