Insurance Coverage in the Age of COVID-19
As the coronavirus continues to dominate the news cycle, the actual (and anticipated) impact on business operations and business continuity has hijacked the attention of owners, managers, and C-suite executives at all levels and in all industries. Among the myriad issues to be resolved, one obvious question is the extent to which insurance coverage is available for business losses arising from this public health crisis, including reduction of business income, incurring of extra expenses, disruption of supply chains, event cancellations, and potential liability from stakeholder lawsuits.
Some companies may have purchased specialized forms of insurance policies that are designed to provide specific coverage for losses suffered as a result of public health crises. However, the vast majority of companies will need to look to their traditional insurance policies – like property and directors and officers coverage – in order to obtain available insurance, if any, for these business related losses.
As an initial matter, coverage for actual loss of business income and extra expense is typically part of a company’s property insurance policy and not separate, standalone coverage. Therefore, coverage for business income and related losses depends on demonstrating that these losses resulted from “physical loss” or “damage” to covered property. Coverage may also be available if civil authorities prohibit access to the Insured’s premises under certain circumstances. Whether contamination by the coronavirus constitutes direct “physical loss” or “damage” and triggers coverage for business income and related losses is subject to interpretation – and likely considerable dispute between insurers and policyholders – since these terms are typically not defined in the policy, and an exclusion for damage arising from “virus or bacteria” is not universal.
With respect to disruptions of the supply chain for business operations, insurance coverage may be available in property policies for “contingent business interruption.” This coverage is particularly important for businesses that depend on integrating parts manufactured or services provided from areas heavily impacted by the coronavirus. As above, availability of this coverage typically requires some “physical loss” or “damage” to property at a supplier, contract manufacturer, or service provider. Note, however, that if the company has specific “supply chain” coverage, this type of specialized insurance is broader in scope and generally is not dependent on direct damage to property.
Losses resulting from the recent spate of event cancellations may also be covered under the company’s property policy (or a separate, standalone policy) for the immediate losses resulting from a necessary cancellation. The terms and conditions of this coverage, when available, vary considerably and require careful review.
Finally, the recent market volatility will likely have a significant impact on pending mergers and acquisitions and other significant financial transactions, increasing the likelihood of potential litigation from stakeholders and counter-parties. In addition, businesses will face intense scrutiny from disgruntled investors alleging that different or additional measures could have been implemented to avoid substantial losses, or that companies failed to provide appropriate disclosures in financial statements. Such claims will typically trigger coverage under a directors and officers policy or other professional or management liability policy.
The terms and conditions of traditional insurance policies and specific standalone specialty policies vary from policy to policy, often considerably. Determining the extent to which companies have coverage for losses arising out of the coronavirus pandemic will require careful analysis of the specific policy language at issue, as applied to the specific facts as they develop, to determine the actual scope of potentially available coverage. That analysis should begin now. Gibbons attorneys have the experience to assist you and your company with analyzing potentially applicable policies to determine the scope and extent of any available insurance coverage.