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Coronavirus Coverage Issues

By Becky McCormack, CPCU, CIC, AAI, AINS;  IIABSC Vice President


Thomas Paine once said, “These are the times that try men’s souls” and while the circumstances when he penned these words was somewhat different, he did state them in a document he titled The Crisis. What we are facing with the COVI-19 outbreak in this country is unprecedented in recent history, but IIBASC has gathered a vast number of resources to help our members navigate through many of the issues they’re facing. Please don’t think you’re alone in this. Our staff is also here to assist you if you need us.

As an agency owner, you are dealing with your staffing issues as well as calls from your clients. The resources on our website include information on staff working from home, protecting your worksite, links to the SC Department of Employment and Workforce and even how to protect your agency from coronavirus scams.

Along with the agency management related resources, the IIABSC website also provides you with coverage related discussions on how the policies may – or may not – respond, along with invaluable tips from your E&O carrier on how to protect your agency from possible E&O exposures related to COVID-19. Below is a brief synopsis of some of the coverage issues and how a policy may respond. 

There are several things you need to remember: 

1) Policy wording can and does vary 

2) This situation is different than any other the industry has dealt with and there are still many unknowns as to how coverage may be interpreted by the carriers, or even the court system 

3) Producers should neither confirm or deny coverage. That’s for the insurance carrier to do. File the claim and let the carrier handle it.

Business Income Coverage

The Business Income insuring agreement states that there has to be a “suspension” of “operations” during the “period of restoration” and the suspension must be caused by direct physical loss or damage to property by a coverage Cause of Loss.  There are two primary issues with shut-downs caused by the coronavirus: 1) there is no direct physical loss or damage 2) contamination by a virus is likely not a covered cause of loss. This would also apply to possible coverage from Dependent properties or Contingent Business Income.

Civil Authority

This one is generating a ton of questions because of the preventative measures that our governmental authorities are requesting and sometimes even mandating. One thing to keep in mind, Civil Authority coverage applies when there is loss or damage to property other than the insured’s property and access is then prohibited to the insured’s property. Nevertheless, to trigger coverage under the Civil Authority section of the Business Income policy there still must be direct physical loss to somebody’s property and that is just not the case with what we’re seeing with the coronavirus.

Property Coverage 

The insuring agreement in the commercial property policy requires direct physical loss to covered property by a covered Cause of Loss. As per our discussion on Business Income coverage neither of these requirements are triggered by the virus outbreak. Some people have argued that perhaps “contamination” by the coronavirus that shuts down a location can be considered direct physical loss, but even if it could there appears to be no covered Cause of Loss. There is an exclusion for “pollutants” in most policies and a pollutant is defined as: “any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.” There are various court cases that uphold that a biological contaminant falls under this definition and thus under the exclusion.

General Liability

The CGL form responds in the event of legal liability on the part of the insured. If there is no legal liability, then coverage is not triggered. Proving that the insured’s business is somehow responsible for someone’s injury from the coronavirus seems unlikely. However, there could be some possible scenarios, i.e. allowing an employee who is known to be infected with the virus to continue working, failure to follow health and prevention guidelines, etc. But even if that were the case and there was some legal liability on the part of the insured for the transmission of the coronavirus to a third party, there is an exclusion that may apply in the form of the Expected or Intended Injury exclusion. Also, many CGL carriers include the Communicable Disease Exclusionary Endorsement on their policies after past scares with other diseases like SARS and H1N1.

Automobile coverage

This coverage has just hit our radar due to the fact that restaurants have been ordered to close except for take-out or delivery. This situation may prompt restaurants who have previously NOT provided delivery to begin doing so. There are many “moving parts” in determining what coverage, if any, exists. For example, what policy would respond – the Personal Auto policy of the driver(employee), or the Business Auto policy of the restaurant (if they have one). Who is covered under each policy? Which one is primary? 

In short, if an employee is driving their personal vehicle to deliver food for their employer, there is likely coverage for both the employee and the business under the employees PAP. Even with the common PAP exclusion of Public or Livery Conveyance, most courts have held that food delivery does not trigger this exclusion. Be careful however, some personal auto policies may have proprietary wording for this exclusion and/or a separate exclusionary endorsement for food delivery. 

The other big issue in relying on the PAP for this coverage is limits. Most employees may not be carrying limits that would be sufficient for a business exposure. IF the restaurant has a Business Auto policy with a Symbol 1 for Liability or a Symbol 9 for Non-Owned auto, then the BAP would also likely respond. Keep in mind, employees driving their own vehicles for the business are NOT covered by an unendorsed BAP, so while the restaurant would be protected by the BAP, the employee would not. That would require the Employees as Insureds endorsement.  

Workers Comp 

Workers compensation responds to employee injuries/illnesses that are sustained within the scope of employment. For the Work Comp policy to respond to an employee contracting the coronavirus, the illness would have to be considered “occupational” – meaning it arose “out of and in the course of employment” as well as it would have to be caused by conditions “peculiar” to the work. Contracting the virus “out of and in the course of employment may not be that difficult to imagine, but very few occupations could say that coronavirus was “peculiar” to it’s business. It is unlikely, but not impossible.

There are more detailed explanations of each of these coverage issues on our Coronavirus webpage. Please be sure to refer to those resources for a more in-depth understanding. 

And again, please keep in mind that policy wording can vary greatly and agents need to let the carriers have the final say on any potential claims.