Businesses are scouring their insurance policies for coverage for COVID-19 losses.  Among the insurance policies that may provide coverage for such losses are commercial property policies, pollution liability policies, general liability policies, workers’ compensation policies, and employment practices liability policies.

Coverage Under Property Policies (Business Interruption)

Commercial property insurance policies often provide coverage for lost business income. For business interruption losses, however, there will likely be two main hurdles to coverage.

The first hurdle will be the requirement in most property policies of “direct physical damage to covered property.” Typically, to trigger business interruption coverage under a property policy, there must be a “direct physical loss of or damage to property” at a location covered by the policy.

If a property has been shuttered merely due to fears, but the building remains habitable, the direct physical loss requirement is likely not satisfied.  However, if there is a demonstrable presence of COVID-19 in your business location – or in one the locations of your suppliers – the requirement of “direct physical loss of or damage to” a location covered by the policy may be satisfied.  Furthermore, if a location covered by your policy has sustained some physical damage as a result of a lack of office maintenance or a lack of power or other utilities to the office as a result of COVID-19, the requirement of “direct physical loss of or damage to” a location covered by the policy may be satisfied by that as well.

With respect to whether the presence of COVID-19 in a covered location is a “direct physical loss of or damage to” covered property, the following cases are helpful for policyholders:

• Gregory Packaging, Inc. v. Travelers Property and Casualty Company of America, No. 12-cv-04418, 2014 U.S. Dist. LEXIS 165232 (D.N.J. Nov. 25, 2014) (a release of ammonia from a refrigeration system which rendered Gregory Packaging’s buildings uninhabitable constituted a “direct physical loss” sufficient to trigger business interruption coverage under that policy);
• Yale University v. Cigna Ins. Co., 224 F. Supp. 2d 402, 413 (D. Conn. 2002) (lead emissions constitute a direct physical loss);
• Matzner v. Seaco Ins. Co., 9 Mass. L. Rptr. 41,1998 WL 566658 (Mass. Super. Aug. 12, 1998) (“direct physical loss” was ambiguous; thus carbon monoxide exposure would come under that definition);
• Columbiaknit, Inc. v. Affiliated FM Ins. Co., 1999 WL 619100 (D. Or. Aug.4, 1999) (mildew exposure was direct physical loss);
• Farmers Ins. Co. of Oregon v. Trutanich, 123 Or. App. 6, 858 P.2d 1332 (1993) (losses caused by odors from illegal methamphetamine cooking were direct physical loss); and
• Murray v. State Farm Fire & Cas. Co., 203 W. Va. 477,509 S.E.2d 1, 16-17 (1998) (“Losses covered by the policy, including those rendering the insured property unusable or uninhabitable, may exist in the absence of structural damage to the property”).

On the other end of the spectrum, however, are the following cases:

• Universal Image Prods. v. Chubb Corp., 703 F. Supp. 2d 705 (E.D. Mich. 2010) (holding that intangible harms such as odors or the presence of mold and bacteria in an HVAC system did not constitute physical damage to property); and
• Great N. Ins. Co. v. Benjamin Franklin Fed. Sav. & Loan Ass’n, 793 F. Supp. 259 (D. Or. 1990) (opining that asbestos contamination was not a physical loss, as the building remained unchanged), aff’d, 953 F.2d 1387 (9th Cir. 1992).

Because insurance law is almost exclusively an issue of state law, the answer to the question of whether the presence of COVID-19 in your office or the offices of your suppliers constitutes a “direct physical loss or damage” to covered property will likely vary from jurisdiction to jurisdiction.

Some specialized insurance policies and extensions of coverage added to standard property insurance policies—including those sold to businesses in the hospitality and health care industries—expressly provide insurance coverage for losses caused by “communicable or infectious diseases” without requiring physical damage to insured property. Therefore, the language of your policy is key in determining whether you may have coverage.

Additionally, many commercial property insurance policies provide coverage for business income losses sustained when a “civil authority” prohibits or impairs access to a location covered by the policy. Depending on its specific wording, a policy’s “civil authority” coverage may or may not require physical damage to covered property. Accordingly, in the event that a federal, state, or local governmental authority limits or prohibits access to or from locations covered by your policy, your business may have “civil authority” coverage for income losses.

