The purpose of insurance is to be there financially for the insured when something goes wrong. The SARS-CoV-2 virus, generally referred to as the coronavirus, has affected hundreds of thousands worldwide, shuttering factories, retailers and businesses. The global spread of the coronavirus has caused disruptions of supply chains, flight restrictions, cancelled trips, and event cancellations. The financial losses are severe and projected to total in the billions of dollars. Many do not think to look to their insurance policies for coverage. Businesses should evaluate whether and how their operations and revenue may be affected by the coronavirus and then closely analyze whether existing insurance policies potentially provide coverage for the losses. Many forms of insurance policies may cover insureds that have been financially impacted by the coronavirus.
Most insureds view property insurance policies to cover an insured’s property damage from such incidents as a fire or theft. However, property insurance is much broader, and there are reasonable arguments that coronavirus related losses are covered under property insurance policies. Courts have held that property insurance policies provide coverage when a property becomes uninhabitable or where access to the property has been obstructed or prohibited. This includes contamination and other incidents that render the property uninhabitable or otherwise unfit for intended use constitute “property damage” within the meaning of property insurance policies.
This is important because most property insurance policies contain “business interruption” coverage, which compensates the insured for profits they would have earned had their business operations not been interrupted. This coverage is usually not limited to a complete cessation of business activities, but also provides coverage from the time the insured begins operations to the time its business returns to normal levels of profitability.
Coverage under property insurance policies may be triggered by interruptions in the supply line, travel restrictions, or Governmental orders to quarantine individuals or restrict the operation of businesses. Many property insurance policies also provide coverage for business income losses sustained when a “civil authority” prohibits or impairs access to the insured’s premises. Accordingly, in the event that a federal, state or local government authority limits access to or from areas where active transmission of infectious disease has been identified, “civil authority” coverage may respond with insurance for the income losses of the affected business.
Insureds with businesses in areas impacted or hindered by the coronavirus may be able to recover their lost profits by looking to the business interruption coverage in their property insurance policies.
Medical experts have found that the coronavirus is transmitted through coughing, sneezing or by touching contaminated surfaces. A general liability policy provides coverage for third party bodily injury or property damage caused by an “occurrence,” usually defined as an accident.
Conceivably, a lawsuit could be brought by infected consumers against a business for negligence caused by its alleged failure to take appropriate precautions to prevent the spread of the coronavirus. For example, a manufacturer of products could potentially be sued for transmitting the virus through its supply chain to the consumer. There could not only be coverage for such lawsuits under a general liability policy, but also an insurer will be obligated to defend the insured against such claims. This is invaluable because the insurer will be obligated to pay the insured’s defense costs and attorneys’ fees. In California, all that is required to trigger a defense obligation is a potential for coverage under such general liability policies.
Contingent business interruption (CBI) coverage is meant to soften the financial impact of events outside the insured’s control. CBI is designed to cover an insured’s business income loss resulting from loss, damage, or destruction of property owned by others, including “suppliers” of goods or services to the insured and/or “receivers” of goods or services manufactured or provided by the insured. CBI is important due to the financial impact caused by the coronavirus outbreak and its rippling effect on the global supply chain. Many insureds across the world will suffer lost earnings because of additional costs incurred or because they are unable to conduct their business as a result of the spread of the coronavirus. For example, if a supplier suspends operations due to a viral infection, the insured should be covered for its resulting loss if it has CBI.
The broad reach of CBI means that it not only covers losses sustained from its upstream suppliers or downstream receivers of goods and services, but it may also cover the insured’s losses if its own employees are prevented from coming to work. An argument can be made that an employee’s labor is a service provided to the insured, and therefore CBI covers losses sustained from an employee’s inability to provide services. An insured should therefore identify the cause of its income loss to ensure that potential CBI claims are not overlooked.
Globally, events including sporting events and concerts, have been cancelled due to the spread of the coronavirus. March Madness has been cancelled, the NBA suspended its 2019-20 season indefinitely, and the MLB has suspended its season opening. Las Vegas has cancelled numerous shows and concerts, and more are expected to follow.
Insureds impacted by these cancellations may be able to recover their losses under their event cancellation insurance policies. Event cancellation policies typically cover financial losses due to the interruption, postponement, cancellation, abandonment or relocation of an event. It may also cover a decline in attendance of such events. The covered financial losses include lost advertising, broadcast revenue, lost ticket sales, ticket reimbursements, marketing costs, and other expenses incurred prior to the event’s cancellation or postponement. Event cancellation will also cover additional expenses incurred in planning and promoting a rescheduled event.
Insureds are encouraged to review their event cancellation insurance policies in order to maximize recovery in the event they are impacted by such an event cancellation or postponement.
Product recall insurance is designed to reimburse companies for the financial loss incurred when a product is recalled from the marketplace. Coverage is triggered when it is determined that a product is, or is likely to become, hazardous to the public. This coverage will also cover liability from a product that poses an injury or health threat to the public as a result of contamination or defect. Product recall insurance may also cover costs associated with such a recall, including public notification, shipping and storage costs, and costs incurred to replace the product or issue a refund.
This coverage may be important to the coronavirus outbreak because an insured may need to recall a product that an infected individually may have handled during the manufacturing or packaging process. The costs of such a recall may be covered under an insured’s product recall insurance.
The Orange County insurance lawyers at Callahan & Blaine use their expertise in insurance law to maximize the availability of insurance proceeds. It is extremely critical during this time for insureds to have the expertise and understanding of all potentially applicable insurance policies for businesses and individuals impacted by the coronavirus. Our ability to accurately identify and resolve the insurance issues in any given situation and our ability to create and follow avenues of insurance represents a major strength of our practice and a substantial benefit to the clients we serve.