Commercial Insurance Claims Amid COVID-19

August 25, 2020

Trends businesses should know prior to submitting claims

By Heather Steinmiller and Terry Tracy

With the initial surge of COVID-19 cases now in the rearview mirror and cases rising in many states yet again, many businesses across the U.S. are beginning to assess the damages they’ve incurred and the potential risks that remain as the pandemic rages on in many parts of the country.

When the pandemic first hit, companies experienced losses and damages on all sides. Many were forced to completely close their doors when lockdown orders went into effect. Others experienced cybersecurity events when entire workforces suddenly began working from home.

Businesses that have reopened or remained open through the pandemic are also dealing with liabilities resulting from employees getting sick. Unfortunately, mass layoffs are a reality for many companies as well, which opens up executive teams to additional scrutiny.

All in all, many businesses are wondering: does our P&C insurance policy cover coronavirus losses? The answer is complicated and dependent on your policy and the type of insurance you carry. However, the trends in claims handling related to coronavirus recovery are taking shape, offering organizations a better idea of what to expect and what steps to take.

Property coverage
When businesses shut down and lost revenue, many looked to their property coverage and business interruption coverage for economic relief. For the most part, carriers are rejecting these initial claims.

Commercial property & casualty insurance carriers argue that a shutdown imposed by the government does not constitute property damage and point to virus exclusions written into many policies. Other carriers are responding with requests for information (RFI) before denying a claim outright. Businesses are wise to respond to these RFIs and work with carriers as cooperatively as they can.

To date, there have been over 700 cases filed across the U.S., some of which include attempts to become a class action or a multi-state litigation (click here for a tracker created by UPenn law school). Similarly, insureds have sought relief in many other countries, including the U.K., South Africa and France.

To date, three courts have ruled in favor of the insurance carriers. First, the U.S. District Court in the Southern District of New York held that the insurer did not owe coverage and that there was no “property damage.” This case is currently on appeal. Second, a Circuit Court in Michigan held that there was no “property damage” and that the virus exclusion was applicable and enforceable. Third, a Washington D.C. judge ruled that the civil shutdown related to COVID-19 does not constitute “direct physical loss.” One court in Missouri has ruled in favor of the insured and permitted them to pursue a COVID-19 related property claim.

Insureds have had more success abroad than in the U.S. as it appears the language of the policy may not have the same triggering requirement. In Paris, a court ordered an insurance carrier to pay business interruption for two months to a restaurateur. The exact policy language has not been publicly distributed, but the carrier has publicly stated that only 10 percent of its clients had this unique language that granted coverage. It has vowed to pay these losses and avowed any further losses. Similarly, the high court of Cape Town in South Africa ruled in favor of a restaurant and held that coverage was triggered under the Infectious Disease Extension. Click here for a copy of the case.

The financial regulator in the U.K. is relying on the foregoing cases in arguing for coverage in an action it filed against several carriers. There have been no rulings in these proceedings but many in the industry are closely watching for the outcome.

General liability coverage
When a customer alleges that a place of business led to their exposure to the coronavirus, companies are hoping their general liability insurance will cover the legal expenses associated with mounting a defense or paying potential settlements. So far, the market has not seen many claims of this nature. But as businesses continue to reopen, it is possible more companies may find themselves in a lawsuit.

Companies who face allegations against them should notify their general liability insurance carrier. However, similar to property coverage, some carriers have written virus exclusions into their liability policies and will likely use these clauses to reject claims.

Instead of leaning on just their liability insurance, companies should consider working with their risk management and legal teams to take a more proactive approach to reducing their exposure. Some companies are having customers sign waivers that release the company from any liability and are making adjustments to their storefronts and business models to keep individuals safe. In addition, many states are enacting legal protections for businesses who follow certain established protocols and discussions around protections at the federal level have been ongoing.

For more information on what businesses can do to protect their employees, customers and business interests during the return-to-work period, click here.

Executive risk coverage (including D&O Employment Practices Liability coverage)
Unfortunately, many companies reeling financially from the effects of the pandemic are making layoffs. Business owners and executive teams making these decisions are potentially exposed to litigation from former employees, especially if these individuals were laid off for discretionary reasons. Any company making layoffs should consult its insurance brokers and examine its employment practices liability coverage to determine whether they should report facts and circumstances to their carriers to avoid loss of coverage.

The market has also experienced a rise in directors and officers (D&O) claims as a result of the pandemic. Some involve exposure to COVID-19, some involve misrepresentations about a company’s ability to gain from the pandemic and some involve companies that have experienced financial issues or operation disruptions. Each of these losses should be reported to the D&O policy and, depending on the provisions, may trigger coverage.

Companies may also seek financial relief from their D&O policy if they are audited by a regulatory agency over their use of government bailout funds, like the payment protection program. Typically, a D&O policy will not respond to an “audit,” but may respond to a formal investigation depending on the policy provisions.

Cybersecurity coverage
When entire companies quickly pivoted to remote work, many for the first time, it exposed businesses to various levels of cybersecurity liabilities. The FBI even warned about hackers using pandemic-related phishing scams and malware in an attempt to extract sensitive information from employees.

While carriers are not yet seeing a meaningful uptick in cybersecurity claims, now is a good time for companies to revisit their cybersecurity procedures and protocols to protect their businesses. Company-wide policies, like migrating to dual authentication on all devices, are critical to limiting liability as more employees work remotely.

Workers’ compensation
Workers’ compensation has been an area of a great deal of discussion at the state level. At the outset of the pandemic, claims adjusters were evaluating under applicable state law on whether the injury was compensable. In general, this required a nexus to the workplace that was unique to the work being performed. For example, if an employee works in an emergency room at a hospital and came in contact with a patient with COVID-19, the claim would most likely be compensable. However, if the employee works in an office, it is unlikely the claim will be compensable.

Some states changed the legal standard and created presumptions of compensability based on the type of employee. Due to some of the uncertainty and the ever-changing landscape as employers continue to reopen, if an employee alleges that they contracted COVID-19 at the workplace, it is best to report it and allow an experienced adjuster to determine compensability.

Experienced claims handlers
Now more than ever, businesses should revisit their insurance and risk management policies and work with a broker that has close relationships with carriers and extensive claims handling and risk control experience. At Conner Strong & Buckelew, nearly a quarter of our staff are claims handlers and risk control professionals with decades of experience working with clients to produce positive outcomes. Given the complexity of the pandemic, these claims are complex, and it is important for any business filing a claim to bring these professionals into the process early on to help fight for the best result.