Is there a basis for making a coronavirus claim?
Every day, there are new learnings and developments related to the coronavirus (or COVID-19).
As the world works collaboratively to contain any further spread of the virus and we are all doing our best to adapt to rapidly changing conditions, this is truly an unprecedented situation. Understandably, many of our clients are asking us a wide variety of insurance related questions.
While insurance companies are still not responding to hypothetical claim scenarios, and commercial insurance policies were not really designed to respond to such an exposure, there are still several coverage areas we can investigate on your behalf.
Today, we explain the coverage details of three types of policies that virtually every business carry – Property, Workers Compensation, and General Liability.
A typical Commercial Property Insurance policy has many layers to it. First and foremost, this coverage is meant to protect your business property and assets, like your buildings, computers, machinery, furniture, equipment, and more, against direct physical loss or damage. To have a covered loss, damages must be caused by a covered peril such as a fire, burst pipes, vandalism, etc. Without tangible physical damage from risks like these, any business losses generally will not trigger your property insurance coverage.
On the surface, COVID-19 may not appear to have caused physical damage to your business or assets, so that may be the first issue when presenting a claim. Secondarily, many property policies provide coverage for direct physical damage caused by or resulting from a peril, not otherwise excluded. While most policies explicitly exclude viruses, bacteria, or communicable diseases, others may be less definitive.
Most businesses have not suffered direct physical damage as a result of this pandemic. However, this doesn’t mean that you have not suffered significant losses through disruption of your business or supply chain.
As your risk resource, we have been investigating the following four key areas of coverage that are found in Property Insurance to see what type of claims support, if any, might be available to you:
(1) Business Interruption provides coverage for loss of income if your business is disrupted due to a covered peril. In addition, it provides coverage for loss of income incurred during the rebuilding process. In most cases, to activate this coverage, your business property must be impacted directly by a covered cause, and your building and/or assets must show physical damage as a result of this event.
(2) Contingent Business Interruption provides coverage if your business experiences a loss of profits or incurs extra expenses as a result of a closure at a customer’s, vendor’s, or supplier’s place of business. Again, this coverage is usually only triggered when the shutdown is due to physical damage by a peril covered in your property insurance policy.
(3) Civil Authority provides coverage for loss of income when a government entity denies access to your business property. These types of closures are typically implemented due to a natural disaster or other life-threatening situation and may affect an entire neighborhood, or an even larger area, depending on the breadth of the risk. For example, after the Boston Marathon bombing on April 15, 2013, civil authorities shut down multiple blocks of stores and other establishments, even though many of them had incurred no damage from the explosion. However, since the originating event – the explosion – was a covered peril under most property policies and there was direct physical damage to multiple locations, many businesses that were not directly damaged were able to successfully file a claim for lost income and/or extra expense under their Civil Authority coverage extension. Civil Authority coverage is often limited by both time (coverage will only apply for a certain number of days) and distance (coverage will only apply for an event within a certain radius of your location).
(4) Pollutant Cleanup, which is included in many property insurance policies, typically provides a limited amount of coverage for cleanup of a pollutant or contaminant. Often times, however, to activate this area of your policy, the pollution incident must be the result of a covered cause of loss.
Most of the feedback we are getting from our insurance carriers is that contraction of COVID-19 at work is not enough to trigger workers’ compensation coverage. In order for an illness to be compensable under workers’ compensation, it must meet two criteria:
- The contraction of the illness must be tied directly back to the scope of employment.
- The exposure to that illness must be directly linked to the specific and unique conditions of that employment.
As a result, workers’ compensation claims are unlikely to provide benefits for your employees who are impacted by the COVID-19 pandemic.
The largest potential exception to this may come from claims from healthcare workers who are exposed to those with COVID-19 as a result of their employment.
It is important to note that each workers’ compensation claim is judged singularly, and there are simply no blanket rulings when it comes to global pandemics like COVID-19. Additionally, individual state and federal laws will be a factor in these determinations.
Your Commercial General Liability (CGL) may be the first line of defense as a result of allegations from third-party claims related to the COVID-19 pandemic. In order for such a claim to be successful, the claimant would have to show some sort of negligence or causation on the part of the insured which could be difficult in this situation. The existence of a comprehensive and strongly enforced pandemic policy would certainly help in defense of any claim brought against you.
According to a recent article from the Council for Insurance Agents and Brokers (CIAB), “While general liability policies generally cover liability for bodily injury and property damage, as well as typically a legal defense against those claims, it is an open question whether environmental exclusions often included in those policies will allow an insurer to deny coverage.” Additionally, some CGL policies may have exclusions in place for claims resulting from infectious disease incidents.
If it isn’t obvious from our insurance coverage explanations above, the COVID-19 pandemic is clearly no run-of-the-mill insurance situation. It is very complex and, unfortunately, there are no simple, straightforward answers at this time.
We want to assure you though, that our team will continue to monitor the insurance industry’s moves during this national crisis. In the meanwhile, we will be working on further blog posts that will investigate additional commercial insurance coverages, such as Errors & Omissions and Directors & Officers, to uncover whether there might be some protection options available to support your loss claims.
Along with what we will be providing to you in the future, we hope that the information above will be of some help in navigating these unchartered waters.
Be sure to visit the Fred C. Church COVID-19 Resource Hub where you can find more information about common commercial insurance coverages and how they may respond to a business loss, unique business risks associated with the pandemic, COVID-19-related employee benefits considerations, and other helpful resources.