COVID-19 & Insurance Coverage – a Primer on (Potential) Coverage Issues Arising out of the Pandemic COVID-19 & Insurance Coverage A Primer on (Potential) Coverage Issues 1
Overview of Current Situation Governmental “shelter in place” or similar orders enacted in multiple states and municipalities. • CT: “Stay Safe, Stay Home” (Executive Order No. 7H) – all non-essential businesses ordered to prohibit in-person functions, until (at least) April 22. • NY: “NY on Pause” – all non-essential workers must work from home through (at least) April 15 th . • MA: state of emergency declared. 2
Critical Infrastructure Sectors 3
Legislative Responses Several states considering legislation which would require property insurers to provide coverage for business interruption losses stemming from the pandemic: • New Jersey: N.J. Draft Bill A-3844 • Ohio: H.B. 589 • Massachusetts: SD.2888 • New York: Draft Assembly Bill A10226 4
Other Insurance-Related State Action New York Department of Financial Services bulletin (March 10, 2020): “Call for Special Report Pursuant to Section 308, New York Insurance Law: Business Interruption and Related Coverage Written in New York” Instructed all authorized property/casualty insurers writing business in the state to provide: • Volume of business interruption coverage, civil authority coverage, etc. written; • Explanation of coverage. 5
Big Picture: Types of Insurance Coverage First Party Third Party Mixed First Party & Insurance Insurance Third Party • Commercial Property • CGL • Cyber Insurance • Professional Liability • Builder’s Risk Insurance Insurance • Medical and Health • Pollution
Case Study: Cajun Conti, LLC v. Lloyds ▪ Anticipated loss of income due to government-mandated closures/restrictions on public gatherings by New Orleans and State of Louisiana ▪ All risks Property Policy covers all risks unless clearly and specifically excluded. ▪ Coverage Hurdles: ▪ Business Interruption/Civil Authority Coverage requires “direct physical loss of, or damage to property” ▪ Virus exclusions (absent in Oceana Grill’s Policy) 7
First Party Coverage - Property • Is the presence of COVID- 19 “direct physical loss of or damage to property?” • CDC notes COVID-19 can linger on hard surfaces for many days. • Battle of the experts – can it be proven that COVID-19 constitutes physical loss or damage? • U.S. Courts are split when it comes to similar scenarios (e.g., odors, fumes, smoke) 8
Narrow Interpretation of “Physical Loss” Many courts narrowly interpret as damage causing apparent and discernable damage to the property: • New York : Roundabout Theatre Co., Inc. v. Cont'l Cas. Co., 751 N.Y.S.2d 4, 5 (App. Div. 2002) (“direct physical loss or damage” language in insurance policy “clearly and unambiguously provides coverage only where the insured's property suffers direct physical damage”) ▪ Michigan : Universal Image Prods. v. Chubb Corp., 703 F. Supp. 2d 705 (E.D. Mich. 2010) (stench caused by mold did not render the entire property uninhabitable, even where one employee was infected by bacterial pneumonia) ▪ Florida : Mama Jo’s, Inc. v. Sparta Ins. Co ., 17-CV-23362-KMM, 2018 WL 3412974, at *9 (S.D. Fla. June 11, 2018) (no physical loss when construction debris and dust from road work required insured to clean floors, walls, tables, chairs, and countertops) ▪ Oregon : Great Northern Ins. Co. v. Benjamin Franklin Federal Sav. & Loan Ass’n ., No. 90-35654, 1992 WL 16749, *1 (9th Cir. Jan. 31, 1992) (unpublished) (opining that asbestos contamination represented an economic loss and not a physical loss, inasmuch as the building remained physically unchanged) 9
Broad Interpretation of “Physical Loss” Other courts broadly interpret, finding coverage to be triggered by the loss of use or habitability of insured property. ▪ New Jersey : Gregory Packaging, Inc. v. Travelers Prop. Cas. Co. of Am., 2014 WL 6675934, at *3 (D.N.J. Nov. 25, 2014) (ammonia contamination causing facility to shut down is physical loss even if no structural change to property because facility was temporarily unfit for occupancy) ▪ Massachusetts: Matzner v. Seaco Ins. Co., No. 96-0498-B, 1998 WL 566658, *3 (Mass. Super. Aug. 12, 1998) (carbon monoxide contamination constitutes direct physical loss even though it did not produce tangible damage to the structure of the insured property) ▪ Louisiana : Widder v. La. Citizens Prop. Ins. Corp., 82 So.3d 294 (La. App. Ct. 2011) (intrusion of a contaminant rendering a home unusable/uninhabitable constituted direct physical loss). 10
