Representative Claims Arising Out of COVID-19
Insurance industry losses are beginning to hit the balance sheets of major property and casualty (P&C) insurers, and may potentially affect life insurers. As much as there is greater difficulty in pursuing a property/business interruption claim with the lack of physical loss or damage required in property forms,* the impact of the virus on other specialty lines could be sizeable (and there may be sublimits to property forms that afford some limited coverage for contamination arising out of infectious disease/pandemic risk):
- Allegations of exposure to the virus by hotel guests, passengers on cruise lines, etc., whereby the owner/operator “knowingly” subjected their clientele to COVID-19 or failed to adequately protect them, may manifest into sizeable general/excess liability losses. Several suits have been filed against major real estate/hospitality venues.
- Emergence of shareholder derivative suits involving “mismanagement” of companies affected by the crisis, failure to inform shareholders as to the risks to the balance sheet, or allegations of failure to disclosure the impact of the virus on the respective business as to when certain facts were known.
- Special events cancellation covers employed with major sporting events, concerts, etc., that have required effective cancellation across the globe, represent sizeable losses. New loss estimates disclosed by Swiss Re suggest that potential industry-wide event cancellation losses as a result of the coronavirus could stretch to as much as $6.3B.
- Pollution legal liability coverages also appear to be an avenue for insurance recoverables, depending on the terms of the contract and how contamination is treated in regards to infectious disease and/or pandemic risk.
Life insurers do reinsure out, to some degree, pandemic risk, given rising death rates are not expected in the expected mortality tables, and therefore the pricing of the product. It is premature and difficult to determine the impact of the virus on profitability (and solvency) of the life insurance industry at this point in time.
COVID-19 is generating a significant number of claims across a broad spectrum of policies. Below are representative examples of the sources of claims generated from the pandemic and key features of the respective lines of insurance.
Directors & Officers (D&O) Liability – Shareholder Derivative Lawsuits
Both public and private companies are exposed to these lawsuits (brought by shareholders on behalf of the company) as a result of mismanagement of the company or failure to act during the pandemic crisis as well as failure to disclose the financial impact of the crisis on their operations among other disclosures. Shareholder derivative claims are typically eligible for coverage under D&O liability coverage, barring the applicability of any exclusions. Although COVID-19 on its face may support the applicability of the bodily injury exclusion, a narrowly tailored bodily injury exclusion (“for claims alleging bodily injury…” versus the much broader “for claims arising out of bodily injury…”) will likely allow for coverage.
Cyber Liability – Fake Emails
There has been a sharp increase in the the number of emails purporting to be from the Centers for Disease Control and Prevention (CDC) and related health care organizations that seemingly offer information related to COVID-19. Cyber criminals place links and/or attachments in these emails, which when opened, infect the computers with malware. The malware gives these fraudsters the ability to steal personal information, company information (if an employee is on a company requisitioned laptop) and/or can lock the computer and demand a payment. These types of claims may likely be eligible for coverage (provided that an employee is working and using a company computer) from a cyber liability insurance policy.
Cyber Liability – Phishing Emails
Cyber criminals are sending many company email addresses phishing emails advising employees that if they verify their personal information they will receive an economic stimulus benefit from the government. In reality, these phishing emails are designed to obtain private information, and some may release viruses that make entire systems vulnerable to cyberattacks. These types of claims generally should be eligible for coverage on a cyber liability insurance policy.
Employment Practices Liability (EPL) – Wrongful Termination
Claims of wrongful termination as a result of discrimination based on race (for example, an Asian employee claims he was wrongfully terminated as a result of prejudice against him, because COVID-19 originated in China) or disability (an employee diagnosed with COVID-19 claims she was wrongfully terminated as a result of discrimination based on disability, in this case contacting the coronavirus; the coronavirus has not been deemed a disability under federal and state laws) generally would be eligible for coverage under traditional EPL insurance policies. Employers would be provided coverage for defense costs and indemnification (settlement/judgment).
Property – Business Interruption/Civil Authority
Businesses that have large customer gatherings (bars, restaurants) that were closed due to civil authority shutdown orders may potentially have coverage under business interruption. While property policies do contain civil authority shutdown exclusions, there are policies that do not contain such exclusions. The key element is if the business interruption coverage is triggered by civil authority shutdown order, did the virus cause a covered cause of loss and damage the physical property? Similar arguments for civil authority have been made for claims resulting from natural disasters.
Workers’ Compensation/Employers Liability
Whether or not COVID-19 can be considered “compensable” and an occupational disease will vary between professions and jurisdictions. Every state has its own jurisdictional requirements for what they consider an occupational illness or disease. As a general rule, the illness or disease must be “occupational,” meaning that it arose out of, and was in the course and scope of, the employment; and the illness or disease must arise out of, or be caused by, conditions particular to the work. The risk is inherent to the employment itself. For doctors, nurses, EMT and others working in the health care industry, COVID-19 will likely be considered an occupational disease because of the increased exposure and most, if not all, cases would be considered “compensable.” Many states will use a two-prong test to determine whether or not an illness is an occupational disease:
- Did it arise out of and was in the course and scope of the employment?
- Did it arise out of or was it caused by conditions particular to the work?
The determination must be made as to whether the worker was any more susceptible to the virus because of their employment than they would have been in everyday life. Specific jurisdictional requirements will also come into play.
A potential claim could occur when a covered employee (doctor, nurse, and aide) contracts the virus as a result of conditions in the workplace and the employee brings home the exposure to the family. This type of situation is unlikely to be covered under the GL policy due to the employer’s liability exclusion, but should be covered under the employers liability portion of the WC policy.
A potential claim scenario from a GL standpoint will emerge when a business invitee alleges that he/she was exposed to and/or contracted COVID-19 as a result of "conditions" at the insured’s premises and/or as the result of the insured’s negligence in maintaining its premises to ensure it is safe for its invitees. Under the typical CGL coverage form, there could be coverage for such a claim. The most common CGL coverage form (CGL 00 01 04 13) contains an exclusion for BI, PD and P&AI claims arising from “Pollution.” Pollution is a defined term in the CGL coverage form and COVID-19 should not (nor does any other virus) fall in the CGL policy definition of “Pollution.” Keep in mind that while there may be coverage that does not equate to the insured being legally liable. It is not uncommon for a CGL policy to also have various endorsements, some of which may change the definition of “Pollution” so as to include certain bacteria and/or viruses. It is also not uncommon for a policy to have various endorsements/exclusions that expand what the policy removes from coverage. In this regard, there are “Virus” and/or “Bacteria” (or combinations thereof) endorsements/exclusions that may be a part of any individual policy.