Finally, some forms of political risk insurance could afford coverage for business interruption losses suffered by a foreign entity’s operations in the host country resulting from local government regulatory actions. While disruptions resulting from a health edict such as that regarding COVID-19 may not constitute “expropriation” or contract frustration, political risk policies often afford coverage for business interruption loss, even when there is no physical damage to a covered location for actions taken by the host country’s government.

Even if you can show direct physical damage to covered property, or your policy does not require it as a trigger for some of its coverages, the second major hurdle to business interruption coverage will likely be whether your policy has a specific exclusion for virus-related losses.

In 2006, the “Insurance Services Office” (better known in the insurance industry as ISO), adopted an exclusion for its members to use to eliminate coverage for virus-related losses, including business interruption losses.  That exclusion is often titled “Exclusion for Loss Due To Virus Or Bacteria” or something similar, and it typically provides as follows:

“We [the insurance company] will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”

These exclusions often specifically state that they apply to “business income” and other types of losses.  Even further, some of the exclusions provide illustrative lists of viruses, such as rotavirus, SARS, avian flu, legionella, anthrax, etc. that are not covered.

On Monday of this week, the New Jersey legislature began considering a bill to force insurers to pay COVID-19 business interruption claims expressly excluded by ISO’s “virus” exclusion.  Whether the bill will pass is unclear, and whether the law, in its ultimate form, will eliminate only the “virus” exclusion in the policies, or also the requirement for direct physical loss or damage to covered property is unknown.

It’s also unclear whether the law will apply to currently-existing insurance policies, or merely renewals and new policies.  If the intent is to apply the law to currently-existing insurance policies, constitutional issues will likely arise.  Specifically, Article I, Section 10, Clause 1 of the U.S. Constitution provides, in pertinent part, that “No State shall … pass any … ex post facto Law, or Law impairing the Obligation of Contracts.”  We will be watching legislation closely to see if any other states follow New Jersey’s lead.

Coverage Under General Liability and Pollution Liability Policies

Beyond a loss of income, your business could also face lawsuits by infected guests alleging that your company failed to exercise reasonable care in guarding against, or warning of, the risk of exposure to COVID-19.

General liability policies (“CGL”) often cover property damage or bodily injury claims filed by third-parties (who are not your employees) against your company.  They also often cover your company for personal injury offenses such as false detention and imprisonment.

Some examples of CGL claims in the context of viruses include the following:

1. Product liability suits against airline companies for failing to install high-efficiency particulate air-recirculation filters in their aircrafts.  These carriers transported someone infected with a virus and other passengers on the plane contracted the virus.  The other passengers filed suit against the airlines.
2. A negligence suit against a childcare or day-care facility when one infected child in their care gets other children sick.  The parents of the infected other children sued the day-care facilities.
3. Very recently, a South Florida couple filed suit against Princess Cruise Lines claiming the cruise company acted with gross negligence by failing to take precautions to prevent a coronavirus outbreak on one of its ships.
4. If a third-party alleges they were improperly detained or quarantined by your company, the personal injury coverage under your CGL policy could also apply.

For these types of cases, a business would typically look to its general liability policies for coverage, and it might also find coverage under pollution liability policies or other types of specialty policies.

One of the first hurdles under a typical general liability policy will be whether there’s an “occurrence” sufficient to trigger the policy’s coverage.  Depending on which state’s laws govern the question of coverage under your policy, this hurdle may or may not be substantial.  Because occurrence is often defined in the policy as an “accident,” and the term “accident” is often left undefined, the “occurrence” hurdle will often be surmountable in a majority of jurisdictions.

In addition to the “occurrence” hurdle, some insurers will likely invoke standard “pollution” exclusions; and those may be valid arguments depending on the jurisdiction, as some courts may read those terms broadly enough to encompass bodily injury or property damage caused by COVID-19.

Although it’s rare, some of the general liability policies have “communicable disease” exclusions.  So, again, the language of your policy is key in determining whether you may have coverage.

