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Business Insurance and COVID-19 – What We Know So Far

By: Jim Shriver & Jennifer Dollar

As we continue to navigate this ever changing and unprecedented world of the COVID-19 pandemic, we wanted to provide some updates, insights, and general knowledge on how this is affecting business insurance.  Each policy is going to differ, so ultimately it will come down to the language in each policy.  This will provide an update to several different insurance topics as they stand right now.  There are many things that are still unclear, but here is the general state of each category and challenges that are still unresolved.

Property and Business Interruption        

Typically, Business Interruption only applies when there is physical loss or damage. Insurers may argue that contamination or public fear of exposure does not constitute a reason for physical loss or damage.  If physical damage is established, it will be determined by each policy as to what exclusion, if any, apply to contamination.  Another aspect, which is still unclear, is how courts will interpret business interruption by civil authority.  These would be closures mandated by civil authorities such as state governors or other civil leaders.  There is no standard language on this that appears in all policies; therefore, review of each policy will be needed.  Currently there are several pending legal cases between restaurant groups and their insurance companies.  The most prominent being Thomas Keller, who is the owner of French Laundry and Per Se.  He is arguing that his insurance provider should cover loses due mandated closures.  We will continue to monitor this and provide updates on its implication.  The challenge will be the current closure of most courts, resulting in a backlog of court cases.  Cases regarding insurance claims and COVID-19 could drag out for months if not years.

General Liability and Umbrella

Your Commercial General Liability policy protects you against allegations of your negligence that led to a third party’s bodily injury or property damage. Retail and Hospitality businesses could be found liable if they negligently exposed their customers to employees they should have known to be ill.   This will include any third-party bodily injury cases where there was a perceived failure to protect from exposure to the virus.  While policies can include communicable disease exclusions, it will likely come down to how the language is captured in each insurance agreement.

Workers Compensation

Due to the increase in COVID-19 cases employers may see an increase in workers compensation claims.  The primary concern will be was the exposure to the virus occupational or does the possibility exist that the exposure happened elsewhere.  It will need to be determined that the employee was exposed to the virus during scope of employment, such as in the workplace or any other task that generally benefits the employer.  The difficulty will be determining where the exposure occurred.  Because the virus has spread across all states and there are thousands of confirmed cases, the challenge will be demonstrating the contact with the virus occurred in one specific place.  Certain occupations, such as doctors and nurses, will have a clearer case proving workplace infection may have occurred.  However, other employees will have a harder time proving the exposure happened during work related activities and not during personal time.

Directors and Officers Liability

As mentioned before, there are still many unknows when it comes to legal action and the effects of COVID-19 on business insurance.  There are currently several class-action lawsuits that are pending in the legal system, which could result in a trigger of D&O Policies.  Breaches of fiduciary duty could also lead to derivative litigation.  What is unclear is how much relief from governing agencies, such as the Securities and Exchange Commission, will be provided during this event.

Cyber Liability

With more states mandating closures of workplaces resulting in more employees working remotely there will be an increase in cyber-crime vulnerability.  Above all, information security is the greatest risk.  Typically, a cyber policy will provide tools a company can access after an event to help investigate and mitigate loss.  Given the uniqueness of this pandemic, it is important to implement as many safety measures as possible for employees working remotely, as it is still unclear how insurance providers will interpret cyber loss when the event happens outside the company’s usual network of defenses.

Much of how insurers will interpret the COVID-19 virus and how the courts will react to legal cases is still unknown.  We will monitor all the information as it becomes available and continue to provide updates on matters that may affect your company’s insurance.