Insurance Claim Options for Businesses Struggling Due to Coronavirus

Across the world, businesses have lost billions of dollars in revenue. Millions of businesses are at risk of closing permanently. Millions of people are out of jobs. 

In earlier posts, we have discussed the potential for claims under business interruption coverage in commercial insurance policies for businesses forced to close their doors due to the coronavirus pandemic. 

In this article, I further explore potential insurance questions raised by the pandemic. 

Business Interruption Coverage

The American Property Casualty Insurance Association (APCIA) estimates that 30 million or more small business claims will result from the crisis.

However, it says that business interruption coverage generally will not cover claims related to coronavirus because physical damage to property is required for this coverage to apply.  The APCIA warned that retroactively requiring insurance companies to cover these losses could destabilize the insurance industry. 

The National Association of Insurance Commissioners joined the APCIA, taking a similar ominous view.  Insurance companies have also made their positions known as to the validity of business interruption claims related to the virus. 

Litigation has erupted over insurance companies’ widespread denials of these claims.  The primary issue is what constitutes “physical loss or damage” and whether coronavirus causes such damage.

Workers’ Compensation Claims for COVID-19

Some states have issued statements on the compensability of workers’ compensation claims when a worker contracts COVID-19 in the course of their employment. SLG attorney Jack Cannon has discussed the implications of coronavirus on Illinois Workers’ Compensation claims here and here.

Commercial General Liability Policies

Commercial General Liability (CGL) policies cover bodily injury or property damage incurred on the insured’s property or caused by the insured’s conduct. 

In Austria, a group of tourists filed a class-action lawsuit against a ski resort claiming the resort knowingly exposed them to coronavirus.  This is the type of claim that may be covered by a CGL policy. 

However, these types of policies often contain pollution and communicable disease exclusions.  Whether those types of exclusions will apply to coronavirus is unknown at this time.    

Civil Authority Coverage 

Civil Authority Coverage covers business losses caused by the government prohibiting access to the property.  This type of coverage also generally requires the government order to result from physical loss or damage to property.  The closure cannot be voluntary. 

Event Cancellation Coverage

If a policyholder carries event cancellation coverage, it will cover a loss due to the cancellation, postponement, or relocation of an insured event. 

Environmental Insurance

As with most of these coverages, the scope of environmental coverage varies widely and is largely dependent on the language of the policy.  Environmental insurance is intended to fill gaps created by exclusions in other policies for losses caused by pollution, mold, and microbes. 

If applicable, this type of coverage will often cover clean-up costs associated with the contamination. 

Directors and Officers Coverage

This type of insurance covers corporate officers and directors from liability for mismanagement or other negligence.  Directors and officers may be held liable for breach of fiduciary duty in some instances for mismanagement and failure to disclose certain risks. 

In March, the SEC issued an advisory statement cautioning companies to provide investors with insight regarding assessment and planning for risks to their business operations resulting from coronavirus. 

Later that month, a securities action was filed against Norwegian Cruise Lines alleging that the company made false and misleading statements in its February 2020 SEC-required filings.  This is the type of situation that may implicate Directors and Officers Coverage.

Crisis Management Coverage

Crisis Management Coverage is designed to limit the impact of covered events on a company’s reputation.  It is usually part of technology errors and omissions, as well as Internet property and liability insurance policies. 

It’s typically used to restore public confidence in the security of the insured’s computer system in the event of a data breach.  However, it also generally covers reputational damage related to natural disasters, workplace violence, adverse media attention, contamination, or recall.

The scope of this coverage varies, and only covers expenses related to restoring the company’s reputation. 

Cyber Policies

Sweeping shutdowns of non-essential businesses have resulted in a large increase in the amount of work being completed remotely.  Cybercriminals now have more targets, providing more opportunities to run their various scams.  Claims under policies covering cybercrime will increase.

Trade Credit Insurance

Trade credit insurance is coverage for the risk that a company’s customers default on goods or services purchased on credit.  Many times, this kind of coverage is triggered only by a company’s insolvency or liquidation. 

As with most insurance issues, whether any of these coverages will apply to coronavirus claims will be determined by the policy language explaining the various coverages and exclusions, and whether courts are willing to interpret that language to the benefit of policyholders. 

Any business struggling during this unprecedented time should scour any insurance policy they have to explore whether any of these types of coverage may provide some relief.