Many CGL policies contain Fungi or Bacteria exclusions; however, coronavirus is a viral infection and not bacterial, therefore, it would likely be a stretch for typical Fungi or Bacteria exclusions to apply.  However, it’s worth looking to your policy language to determine how broadly worded those exclusions are because sometimes insurers have expanded the typical Fungi or Bacteria exclusions in special endorsements (for instance, “Pathogenic Organisms Exclusionary” endorsements, which exclude coverage for damage or injury resulting from any bacteria, yeasts, mildew, virus, fungi, mold or their spores, mycotoxins or other metabolic products).

Coverage Under Worker’s Compensation Policies

Worker’s compensation policies typically cover claims for bodily injury brought against a company by its own employees.

The major hurdle here is that most states’ workers’ compensation statutes provide that employees are entitled to benefits for “occupational diseases” (typically meaning diseases contracted primarily as a result of an exposure to risk factors arising from work activity), but are NOT entitled to benefits for “ordinary diseases of life” (typically meaning those to which the general public is equally exposed).

Therefore, coverage for workers’ compensation claims will largely depend on whether the employees’ exposure to the virus was sufficiently tied to their work.  If an employee can demonstrate that their illness results directly from conditions of their employment, and such exposure is in excess of those found in the general public, there’s likely going to be a valid argument for workers’ compensation insurance coverage.

As a quick example, employees in hospitals are more likely to be covered by workers’ compensation insurance for COVID-19 injuries than employees in a bank’s IT department because the added risk of COVID-19 exposures are often inherent to employment in the medical profession.

Employment practices liability policies

Lastly, there can be significant liability to an employer under various laws designed to protect employees from wrongful termination, harassment, discrimination, invasion of privacy, false imprisonment, and wage and hour law violations.

For instance, discrimination claims or suits could arise under the ADA or various state laws if employers pursue medical testing in a manner found to be too aggressive.  Employer policies requiring medical clearances from employees returning from travel may also create potential liability.

Additionally, OSHA requires that employers provide employees with a workplace free from “recognized hazards” that cause or are likely to cause death or serious physical harm.  As a result, there may be some claims there that the employer failed to keep its employees protected from the coronavirus.

There could also be some liability under wage and hour laws if employers are inconsistent in their implementation or enforcement of their federal and state wage-and-hour requirements.  This could occur if an employer takes a particular action in response to some employees who refuse to work because of flu-related or coronavirus concerns, but apply a different rule with respect to other employees.

Arguably, employees exhibiting flu-like or coronavirus symptoms or those who have a child, spouse, or parent with flu-like or coronavirus symptoms may be eligible for leave under the Family and Medical Leave Act or state law equivalents.  There is a potential for liability regarding how an employer handles a situation where an affected employee has exceeded permitted leave or is not eligible for FMLA leave.

The route to determining possible coverage for these various types of claims under your employment practices liability (“EPLI”) policy varies depending on the type of claim.

As for OSHA claims, most EPLI policies provide a “retaliation” carveback to the OSHA exclusion which specifically permits coverage for claims alleging retaliation (such as wrongful termination) in connection with an employee exercising their rights under OSHA. Therefore, if an employee refuses to come to work, or insists they must work from home citing an unsafe workplace with imminent danger, and is then terminated by their employer, the employer’s EPLI policy could provide coverage for a resulting wrongful termination claim. Of course, not all policies are created equal and the specific policy language must be examined to determine coverage.

EPLI policies vary greatly on the scope of coverage provided for wage and hour claims.  Policy terms and conditions can range from no coverage at all, to heavily sub-limited coverage for defense costs only, to full coverage for defense costs and settlements.  This area is particularly policy specific, so you must refer to your policy for the answer to this question.

EPLI policies specifically exclude claims alleging FMLA violations – meaning coverage is precluded for both defense costs and loss or settlements in connection with an FMLA claim. Most insurers will, however, include a carveback which specifically permits coverage for “retaliation” if an employee was retaliated against for exercising rights under law.

Coverage for COVID-19 losses is complex, state-specific, fact-specific, and policy-specific. Because coverage varies greatly from policy to policy, and from state to state, we recommend a review of your insurance coverages to determine whether or not you may be covered for COVID-19 losses.