Written By Christine Viney
In addition to the global health implications of COVID-19, voluntary and mandatory restrictions being implemented in an effort to "flatten the curve" of infection rates are disrupting business operations across a broad range of industries both nationally and internationally. At the same time as businesses are working to manage their own rapidly evolving operational responses, many are also considering the losses they face as a result of the COVID-19 pandemic and asking, "will my insurance cover this?"
The frustrating answer is, "it depends." Specifically, it depends on the wording of the insurance policies the organization has in place and the circumstances underlying the losses that arise. The answer in any specific case is best assessed through a review of the losses that arise in the context of the organization's insurance policies.
Key areas to consider are claims for an organization's own losses, including potential coverage through:
- Property policies and business interruption coverage
- Pollution policies
- Event cancellation insurance
Key areas to consider in claims against organizations include potential coverage through:
- Directors and officers policies
- Third-party liability insurance
Claims by Organizations
Property Policies and Business Interruption Coverage
Most corporations have property insurance that includes business interruption or business income coverage. Coverage under these policies is generally triggered by physical loss or damage caused by an insured peril, so in the context of COVID-19, the key questions are whether there is "physical loss or damage" and, if so, whether it was caused by an "insured peril".
Losses due to communicable diseases such as COVID-19, including business interruption losses, will not likely be associated with traditional "physical damage", such as might be caused by a fire. This does not, however, mean that coverage under a property policy will be unavailable. Some property policies also include "loss of use" of insured property within the scope of property damage, if that loss of use arises from something that would be considered an "occurrence". It is possible that the presence of the COVID-19 virus at a property will be construed as a type of "damage".
In addition, some policies contain express extensions of coverage for losses arising from communicable diseases. While these coverage extensions can appear comforting, whether they will respond depends on the wording of the policy and the circumstances of the loss in question. For example, some communicable disease coverage wordings require the disease to be "present" on the insured property. Such a policy might not respond to a loss stemming from a preventative closure, if the COVID-19 virus is not present.
Many property policies also include coverage for losses arising from orders issued by civil and military authorities. Depending upon how federal and provincial governments respond to the COVID-19 pandemic, these coverages may be engaged. Some property policies also provide coverage for contingent business interruption, meaning losses stemming from issues affecting a third-party supplier, distributor or service provider that affect an organization's ability to continue operations. Typically, but not invariably, this type of coverage turns on whether the third-party disruption is the result of the type of damage that would be covered under the policy of the organization in question. Again, whether these types of coverage could be engaged in the context of COVID-19 depends on the wording of the policy and the nature of the loss an organization has sustained.
In assessing whether an organization's property policies may respond to business interruption losses arising from COVID-19, it is also important to consider policy exclusions. For example, some property policies expressly exclude contagious diseases. Where such an exclusion is present, it might well preclude all coverage for COVID-19 related losses. In addition, many property policies exclude "contamination" and "pollution". While a virus might not be the first thing that comes to mind as "pollution" or "contamination", the definitions of these terms in insurance policies may include not only traditional environmental pollutants but a host of other things such as fungi, bacteria, spores, microorganisms, pathogens and sometimes a catch-all term such as "disease- or illness-causing agent". Exclusions like these are an important consideration in evaluating whether an insurance policy will respond to losses arising from COVID-19.
Distinct insurance can be obtained for environmental and pollution-related losses. This coverage may provide protection against an organization's own pollution remediation costs and expenses and pollution-related business interruption losses, as well as coverage for pollution-related liability claims advanced against the organization.
Generally, such policies respond to "Pollution Events" or "Pollution Conditions". Whether coverage for COVID-19 related losses may be afforded by pollution/environmental insurance depends on the interpretation of the definitions and exclusions in the policy and the application of those policy wordings to the circumstances giving rise to the loss.
Event Cancellation Insurance
Some organizations are also facing losses in relation to the cancellation of specific events. While many organizations in this position purchased event cancellation insurance, nearly as many are discovering that the policy purchased excludes event cancellations due to communicable disease. That said, these exclusions may not apply to events cancelled due to government order and it is—as always—worthwhile to obtain an opinion regarding the availability of coverage.
Claims Against Organizations
Directors and Officers
The impact of COVID-19 may give rise to claims against those responsible for corporate decision-making. Specifically, the multi-faceted obligations of a corporation's directors give rise to the risk of liability in face of an organization's response to COVID-19. (The scope of directors' and officers' obligations in the face of COVID-19 is discussed in detail in our blog post, COVID-19 Considerations for Directors.)
Directors and Officers (D&O) insurance typically provides coverage for claims based on allegations of negligence or breach of fiduciary duty in the course of corporate management. Increasingly, such policies are being called upon to respond to event-driven litigation, meaning claims that are filed after a specific event causes a drop in stock price. The COVID-19 based losses in value that almost every company has experienced in recent days may expose directors and officers to claims that information about COVID-19 provided (or not provided) caused shareholder losses. In such circumstances, as well as in response to other claims against corporate decision-makers arising out of COVID-19, coverage for both defence costs and indemnity, if liability were to be established, could be available under an organization's D&O insurance.
Other Third-Party Claims
Individual third-party claims arising from COVID-19 may also result in losses. The Commercial General Liability policies carried by many organizations typically provide coverage for damages the insured becomes legally obliged to pay because of "bodily injury" or "property damage". Put differently, these policies provide coverage for third-party claims against an organization.
While such claims will not be felt as immediately as first-party business interruption losses, they are likely to arise as the full implications of the pandemic are realized. For example, what if a client or customer claims they contracted COVID-19 through contact with an organization's employee?
Leaving aside the question of whether such a claim would ultimately succeed, another important feature of most third-party liability policies is that the insurer will provide a defence to claims against the organization that could (not necessarily would) be covered. Again, the coverage wordings and exclusionary language in each policy need to be considered in evaluating whether an organization's liability policies are likely to respond to COVID-19 related claims advanced by third parties.
The financial impact of COVID-19 will be significant to many corporations, but some of the losses that arise may be mitigated by insurance. Every corporation—and every suite of insurance coverage—is different. Bennett Jones can assist organizations in reviewing their insurance coverage to determine whether current and anticipated losses may be covered under existing insurance policies, in presenting potential claims to insurers and in determining whether there are gaps in the organization's coverage that should be considered as insurance policies are renewed.