Insurance Coverage Potentially Triggered by COVID-19

While the coronavirus pandemic has yet to peak, the outbreak has already left its mark in countless ways, one of which is its impact on businesses, large and small, and the people operating them. Losses related to COVID-19 are occurring at breakneck speed, which leaves many wondering: might some of these hits be covered by insurance? Here, Michelman & Robinson answers some of your coverage questions.

Q. I’ve had to shutter my business by virtue of the stay-at-home order issued in my state. I’m not sure how long I’ll be closed, and cannot begin to fathom how much revenue has already been—and will continue to be—lost. Can I make a claim under my business interruption coverage?

A. This seems to be the question on every business person’s mind these days, whether they own and operate an “essential business” that is still open or a “non-essential business” that has been forced to close due to the coronavirus crisis, at least temporarily. The answer is “it depends.”

Business interruption is first-party coverage typically triggered by physical damage to property owned by an insured company (think natural disasters like hurricanes). What is important to understand is that coverage for business interruption is dependent upon policy language, and business interruption provisions tend to differ from policy to policy and endorsement to endorsement. That being said, if business interruption coverage is included in your insurance policy, and, as written, it requires “direct physical loss” to company property to trigger its terms, it is unlikely that a loss of revenue due to COVID-19 can serve as the basis for a successful claim.

There is more bad news for business owners. Many policies that include business interruption coverage have “virus” exclusions. Of note, oftentimes these exclusions indicate something else; for instance, that losses resulting from “microbes” are excluded. Some might read that as not having any relevance to COVID-19, but in the policy’s fine print, the definition of “microbes” (or whatever other similar term may be used) could potentially include “viruses.”

On the bright side, some policies that include business interruption coverage do not require “direct physical loss” and do not impose “virus” exclusions. In fact, some insurance contracts offering business interruption protection specify that “loss of use” constitutes property damage. If this is true in your case, coverage for your coronavirus-related losses of business revenue may well be available.

In addition, it should be mentioned that some policies that include a business interruption provision provide coverage for “Governmental Denial of Access.” Given the several stay-at-home orders in place nationwide requiring certain businesses to close or otherwise limiting access to them, you may be covered for resulting revenue loss if your policy includes such language (but only if the policy does not require property damage or include a “virus” exclusion).

Regarding “direct physical loss” and “virus” exclusions, the state legislatures in Massachusetts, New Jersey, and Ohio have introduced bills that would retroactively eliminate the requirement of “direct physical loss” and “virus” exclusions from business interruption coverage. M&R will monitor those states to determine if any of these bills are passed and signed into law.

Lastly, if your policy does support a successful claim for business interruption losses, you must be able to calculate your damages due to the pandemic. Bottom line: your records will be critical. Understand that lost profits means net revenue, so your company could have a measurable loss where income only drops a bit, but costs skyrocket.

Q. What if one of my customers or employees accuses my company of causing their COVID-19 diagnosis?

A. While causation in this instance would seem to be a significant hurdle for your customer or employee, you could likely find coverage in your Commercial General Liability policy if faced with a lawsuit that includes such an allegation. CGL coverage is typically triggered when a business is sued in the wake of an occurrence that causes someone to suffer either “bodily injury” or “property damage.” In the circumstance presented, COVID-19 would qualify as “bodily injury,” unless, of course, you were sued after continuing an activity that you know is spreading the coronavirus. If such were the case, coverage would probably be excluded because the “bodily injury” would have been caused by an “intentional act.” Also, as discussed above in connection with business interruption coverage, your CGL policy could possibly include a “virus” exclusion, so it is important to carefully review the policy’s terms.

Q. I’ve been forced to cancel a two-day series of seminars that I’ve planned for my clients, which required me to pay a site fee and deposits for hotel bookings, catering, and similar costs. Do I have any recourse?

A. If you have event cancellation insurance, you may be covered for event-related losses of revenue or expenses stemming from a cancellation that was beyond your control. To be clear, if you purchased such a policy after you knew about the COVID-19 outbreak, you may not be covered because a cancellation as a result of the coronavirus would have been a known risk. In any event, as with all policies, you must review yours carefully for applicable exclusions (“virus” and the like) and mitigation provisions that could require you to reschedule your seminars (assuming, of course, that you have bought this type of coverage in the first place).

Q. What if shareholders sue my business because its value has decreased by virtue of the coronavirus crisis?

A. Directors & Officers policies cover companies, officers, and directors for acts of their corporate boards. If your board allegedly failed to take action to mitigate against the risk of your company’s value falling in the wake of the onset of COVID-19, a resulting lawsuit could be covered by your D&O policy. Note that these are claims-made policies, which means that timing is critical. Also, some D&O policies provide a defense at the insurance company’s cost, some do not, and others subtract from policy limit the amounts spent on the defense. The takeaway: your D&O policy should be reviewed, and while doing so, take a look for any applicable exclusions (e.g., “viruses”).

Q. Do professionals have insurance coverage available to them for COVID-19-related claims?

A. Yes, most professionals carry Errors & Omissions coverage that could apply to lawsuits stemming from the coronavirus outbreak. In the current landscape, the most common types of claims would involve litigation against health care professionals for failing to properly diagnose or treat patients. Still, there are other scenarios that could put E&O coverage in play. By way of example, consider a business that has lost a significant sum of money because of a state-mandated closure. That business then makes a first-party business interruption claim (addressed above) that requires a calculation of damages. If the company in question relied on an accountant over a period of years, and that accounting professional is unable to prove the company’s profits/losses because he or she failed to keep historically good and accurate records, there may be fodder for an E&O claim against the accountant.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.