A quick Google search would have businesses believing that there is no insurance coverage for coronavirus losses. Insurance carriers and brokers have seized control of the narrative, and they have done a good job of convincing policyholders that coronavirus claims are not covered. This analysis offers an alternative and correct view — businesses are covered.
There is a frenzy of misinformation about coverage for coronavirus claims. Fortunately, none of this has any bearing on coverage. To get the correct answer, one must read the insurance contract without preconceived notions of coverage. If this is done, businesses are left with many insurance-related options to counter coronavirus-related losses.
This point is illustrated by looking at how insurance policy language addresses three common coronavirus claims: (1) third-party lawsuits, (2) business interruption losses, and (3) event cancellation losses.
1. Third-Party Lawsuits
With coronavirus, businesses are susceptible to lawsuits alleging that they should have done something to prevent injury to persons. The first of these claims was just filed–a lawsuit alleging wrongdoing on the part of a cruise ship company. Just as night follows day, more will follow.
General Liability policies cover allegations of "bodily injury." If a claimant alleges that he or she was injured, coverage is triggered. Coronavirus lawsuits are classic examples of covered general liability claims.
Insurance carriers, however, are pushing the narrative that coronavirus is a pollutant and therefore excluded from coverage pursuant to pollution exclusions. This is an old concept. In the past, insurers found themselves paying pollution claims, no matter what kind of pollution exclusions they put in their policies. So, they expanded the exclusions to prevent coverage for environmental cleanups.
Insurance carriers now argue that pollutants include any kind of "irritant" and that pollution exclusions apply to almost any claim. For example, if the sun got in a person's eyes and that resulted in a car crash, insurers would argue that the sun is an irritant, and that the pollution exclusion precludes coverage. Yet, everyone knows that sunshine is not a pollutant. Similarly, if a third party is burned and sues, insurers will argue that fire is an irritant, and that the pollution exclusion precludes coverage. Of course, fire is not a pollutant, and at least one court awarded bad-faith damages where an insurance carrier made this claim. See Winning Bad Faith Coverage Cases at Trial.
Common sense will prevail here as well. Coronavirus is not a pollutant.
2. Business Interruption Losses
Almost certainly, the largest category of losses business will experience as a result of the coronavirus are business interruption losses. Airline flights have been sidelined, people are not going out, and businesses of all kinds are suffering. The narrative insurers push here is an old one: insurers argue that property policies are not triggered unless there is physical injury to tangible property. This narrative was developed after 9/11 to stem payments to businesses suffering huge financial losses.
Based on policy language, though, physical injury is not required. All-risk property insurance policies cover "all risks of physical loss or damage." This insuring clause addresses two separate things. First, it states that it covers all risks of physical loss. Second, it states that it covers all risks of damage. Damage includes all forms of financial loss. Coronavirus is the risk. If it caused damage in the form of financial loss, this falls squarely within coverage.
There is substantial case law on this issue as well.
- Case Example One — A church smelled because gasoline was leaking into the basement. The house was unsafe and smelled so bad that the owner had to move out. The insurer denied coverage, stating that there was no physical damage to the house. The court held otherwise, finding coverage.
- Case Example Two – A river meandered, leaving a structure precariously sitting on a riverbank. The structure was fine, but it could not be used because it was unsafe and could fall down. The insurer argued there was no coverage because there was no physical damage to the property. The court ruled otherwise, finding coverage.
- Case Example Three – A homeowner rented its house to crack dealers. After the crack dealers left, the home smelled so bad that it could no longer be rented. The home had no structural damage, so the insurer denied coverage. The court disagreed, as the house could not be used as intended.
There are two overlapping and well-developed lines of cases holding that physical injury to property is not required. The first relies on the inability of the property to be used as intended. The second relies on the fact that the property was somehow rendered unsafe. Both lines of cases are directly applicable to coronavirus losses.
In addition, property policies contain numerous other insuring clauses that similarly do not contain a requirement of physical injury to property in order to be triggered. Among them, ingress/egress coverage (covering financial losses when a business is prevented from entering their property) and civil authority coverage (covering losses when the government prevents normal operations).
The leading case on these issues is Fountain Powerboat Indus. v. Reliance Ins. Co., 19 F. Supp. 2d 552 (E.D.N.C. 2000). The Fountain Powerboat Decision is one of History's Best Insurance Decisions. There, the Fountain Powerboat company of North Carolina had a work slowdown as the result of a hurricane. It pursued relief under their property insurance policy pursuant to an "ingress/egress" provision. Its insurance carrier denied coverage based on an all-too-common insurance industry custom and practice—denying coverage because there was no physical damage to insured property. The court flatly rejected this argument in favor of insurance policy language and awarded Fountain Powerboat the attorney's fees it incurred to pursue the action against its insurer.
3. Event Cancellation Losses
Every day now, more and more major events are being canceled or postponed because of the coronavirus, including trade association conferences, college and professional sporting events, and concerts. Even a conference on Coronavirus was canceled because of coronavirus. What is missing from the headlines are the myriad of trade associations that need money from events to survive but have been forced to cancel events because of coronavirus.
Event cancellation insurance is commonly triggered when an event is necessarily cancelled, abandoned, curtailed, or postponed. A typical scenario, where an event is cancelled (or postponed) due to coronavirus concerns, falls squarely within coverage. See Event Cancellation Insurance Claim Denials Tips for Recovery.
Yet, insurers are fighting coronavirus event cancellation claims. One argument that insurance companies are making is that an event was cancelled due to fear and panic. Given that policies don't contain fear or panic exclusions, there is no merit to this argument. Similarly, insurers allege that the events could have proceeded but for the public's fear and panic.
Not all event cancellation policies are the same. In some situations, insurers argue that the cancellations must result from the "physical or legal inability to proceed" with an event, and short of either a physical barrier preventing the public from entering a hotel conference center or sports arena, or a government order banning any mass gatherings, there is no coverage. Again, the insurers' position is inconsistent with the policy language. For example, if there is a genuine fear of contracting the virus, this is a "physical inability" to proceed with the event. In addition, many companies have instituted travel bans, making it physically and legally impossible for employees to travel. Also, even if a government recommends that the public not attend mass gatherings (events with over 250 people), this is a form of "legal inability" to proceed with events.
Both of these reasons for denial bring to mind a situation that we are currently addressing. We had a settlement meeting with seven insurance companies scheduled for months. The meeting was to take place in NYC, and the insurers had agreed to be present in person at that meeting. Several days before the meeting, various insurers notified us that they could not attend because of coronavirus. Many had travel restrictions. Others were just unwilling to subject themselves to any additional risk of contracting the virus.
Were these insurers motivated by panic? Should this insurer-scheduled event have gone forward as planned? The insurers said, "No. We won't attend. We are rational. You need to cancel. Coronavirus is a legitimate reason to cancel." In other words, events that insurers should attend must be canceled, but all others must go forward.
Unless the insurers learn to be honest about what is going on, their hypocrisy will cost them dearly. Coronavirus cancellations are exactly what event cancellation policies are designed to cover.
Miller Friel, PLLC is a specialized insurance coverage law firm whose sole purpose is to help corporate clients maximize their insurance coverage. Our Focus of exclusively representing policyholders, combined with our extensive Experience in the area of insurance law, leads to greater efficiency, lower costs and better Results. Further discussion and analysis of insurance coverage issues impacting policyholders can be found in our Miller Friel Insurance Coverage Blog and our 7 Tips for Maximizing Coverage series.