Virus Exclusion If the “direct physical loss” requirement is satisfied, the next hurdle will be virus exclusion. 11
Policy Exclusions Other exclusions may also be implicated: • Pollution exclusions – depending on wording, could be used by insurers to deny coverage. Historically limited to traditional pollutants, although some jurisdictions have expanded the definition to apply to anything that could be considered an “irritant” or “contaminant” Is COVID-19 a contaminant? 12
Loss of Profits Coverage Property policies may contain “Loss of Profits” coverage resulting from: (1) Damage to the policyholder’s own property (“business interruption”) (2) Damage to the property of a customer or supplier (or a supplier’s supplier) (“contingent business interruption”) – definition of “supplier” key (3) Government action such as quarantine orders/gathering restrictions (“order of civil authority”) – may not require direct physical loss condition (4) Lack of “ingress and egress” to/from insured premises (physical loss or damage caused by covered peril to third-party property preventing ingress to or egress from the insured's business) 13
Civil Authority Coverage Some policies provide coverage for losses caused by acts of “civil authority” that block access to an insured’s facilities. • May require direct physical loss to property to trigger. • May apply when government acts prohibit access to property of suppliers, providers, or vendors. • Some policies may require a prohibition of access – governmental mandates key to triggering. • May be limited to a certain time frame (e.g., 30 days). 14
Contingent Business Interruption/ Contingent Time Element • Coverage for when a dependent property (e.g., a supplier) is forced to suspend operations. • The loss or damage must be caused by a covered cause of loss – direct physical loss still required! • Some locations may be excepted out – e.g., countries with trade restrictions. 15
Builder’s Risk Insurance • Coverage often expanded to cover business loss and increases in construction costs, but covered causes of loss are almost always limited to physical loss and will likely not include epidemics. • Common exclusions for “delay,” “loss of use,” “consequential loss,” and similar terms • May be overcome - arguing that delay resulting from a covered peril (i.e. property damage, if COVID-19 qualifies as such) is covered. • Project shutdowns may push project completion date past the expiration of current policy periods • Difficult to obtain extensions: early talks with brokers and carriers recommended 16
Third Party Liability Policies • Businesses open to public may face liability for inadequate measures to prevent the transmission of COVID-19 (security, safety, cleaning, or simply by remaining open for business). • Claimants may attempt to link their infection directly to employees’ infections. • Example: South Florida couple sued Princess Cruise lines LTD claiming negligence by failing to take precautions to prevent the outbreak on one of its ships . Key aspect will be if lawsuit alleges that bodily injury and/or property damage arose because of an accident (i.e. an “ occurrence ”). Expected to be widely litigated given various interpretations of “occurrence” and “accident” across the USA 17
Professional & Pollution Liability • Trigger of coverage for Professional Liability Policy is a “Wrongful Act” – negligent act, error or omission in rendering or failure to rendering Professional Services. • Could this apply broadly, or only to industries involved in cleaning? • Pollution exclusions may also be implicated. • Trigger of coverage for Pollution Liability is a “Pollution Event” – how this is defined has a major impact. • Disputes under both coverages will be very fact intensive with respect to COVID-19 Promo code: 549178 18
Remote Notarization & Professional Coverage • Executive Order 7k – provides for remote notarization through June 23 rd . • Must record the notarial act and maintain for ten years. • Impact of Professional coverage: • Some PL policies for lawyers require in-person notarization. • Market response? • Liability associated with maintained taped notarizations for ten years? 19
Practice Pointers for Insureds • Consider blanket/precautionary notices to insurers. • Document losses carefully. • Keep lines of communication open. 20
Thank you for attending! Theresa A. Guertin tag@sdvlaw.com John Kronholm jkronholm@bbofct.com Follow SDV Law
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