Insurance Coverage for COVID-19: Steps for Risk …...©Bradley Arant Boult Cummings LLP Insurance Coverage for COVID-19: Steps for Risk Managers April 1, 2020 Presented by: Katherine

©Bradley Arant Boult Cummings LLP

Insurance Coverage for COVID-19:Steps for Risk ManagersApril 1, 2020

Presented by:

Katherine Henry, Chair of Policyholder Insurance Coverage Team

Bradley Arant Boult Cummings LLP | bradley.com | © 2019 2

Third-Party Liability PoliciesEvent Cancellation Policies

Commercial Property Policies

Proposed ISO Business

Interruption Forms

Other First-Party Policies

Recent Developments

Parting Thoughts

Questions

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Event Cancellation Policies

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Bradley Arant Boult Cummings LLP | bradley.com | © 2019

Event Cancellation Triggers

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Event Cancellation Triggers

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Event Cancellation Loss Calculations

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CALCULATION OF LOSS:

Subject to the limit of insurance, we will indemnify you for the greater of:

The total of expenses incurred, less any recoveries obtained, and less gross

revenue retained after refunds, whether such refunds are contractual or

voluntary; or

The loss of gross revenue (including gross revenue returned, whether

contractual or voluntary) that would have been received had the insured

event taken place as originally scheduled, less any recoveries made and

expenses not incurred.


▪ War and Military Action

▪ Nuclear Hazard

▪ Terrorism

▪ Biological/Chemical/Nuclear

▪ Fraudulent, Dishonest or Criminal Acts

▪ Financial Failure

▪ Lack of Support

▪ Failure to Make Necessary Arrangement

▪ Pre-existing Circumstances

▪ Adverse Weather

▪ Non-appearance

▪ Breach of Duty of Care

▪ Contract Disputes

▪ Material Alterations

▪ Governmental/Regulatory Violations

▪ Seepage, Pollution, and/or Contamination

▪ Government Shutdown

Event Cancellation Exclusions

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▪ Notice

▪ Cooperation

▪ Documentation

▪ Proof of loss

▪ Audits

▪ EOUs

▪ Denials

Event Cancellation Claims

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https://www.google.com/url?sa=i&url=https://www.dreamstime.com/illustration/appointment-cancel.html&psig=AOvVaw0XDCEuo5upAjmmGeIys6hw&ust=1585691128444000&source=images&cd=vfe&ved=0CAIQjRxqFwoTCLCD-Y2Ww-gCFQAAAAAdAAAAABAJ


Commercial Property Policies

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▪ “Direct physical loss or damage to

property.”

▪ “Loss” and “damage” not synonymous.

▪ Loss of use, functionality, or reliability can

constitute physical loss or damage.

Physical Loss or Damage

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https://creativecommons.org/licenses/by-nc-nd/3.0/


▪ Presence of contaminants may constitute “physical

loss.”

– Ammonia discharge in building causing shutdown and

remediation constituted direct physical loss or damage.

Gregory Packaging, Inc. v. Travelers Property Casualty

Company of America (N.J.).

– E. coli bacteria contamination in home’s well could

constitute physical loss when “property was made

useless or uninhabitable.” Motorists Mutual Ins. Co. v.

Hardinger (3rd Circuit).

COVID-19 as Direct Physical Loss

or Damage

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ISO Bacteria Exclusion in Causes of Loss

– Special Form

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CP 00 10 10 12 - Pollution

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▪ Fear

– Airline sought coverage for losses from

government shutdown of air travel on 9/11.

Shutdown based on fears of future attacks not

covered. United Air Lines, Inc. v. Insurance Co. of

State of Pennsylvania.

▪ Threat

– Clinic sought coverage for losses caused by a

hurricane evacuation order. Threat of damage

not enough. South Texas Medical Clinics, P.A. v.

CNA Financial Corp.

Fear or Threat of

Physical Loss or Damage

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▪ Included in many business income and extra expense coverages.

▪ Covers business losses caused by government prohibiting access

to property.

▪ Requirements:

– Physical loss or damage

– Order direct result of physical loss or damage

▪ Cannot be voluntary or “requested.”

▪ Need not be damage to insured’s property.

▪ Influx of suits seeking this coverage (will discuss more later).

Civil Authority Coverage

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Civil Authority in CP 00 30 10 12

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▪ “Reasonable Expectation Doctrine”: policyholder’s

objective reasonable expectations.

▪ May apply, but could require ambiguity finding.

Policy Interpretation: Coverage for

Pandemic?

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Proposed ISO Business Interruption Forms

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Other First-Party Policies

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▪ Increased remote work due to COVID-19 pandemic,

causing growth in cybersecurity exposures.

▪ Cybercriminals targeting companies using COVID-19

related phishing emails.

▪ Can include coverage for cyber incident resulting from

physical loss or damage.

Cyber Policies

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▪ Coverage often found in technology errors and

omissions, internet, and liability insurance policies.

▪ Sublimited.

▪ Reimburses expenses incurred to restore confidence.

▪ Often requires immediate notice.

▪ Scope of coverage varies widely.

▪ Primary or excess.

Crisis Management Coverage

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Crisis Management Coverage


▪ Coverage varies.

▪ Fills coverage gaps created by pollution, mold, and

microbial matter exclusions in property and liability

insurance policies.

▪ No standard form.

▪ Exclusions key.

▪ Can cover clean-up costs.

Environmental Insurance Policies

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▪ Covers risk that company’s customers cannot pay for

goods or services bought on credit.

▪ Typically triggered by insolvency.

▪ Specific policy language governs other triggers.

▪ Recovery potentially offset by government relief.

Trade Credit Insurance

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Third-Party Liability Policies

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▪ Bodily injury or property damage

– Class action filed against ski resort in Austria by tourists

for knowingly exposing them to the coronavirus.

