Client Update: Survey of COVID-19, Coverage Issues and Legislative Action
A Brief Survey of COVID-19, Coverage Issues, and Legislative Action
By John Bond Atkinson, Tiffany A. Bustamante, and Justin R. Forti
COVID-19 has significantly impacted the United States economically, and in the upcoming months members of the insurance industry are likely to see challenging coverage and claims issues on a wide variety of policies. Ultimately, the allocation of risk by private insurers and their insureds will be determined in the largest part by the particular terms of the insurance contracts between them. However, as with any catastrophic event, large-scale changes in the landscape of the industry are sure to follow, and it is certainly a best practice to anticipate and get ahead of these changes, if possible.
This update is intended to discuss and anticipate the ramifications of COVID-19 that are just beyond the horizon; those that, once the temporary hospital wards are dismantled and we can shake hands again, will become common parlance in our industry. The confounding factors of any such discussion are those with which we are all familiar, and which are the bedrocks of insurance law, namely, contract law, public policy (both in protecting the insureds and the insurance industry), and the interpretation of insureds’ “reasonable expectations” of their policy coverage. Thus, this update is necessarily speculative, but only to an extent; it is informed by the decades of experience Atkinson, P.A. has in the industry and in coming to meet dynamic shifts in the landscape of that industry. As always, we welcome any questions, comments, concerns, or discussions that this update may spur, and hope to help you to face these coming challenges in any way that we can.
CGL Policies and Third-Party Liability
Commercial general liability policies, as they are currently drafted, provide a number of defenses to claims arising from exposure to or results from the COVID-19 outbreak. CGL policies normally employ language to extend coverage to “amount which the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’” which is otherwise covered and not excluded by the policy. Bodily injury is generally defined in such a way that physical injury, sickness, diseases, and death resulting therefrom are all included in the phrase, so that definition is not a barrier in itself to any COVID-19 claim.
Putting aside for the moment any possible communicable disease exclusion, the very nature of the novel coronavirus and the COVID-19 disease creates a labyrinthine question regarding the source of a potential claimant’s infection. Most analyses of the coverage issues that discuss this point gloss the sourcing issue by using the prototypical cruise ship example where a large number of persons are forced into proximity with the virus and not permitted to leave that area. A cruise ship is an extremely small portion of claims likely to be made, though, and certainly the easiest for a claimant to show that the source of their bodily injury (i.e., infection) was the forced proximity to known sources of the virus. For all practical purposes, a disease that spreads even when a carrier may be asymptomatic at the time of transmission—possibly even through the entirety of the disease—there is no feasible way to narrow a claimant’s point and time of infection with certainty.
An employee that is actively symptomatic or diagnosed with COVID-19, especially an employee that is client-facing, would be much easier to prove as the source of an infection, and, even outside the discussion of CGL policies, should be subject to the best scientific practices of quarantine lest some other legal theory be crafted to ascribe the business, business owner, or manager some alleged liability for the claimant’s infection.
Communicable Disease Exclusion
Assuming that these hurdles are passed by a claimant, most CGL policies now include communicable disease exclusions that expressly exclude coverage for transmittable diseases, even if the claims against an insured allege negligence in, inter alia, supervising, monitoring, testing, preventing, or failing to report the disease. From a purely contractual standpoint, this language is extremely clear and strong; a claimant would be forced to allege willful malfeasance or intent, which would already be excluded in the “criminal acts” or “intentional acts” portion of a typical CGL policy. (As you may have seen from news broadcasts, intentional transmission of the virus has already been treated almost-universally at least as a where no more particular criminal violation is already in place). The reasonable expectations of the insured likely cannot be misconstrued here without engaging in linguistic gymnastics: communicable diseases are not covered by the policy.
The common pollution exclusion may also be relevant, depending upon the precedent in the particular jurisdiction where a claim is brought. An example of such language excludes “discharge, dispersal…release or escape of pollutants” though pollutants is often left undefined any further. “Pollutant” is a term that resists specific boundaries being placed upon it, and has consequently been interpreted differently by different courts. For example, Florida has construed the term very broadly, thus more broadly excluding potential pollutants from coverage under CGL policies. (See, e.g., Deni Assocs. v. State Farm Fire & Cas. Ins. Co., 711 So. 2d 1135 (Fla. 1998)). If the Merriam-Webster definition is consulted as it was by the Florida Supreme Court in Deni Assocs. v. State Farm, the CGL coverage would today exclude anything that either “makes [something] physically impure or unclean or contaminates an environment. Conversely, there are jurisdictions where “pollutant” and the pollution exception have been construed very narrowly, usually to a governmentally-established set of chemicals and irritants used for federal administrative agencies like the EPA. This would keep the aerosol particles carrying the novel coronavirus out of the exclusion; in other words, coronavirus would be excluded from the bounds of the pollution exclusion, and, if no other language could keep the claim out, would then fall into the area of potential coverage under the policy.
An additional variable comes with the courts natural tendency to bend public policy away from carriers and toward insureds in times of crisis, despite the need for a strong risk distribution industry precisely during times of crisis. The old adage amongst lawyers, passed down from first-year professors to bright-eyed law students, goes something like this: “hard facts make bad law.” Counsel for policyholders and claimants are likely to assert strained linguistic analogies to argue that standard approved policy language creates an ambiguity that should be construed against the insurer and in favor of coverage.
