June 11, 2020 UPDATE: Is Your Business Insured for COVID-19? It Depends.

Businesses are currently in the throes of reopening from the imposed government shutdowns. But are businesses taking the time to consider whether their operations are insured for COVID-19 claims by the public? Unfortunately, due to the virus’ contagiousness in close quarter settings and its potential deadly nature, it is likely that businesses will be forced to confront these claims before a viable vaccine is available. This period of vulnerability may last several more months at best, but more likely up to a year. In addition, there is no legislation in New York that insulates businesses from liability for COVID-19 claims and businesses are relegated to standard liability insurance for protection. (i) Thus, businesses need to properly analyze their insurance policies now in order to determine whether coverage exists for the inevitable third-party COVID-19 claim and, if necessary, implement measures to minimize their liability as best as possible.

The standard Commercial General Liability (“CGL”) insurance policy is written to provide a business with a defense and indemnity for third-party personal injury claims stemming from the alleged negligence of the insured. Such claims can arise due to slip and fall hazards at the business or often in the case of restaurants, due to alleged food poisoning. Upon reopening, it is anticipated that businesses – who depend on the public’s patronage, such as restaurants, hotels, bars, movie theaters, gyms and other popular social gathering enterprises – may be faced with lawsuits seeking damages due to COVID-19 exposure. These lawsuits will likely allege a variety of theories, including, but not limited to, negligence in failing to adhere to and follow mandatory guidelines issued by the Centers for Disease Control (“CDC”) and/or state and local health departments, improper screening of employees and/or customers for COVID-19 and failing to adequately disinfect the premises and its public surfaces. Although it may be difficult for plaintiffs to establish that they contracted COVID-19 at the establishment due to the negligence of the insured, this will not prevent such lawsuits from being brought especially where the alleged exposure results in a life-long debilitating injury or death. Thus, it is critical that prior to reopening their doors to the public businesses should have their insurance policies reviewed by a knowledgeable attorney to ascertain whether there is insurance coverage for these lawsuits.

Though many CGL policies contain standard policy forms and endorsements drafted by the Insurance Services Office (“ISO”), some CGL policies include forms and endorsements that others do not.  Furthermore, not all insurers use the standard ISO forms and endorsements, but instead, use manuscript policies, which are specifically generated for a particular insured and typically differ from the policies that utilize the standard ISO forms.  Additionally, some insurers that use the standard ISO forms and endorsements may include certain manuscript forms or endorsements.  This article analyzes language contained in CGL policies that utilize the standard ISO forms and endorsements.

The current standard CGL policy coverage form (ISO Form CG 00 01 04 13) provides coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” Furthermore, “bodily injury” is defined in the standard CGL policy coverage form as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” Additionally, in order for coverage to apply, the “bodily injury” must be caused by an “occurrence” during the period the policy is in effect. The term “occurrence” is defined in the standard CGL policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Thus, the issue for coverage will be whether contracting COVID-19 constitutes an “occurrence”. Undoubtedly, many insurers will argue there is no “occurrence”, though this is likely a fact intensive inquiry that will depend on the facts of each particular case. For instance, if a plaintiff alleges that a business failed to properly screen its own employees or customers, such allegation could arguably constitute an accident. If a plaintiff alleges that a business failed to properly disinfect commonly encountered surfaces, this as well could arguably constitute an accident and “continuous or repeated exposure to substantially the same general harmful conditions.” Regardless of the specific factual scenario of each case, it is anticipated that insurers may look to disclaim on the ground that there is no “occurrence” within the meaning of a CGL policy. An insured receiving a disclaimer will then be forced to commence a declaratory judgment action against its insurer to challenge the validity of the disclaimer, while at the same time defending the third-party COVID-19 injury lawsuit out of pocket. This is a costly scenario for any business.

Even if there is an “occurrence”, there are several exclusions contained within the standard CGL policy that may preclude coverage for the business. The first exclusion under Section I – Coverage A is known as the “Expected or Intended Injury” Exclusion. In relevant part, coverage is precluded under this exclusion for “bodily injury” that is “expected or intended from the standpoint of the insured.” The troubling part of this exclusion is the term “expected”, since a seasoned plaintiff’s attorney will be careful to draft a complaint that avoids allegations of intended conduct/injury, since intentional conduct is not covered by a CGL policy. Thus, the battle insofar as the “Expected or Intended Injury” Exclusion is concerned, will center around whether the insured business expected the “bodily injury”. Depending on the factual scenario presented by a given lawsuit, insurers may look to disclaim coverage on the ground that the “bodily injury” (i.e., contracting COVID-19, which constitutes a sickness or disease) was expected from the perspective of the insured business. For instance, if a business is alleged to have neglected to properly screen or monitor its employees for COVID-19 or was lax with regards to disinfecting/cleaning procedures, an insurer could disclaim on the ground that “bodily injury” was expected because the insured business should have known or expected that the public was likely to contract COVID-19 due to its acts and/or omissions.

