Tuesday, April 14, 2020

Insurance:"Anticipated Coronavirus Claims Scenarios Across Major Coverage Lines"

From Insurance Journal
As the COVID-19 pandemic has progressed over the past several months, participants in the insurance industry have recognized the likelihood of a resulting increase in claims volume. Much of the early focus has been on the ramifications to insurers that write business interruption policies. However, a broader look reveals that many disparate lines of coverage are likely to see a significant boost in claims, whether directly caused by the pandemic itself or by social, institutional and governmental reaction to it. Below we will discuss a number of coverage lines in addition to business interruption and the likely claims scenarios under each.

Business Interruption
Business interruption coverage is commonly sold as a component of commercial property insurance policies to provide relief to an insured for lost profit and extra expenses when its business operations are disrupted by “direct physical loss or damage” to insured property. Closing a business due to a threat of exposure or spread of COVID-19 is not “direct physical loss or damage” to insured property. However, lawsuits over coverage for alleged business interruption losses due to the coronavirus pandemic have already been filed, and a veritable wave of claims is likely coming.

Important to note is that multiple states, including New Jersey, New York, Massachusetts, and Ohio, have proposed legislation that would mandate business interruption coverage for alleged COVID-19-related losses even where policies have explicit bacteria/virus exclusions.
Anticipated claims:
  • Denial of access to premises due to civil authorities’ orders
  • Loss of use of premises due to coronavirus contamination
  • Disruption of supply and distribution chains due to COVID-19 factors
Cases to watch:
Event Cancellation Event cancellation policies generally cover loss directly resulting from cancellation of an event due to circumstances beyond the insured’s control, e.g. weather events, terrorism, and communicable disease. This is specialized coverage intended to insure against financial loss, including lost revenue and other event-related expenses. An “all cause” event cancellation policy could, depending on policy wording, provide coverage for cancellations due to a pandemic, such as COVID-19. That said, depending upon the date of issue, policies may contain exclusions for communicable or contagious diseases, pandemics, or government-mandated quarantines.

Anticipated claims:
Trade organizations, entertainment companies, music performers, professional sports teams and other athletic associations, and individuals forced to cancel personal events, e.g. weddings, may seek recovery for losses due to cancellation.

Viability of claims will depend upon the particular policy language, e.g. basic v. expanded “all cause” coverage, and specific circumstances of the loss, e.g. date of cancellation and/or location of event.
In addition to exclusions for communicable disease, coronavirus claims may not be covered if COVID-19 is considered a pre-existing condition and thus excluded on event cancellation policies from January 2020 and onward.

In the case of denials, insureds may also assert extra-contractual claims for bad faith to recover for consequential loss....