Business Interruption and First Party Losses
This specific topic has been given a great treatment in one of our firm’s previous client updates, but I will briefly address it here since there have been developments in the interim. Generally, business interruption losses are covered by commercial policies covering the same only to the extent that the interruption results from covered property damage. In other words, a claimant must first show an occurrence of covered property damage before attempting to make a claim for any loss of revenue stemming from that covered damage. Additionally, some policies include exclusions akin to the communicable disease exclusions in CGL policies as discussed above.
This general outline does not lend itself well to an insured trying to fit the facts of the COVID-19 pandemic to a business interruption caused by limits on congregation or “safer-at-home” executive actions. This is not likely to dissuade a policy holder’s counsel. We now have a complaint filed in the Middle District of Florida that demonstrates this fact. This case has been brought by Prime Time Sports Bar in Tampa, a large and recognizable establishment in the area, seeking declaratory relief clarifying Lloyd’s of London responsibilities under an insurance policy underwritten by Lloyd’s. The Plaintiff claims that this is a claim due to the closure resulting from the actions of civil authority, while Lloyd’s previously denied coverage due to a lack of physical loss causing the business interruption at issue. Those sparring characterizations will likely become typical of these claims in the coming months; as deftly covered in our prior client update, the weaving of communicable disease exceptions and civil authority actions are not well-trodden ground, and therefore much more ripe for courts to make rulings of first impression.
We can see a bit more of a glimpse into this through the statement offered by Michael Laurato, Counsel for Prime Time in the instant case, who stated to publications such as Law360 that “[y]ou expect the insurance company to step up, give these people some value for their premiums and do their fair part.” This statement comes from an open place of advocacy and appears to intentionally ignore concepts of bargained-for risk and allocation of that risk, but variables such as these are the human component of our legal system.
Legislative Action and attempts to revise coverage post-facto
At the time of writing, five states have proposed bills that would alter extant business interruption insurance agreements to force coverage of COVID-19 coverage even in the presence of applicable exclusions: New York, Louisiana, New Jersey, Ohio, and Massachusetts. These bills largely mirror one another limiting any pursuant coverage to policy limits and the maximum length of time originally described for the applicable business interruptions.
The logical response to this legislation is citing the math that dictates premiums and coverage, and the industry’s lack of pricing this coverage into policies where it was explicitly excluded. It also bears mentioning that products were offered in which there were no such exclusions, but the businesses that now seek coverage did not opt to pay the increased premium to hedge against the risk of a pandemic.
These pieces of legislation would, if passed, likely be tested against Article 1 of the United States Constitution, which limits the ability of a state to interfere in the arena of private contracts. Constitutional law is notoriously overwrought, but these bills seek to plainly re-write contracts privately negotiated and mutually agreed. There is no complex string of logical reasoning required to see the fundamental issue at stake—and this is only one such constitutional argument that could be raised before more creative arguments such as an unconstitutional taking without compensation from insurance companies, etc.
Luckily, the industry’s counterweight has, in the past, ended up in a sort of middle ground being reached. For instance, after the events of September 11, 2001, Congress passed the Terrorism Risk Insurance Act of 2002 (TRIA; P.L. 107-297), which created a temporary three-year Terrorism Insurance Program. Under this program, the government shared the losses on commercial property and casualty insurance if a foreign terrorist attack occurred but with an opportunity to recoup some costs farther down the line. Though originally slated for a three-year period, the program has been continually extended (with adjustments) such that it is now slated to expire this year.
Legislative risk-sharing such as this that relieves the industry’s burden while involving it in creating a solution appears to be a possible political solution if a popular wave for legislative action arises. It would also permit flexibility in governmental response to adjust as time progresses in order to ensure that the industry remains stable and in full possession of its contractual rights, regardless of whether we veer toward a best- or worst-case scenario in these uncharted water.
Homeowner’s insurance policies are less likely to be implicated in the COVID-19 outbreak on a case-by-case basis, but these policies are also some of the most commonly issued—most people aspire to own a home and to protect that home with full and comprehensive insurance coverage.
In some ways, the outbreak is more simplistic in its effects upon homeowner’s policies in that it accentuates that were already present. To take one example, children all over the country are home from school and engaged in distance learning. Some parents are stricter than others, though, and absenteeism without immediate repercussion can lead to an increased number of children out and about, on vacant streets, potentially getting into mischief that may involve the property of others—sneaking a swim in a neighbors pool, climbing onto a nearby roof, etc. This simply highlights the need to be aware of one’s property and any attractive nuisances that may be present, and to take precautions where possible.
Any loss that does occur will likely be subject to longer claims processing times and/or use of technological applications more so than before in order to circumvent person-to-person contact during the claims process.
Disputes over business interruption and civil authority coverage tied to the COVID-19 virus should be analyzed on a case-by-case basis depending on the language of each insurance policy. While this discussion has provided you with a review of how courts in other jurisdictions have addressed these issues, we are treading in an uncertain legal landscape and prior precedent is no guarantee of what courts and legislatures will do in an attempt to ease unprecedented economic losses.
Atkinson, P.A. is committed to providing you with sound guidance and representation in response to the complex coverage issues presented by the coronavirus outbreak. We continue to monitor CDC guidelines, court developments, regulatory activity, and public sector announcements; and
will continue to circulate articles with respect to the latest news and analysis of potential insurance claims and disputes stemming from the COVID-19 virus in the upcoming weeks.
While our office continues to remain open in limited capacity, all of our attorneys remain fully available to assist you through remote access . As needs arise, continue to contact us via telephone or e-mail. Should you need immediate assistant, please feel free to contact our partners directly.
John Bond Atkinson: 561-212-4089
Tiffany A. Bustamante: 305-431-7497
John B. Atkinson: 561-289-2331