Another exclusion under the standard CGL policy coverage form is the Pollution Exclusion. This exclusion provides in relevant part that there is no coverage for “bodily injury”:

arising out of the actual, alleged or threatened
discharge, dispersal, seepage, migration, release
or escape of ‘pollutants’: (a) [a]t or from any
premises, site or location which is or was at any
time owned or occupied by, or rented or loaned to,
any insured.

The term “pollutants” is defined in the standard CGL policy coverage form in relevant part as:

any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes,
acids, alkalis, chemicals and waste.

The definition of “pollutants” does not include the terms “disease” or “virus”. Accordingly, it is anticipated that insurers may issue disclaimers stating that COVID-19, which is a disease or virus, constitutes a contaminant such that coverage would be barred pursuant to the Pollution Exclusion. However, if an insured is forced to commence a declaratory judgment action challenging the validity of a disclaimer based on this argument, such a disclaimer is unlikely to be upheld by a court for several reasons. First, the Pollution Exclusion was developed to apply to industrial and environmental pollution and was not intended to encompass a disease or virus. Indeed, the overwhelming majority of cases in which the Pollution Exclusion is litigated typically involve environmental or industrial pollution claims, not claims involving a disease or virus. Additionally, the word “contaminant” is not defined and can arguably be interpreted several ways such that it can be deemed ambiguous. Moreover, one of the core principles of insurance coverage is that ambiguities in an insurance policy are construed in favor of a policyholder. Furthermore, the insurance industry has a specific exclusion applicable to communicable diseases, which was written into policies years ago based on the SARS and Swine Flu epidemics. An argument can be made that since a communicable disease exclusion is available, an insurer that fails to include such an exclusion in a policy evidences its intent to cover communicable diseases such as COVID-19 and the insurer should not be able to rely upon the Pollution Exclusion to preclude coverage based upon a disease or virus. In light of the foregoing, it would seem that it will be difficult for an insurer to successfully disclaim coverage for a COVID-19 related claim based upon the Pollution Exclusion, unless the insurer issued an endorsement modifying its CGL policy to include the terms “disease” or “virus” within the definition of “pollutants”. CGL policies should be reviewed for these exclusions as well as any other modifications to standard coverage.

The most relevant exclusion developed by the insurance industry is the Communicable Disease Exclusion (ISO Form CG 21 32 05 09), which, excludes coverage for any “bodily injury” “arising out of the actual or alleged transmission of a communicable disease” and is applicable:

even if the claims against any insured allege
negligence or other wrongdoing in the:
a. Supervising, hiring, employing, training or
monitoring of others that may be infected
with and spread a communicable disease;
b. Testing for a communicable disease;
c. Failure to prevent the spread of the
disease; or
d. Failure to report the disease to authorities.

Though not every CGL policy contains the Communicable Disease Exclusion, and though such exclusion does not contain a definition of what constitutes a “communicable disease”, if an insured challenged a disclaimer based upon this exclusion, a court would likely look to the commonly understood use of the term, such as a dictionary definition. For example, the Merriam-Webster dictionary defines “communicable disease” as follows:

an infectious disease (such as cholera, hepatitis,
influenza, malaria, measles, or tuberculosis) that
is transmissible by contact with infected individuals
or their bodily discharges or fluids (such as respiratory
droplets, blood, or semen), by contact with
contaminated surfaces or objects, by ingestion of
contaminated food or water, or by direct or indirect
contact with disease vectors (such as mosquitoes, fleas, or mice). (ii)

There is little doubt that a court will determine that COVID-19 is a “communicable disease”. Thus, any CGL policy that includes the ISO Communicable Disease Exclusion, will exclude insurance coverage for any COVID-19 related lawsuit. It is anticipated that as CGL policies come up for renewal at the end of the current policy period, many insurers that do not already include the ISO Communicable Disease Exclusion will look to include the exclusion in the renewal policies. (iii)

