Insurance Claims Arising from the Coronavirus Outbreak
Businesses throughout the global economy are suffering substantial losses due to the COVID-19 pandemic and associated government orders mandating social distancing and sheltering-in-place. Many entities have had to slow down or halt operations because employees or customers are unable to leave home, because of declining sales, or because of being deemed “non-essential” in light of a shelter-in-place order. Whatever the specific facts leading to these disruptions, it is anticipated that numerous businesses will turn to their insurance policies to make claims associated with these losses. However, due to the unique character of the coronavirus pandemic, some policyholders may find themselves in disputes with their insurance carriers regarding whether their losses are covered.
Business Interruption Claims
One of the most likely areas for insurance claims arising out of the COVID-19 emergency will involve the interruption of business operations and supply chains. Indeed, given China’s role in the global supply chain in recent decades, the shutdown of a large proportion of its manufacturing sector in response to the pandemic will likely affect countless businesses well into the future. The same is true for the many manufacturing businesses located in the US and elsewhere that have had to slow or stop production due to the spread of the virus.
Business interruption coverage is often housed within a business’ commercial property policy, but it can also be a stand-alone policy. It will usually provide coverage for losses arising from suspended operations caused by property damage. Insurance carriers are unlikely to consider a contagious disease property damage in this context, though it is possible that something like cleaning up contamination associated with a disease outbreak could be covered. Further, in light of some court decisions finding that harmful substances can cause property damage without structural damage, some policyholders may be able to argue that the presence of coronavirus on their property is a covered event. On the other hand, especially in the years since the SARS outbreak, insurance carriers have become increasingly likely to exclude coverage of losses associated with viruses or bacteria.
Some businesses may also carry supply chain insurance, otherwise known as contingent business interruption insurance, for the purpose of addressing interrupted delivery of things like supplies, parts, and raw materials. This kind of insurance usually covers losses resulting from decreased operations or a loss of services resulting from physical damage on the property of a supplier. Supply chain insurance will typically be subject to the same kinds of limitations as business interruption coverage with regard to what is considered property damage, as well as exclusions for events such as virus outbreaks.
General Liability Insurance
Another area with the potential for a high volume of claims in this context is general liability, which is a type of insurance designed to protect businesses against third party claims. While more common claims against this type of policy may arise from incidents such as a slip and fall accident on your business premises, a claim that someone was infected with coronavirus after being exposed on your property should theoretically trigger your insurance carrier’s duty to defend in many cases. Industries at particular risk for these sorts of third party claims include hospitality, retail, healthcare, and transportation.
An almost universal byproduct of shelter-in-place orders and social distancing policies arising from COVID-19 has been the cancellation of major events and conferences around the globe. If your business carries event cancellation insurance, your policy may expressly cover infectious disease outbreaks. However, it is also possible that these events and even coronavirus in particular may be excluded, particularly in newer policies, so it is critical to review your coverage agreement closely to determine if you will be able to make a claim for losses due to the current pandemic.
Most employers are required to carry workers’ compensation insurance to provide coverage to employees who become injured or ill during the course and scope of their employment. Whether a worker acquiring coronavirus at work is a scenario that is likely to trigger coverage will be a question of fact, and employees in some industries may be more likely to succeed in their claims than others. For example, a health care worker who is diagnosed with COVID-19 may have a reasonably strong argument that they were exposed to the virus at work, while this may be harder to prove for someone who has an office job. Indeed, in some states, workers in high-risk fields may actually be entitled to a presumption of coverage if they fall ill due to coronavirus. In that situation, the employer (or the employer’s workers’ compensation insurance carrier) will have the burden of proving that the illness was not work-related in order to deny benefits.