The effects of the novel coronavirus on individual businesses and the larger economy cannot be forecasted with precision, but are virtually certain to be profound. As companies await a better understanding of the specifics of any relief that may be extended to them by the federal government, many have already begun to review their insurance policies in efforts to assess the types and extent of protection they may have against substantial loss of business, and against potential employee, customer, or investor claims of injury related to COVID-19. Insurance coverage is thus being scrutinized both with respect to potential affirmative (or “offensive”) claims that the company may be able to make, and as a defensive tool that can be put to use in dealing with potential claims against the company.
The opportunity to go on the offensive with respect to insurance coverage has already been seized by, among other companies, a restaurant in the French Quarter in New Orleans. Oceana Grill filed suit against Lloyd’s of London in Orleans Parish Civil District Court this week, seeking proactively to require the insurance carrier to pay for losses from a pandemic. The restaurant contends that its policy provides it with coverage if the restaurant suffers property damage that requires closure. According to the complaint, the “property damage” in this instance consists of contamination of surface areas at the restaurant. Interestingly, surface contamination was essentially the claim made by plaintiffs in “Chinese drywall” litigation related to home construction several years ago, though those claims typically pertained to a more tangible alleged physical problem, metal corrosion.
The restaurant’s argument got some support from New Orleans Mayor LaToya Cantrell. She filed an emergency declaration in the same court on the same day, directing restaurants to restrict their operations to take-out and delivery service. Her declaration asserts that COVID-19 virus “caus(es) property loss and damage in certain circumstances.” Undermining that support somewhat, however, the mayor also acknowledged at a press conference that a major reason that her administration wanted to be aggressive in assisting local businesses’ efforts to receive payouts of business interruption insurance (BII) was that she recognizes that infectious diseases often are excluded under BII policies.
Whatever the outcome of the restaurant’s lawsuit turns out to be, that suit and the mayor’s directive to restaurants underscore the urgency at this uncertain time of assessing, in consultation with attorneys, how a businesses’ insurance policies may come into play during this health and economic crisis. Here is a quick overview of some of the types of policies and provisions that require scrutiny:
BII – Business interruption insurance may assist companies struggling with lost income or profits because they can no longer continue normal business operations. It is, however, often limited to instances of direct physical loss or damage to business property. In fact, many policies specifically exclude communicable diseases from coverage.
Contingent business interruption insurance (CBI) – this type of insurance provides expanded coverage for losses sustained when policyholders’ suppliers, customers, and other partners experience problems, such as work stoppages or inability to fulfill orders that, in turn, cause harm to the policyholder. Here again, there may (or may not) be limitations or exclusions in a particular policy with respect to communicable diseases.
Civil authority clauses – These are a feature of many policies in the property insurance area and can be triggered when a government entity restricts or denies access to the insured’s property, causing the insured a loss of profits or income. With governmental authorities currently taking expansive steps to deter gatherings of crowds (or, in some instances, any gatherings at all), this is a type of coverage is worth assessing.
“Defensive” policies/provisions – Commercial General Liability insurance, Errors & Omissions (“E&O”) policies, and Directors & Officers (“D&O”) insurance all are among the types of insurance that may be available to a company to help it withstand lawsuits and threatened suits that may be directed at the company as a result of COVID-19. A customer or other non-employee may claim that the company caused it bodily injury or property damage through, for example, exposing that claimant to the coronavirus or failing to safeguard the claimant’s confidential data appropriately while the company’s employees were working remotely. An employee or group of employees may make similar types of claims, or assert that they were not compensated appropriately while the company was operating in a non-standard fashion. Shareholders may assert that the company’s leadership was not adequately prepared for, and/or did not respond appropriately to, the current crisis, causing a steep decline in the value of their shares. In all such situations – and with respect to workers’ compensation claims – insurance may offer some protection in dealing with the demands for payment.
Navigating the complexities of insurance policies will doubtless be among the necessities of day-to-day operations for many businesses in this uncertain period. The ability to derive maximum potential benefit from available coverage could be a real differentiator for companies seeking a competitive edge, or simply trying to ride out the storm.