Many CGL policies also include the Fungi or Bacteria Exclusion (ISO Form CG 21 67 12 04). In essence, such exclusion, in relevant part, precludes coverage for “bodily injury” …:

which would not have occurred, in whole or in part,
but for the actual, alleged or threatened inhalation of,
ingestion of, contact with, exposure to, existence of,
or presence of, any “fungi” or bacteria on or within a
building or structure, including its contents, regardless
of whether any other cause, event, material or
product contributed concurrently or in any sequence
to such injury …

Additionally, such exclusion adds the definition of “fungi” to the Definitions section of the CGL policy form and states that “fungi”:

means any type of fungus, including mold or
mildew and any mycotoxins, spores, scents
or byproducts produced or released by fungi.

COVID-19 is a virus, not fungi or bacteria. Thus, the presence of the Fungi or Bacteria Exclusion will not preclude coverage for COVID-19 claims and should not factor into the insurer’s decision whether to disclaim coverage.

The foregoing includes the most common CGL policy provisions that bear upon a coverage analysis for third-party COVID-19 claims. However, some CGL policies may have one or more unique or manuscript endorsements and some insurers issue manuscript policies for certain insureds. Thus, it is a key component of any business reopening to have an insurance professional and/or attorney with experience in the area of insurance coverage review existing and renewal policies. This review will determine the extent of coverage for potential COVID-19 claims and how to address any lack of coverage.

Though there may be instances where insurance coverage potentially exists for COVID-19 claims, rather than simply relying upon the CGL policy, businesses that currently do not use liability waivers should give consideration to having patrons execute them as a means of potentially limiting their exposure for a COVID-19 claim. In addition, businesses that currently utilize such waivers should consider modifying them to specifically include COVID-19. However, there are caveats. Under New York General Obligations Law § 5-326, a liability wavier cannot be enforced if the person signing the agreement did so in conjunction with some sort of payment to take part in recreational activities at gymnasiums, swimming pools, theme parks, and other similar establishments. (iv) If taking part in an activity involves a payment – like paying for a ticket, membership, or another fee at the venue – then a liability waiver may not be enforceable. Moreover, liability waivers are designed to protect organizations from the legal ramifications that come into play when a person is hurt by ordinary negligence. However, the waiver does not exempt businesses from injuries that result from gross negligence or recklessness. It is expected that plaintiff’s counsel will be all too familiar with New York law concerning liability waivers and will be able to craft a complaint that at least succeeds in overcoming a business’ pre-answer motion to dismiss based on waiver.

Though businesses are reopening into uncertainty they should take the initial step of reaching out to counsel to inquire whether their current CGL policies will likely cover COVID-19 claims when they arise and what available measures should be implemented to limit their exposure where their insurance proves inadequate during this unprecedented time. The attorneys at Forchelli Deegan Terrana LLP are here to advise businesses at this critical juncture.

(i) New York has enacted legislation protecting the healthcare industry. On April 3, 2020, New York Governor Andrew Cuomo signed into law the Emergency Disaster Treatment Protection Act (the “Act”), which immunizes health care facilities and professionals from certain forms of liability during the COVID-19 emergency. The stated purpose of the Act is to “promote the public health, safety and welfare of all citizens by broadly protecting the health care facilities and health care professionals in [New York] from liability that may result from treatment of individuals with COVID-19 under conditions resulting from circumstances associated with the public health emergency.”

(ii) See, https://www.merriam-webster.com/dictionary/communicable%20disease

(iii) The cost of removing the ISO Communicable Disease Exclusion before a viable vaccine is in widespread use will undoubtedly be cost prohibitive for the business, if insurers are even willing to remove same, which is highly unlikely from an underwriting standpoint.

(iv) Every covenant, agreement or understanding in or in connection with, or collateral to, any contract, membership application, ticket of admission or similar writing, entered into between the owner or operator of any pool, gymnasium, place of amusement or recreation, or similar establishment and the user of such facilities, pursuant to which such owner or operator receives a fee or other compensation for the use of such facilities, which exempts the said owner or operator from liability for damages caused by or resulting from the negligence of the owner, operator or person in charge of such establishment, or their agents, servants or employees, shall be deemed to be void as against public policy and wholly unenforceable. New York Consolidated Laws, General Obligations Law – GOB § 5-326.