▪ Total pollution exclusion

▪ Communicable disease exclusion

Commercial General Liability Policies

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▪ Stock drop could lead to securities class actions

– Securities action filed March 12, 2020 against Norwegian Cruise Lines

alleging false and misleading statements in 8-K and 10-K in February

2020.

– On March 4, 2020, SEC advised companies to provide “investors with

insight regarding their assessment of, and plans for addressing,

material risks to their business and operations resulting from the

coronavirus to the fullest extent practicable to keep investors and

markets informed of material developments.”

▪ Other claims

– Affirmative acts of mismanagement

– Failure to disclose (must appropriately disclose known risks, trends,

and uncertainties)

– Breach of fiduciary duty (heightened oversight responsibilities during

crisis. Marchand v. Barnhill, 212 A.3d 805 (Del.))

– Breach of contract with suppliers

– Failure to protect business or third parties (person-to-person

transmission, property contamination, financial losses)

Directors & Officers & Entity Coverage

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▪ Compensates employees for work-related injuries and

illness.

– Claims more easily established in settings like hospitals.

– Illness generally must relate to unique nature of job.

▪ State law controls.

– Many state statutes exclude common cold and flu.

▪ Depends on whether state law identifies workers’

compensation as exclusive remedy for employees infected

by COVID-19.

Workers’ Compensation Policies

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Recent Developments

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▪ Cajun Conti LLC v. Certain Underwriters at Lloyd’s, London

– Filed March 16, 2020 in Louisiana state court.

– No virus exclusion.

– Alleges contamination as physical loss.

– Seeks declaration of coverage for COVID-19 business

interruption losses and cleaning costs under all-risk policy.

▪ French Laundry Partners LP v. Hartford Fire Insurance Co.

– Filed March 25, 2020 in California state court.

– All-risk policy covering loss of damage caused by a virus.

– Napa County Order “issued based on evidence of [] the

physical damage to property caused by the virus.”

– Seeks ruling that civil authority coverage includes losses from

COVID-19-related government-mandated closures.

Expect Litigation

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▪ Chickasaw Nation Department of Commerce v.

Lexington Insurance Co.

– Filed on March 24, 2020 in Oklahoma state court.

– Seeks declaration that COVID-19 losses from closure of

casinos constitutes “direct physical loss or damage.”

– Chockataw Nation of Oklahoma v. Lexington Ins. Co. is

parallel case.

▪ Big Onion Tavern Group, LLC v. Society Insurance, Inc.

– Filed on March 27, 2020 in Illinois.

– Group of Chicago-area restaurant and theater owners

sued after insurer denied request for business interruption

coverage following Illinois’ Governor’s COVID-19

shutdown order.

Expect Litigation

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– New Jersey bill would require policies to cover

business interruption losses even if policies

expressly exclude viruses for businesses with less

than 100 full-time employees in New Jersey.

– Ohio, Massachusetts, and New York followed New

Jersey with similar bills to cover COVID-19 losses.

– These establish funds from which insurers

complying bill can seek reimbursement for these

indemnity payments to policyholders.

– New Jersey bill on hold after insurance companies

raised legal and constitutional objections.

State Government Intervention?

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▪ Issued March 26, 2020.

▪ Opined that most policies do not cover COVID-19.

▪ Opined that retroactively rewriting policies destabilizes

industry and risks coverage for everyday losses.

APCIA Statement

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▪ Fitch

– Rating outlook for U.S. P&C insurance and global

reinsurance remains stable

– Revised outlook for P&C insurance sector to negative

from stable due to increased concerns over COVID-19.

▪ APCIA

– COVID-19 business interruption losses for businesses

with 100 or fewer employees between $220-383 billion

per month.

– Potential for 30 million or more small business claims.

Economic Impacts

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▪ Federal government could increase insurers’ coverage

obligations for COVID-19 business interruption losses.

▪ On March 18, 2020, U.S. House members sent letter

to four major insurance trade organizations urging

coverage of COVID-19 business interruption claims to

“help sustain America’s businesses through these

turbulent times, keep their doors open, and retain

employees on the payroll.”

▪ Expect federal and state constitutional challenges.

Federal Government Intervention?

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▪ Today:

– Know your coverage

– Give notice

– Track your losses

– Don’t accept denial

without professional

advice

▪ Renewals:

– Expect exclusions

– Expect harder market

Parting Thoughts

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It Pays to Be Covered™Developments and Trends in Insurance Coverage

for Commercial Policyholders

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Visit Bradley’s insurance coverage blog at ItPaysToBeCovered.com

▪ Legal developments

▪ Industry trends

▪ Coverage for Covid-19

▪ Insurance placement and renewals

▪ Practical risk management strategies

▪ Claims management and resolution


It Pays to Be Covered™Developments and Trends in Insurance Coverage

for Commercial Policyholders

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Read more at ItPaysToBeCovered.com

Our recent blog posts:


Questions?

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Meet the Speaker

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Katherine Henry is Chair of Bradley’s

Policyholder Coverage Team. Her practice

covers every type of property and casualty

insurance policy available in the market

today, including those potentially

responsive to COVID-19 such as event

cancellation, commercial property

(including business interruption and

contingent business interruption), cyber,

commercial general liability, directors and

officers, professional liability, errors and

omissions, and others that may provide

relief to policyholders. Katherine’s practice

ranges from insurance procurement and

renewal, to claims submission and

management, to mediation, arbitration, and

litigation of insurance coverage disputes.


Documents

Insurance Coverage for COVID-19: Steps for Risk …...©Bradley Arant Boult Cummings LLP Insurance Coverage for COVID-19: Steps for Risk Managers April 1, 2020 Presented by: Katherine