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Business Interruption Coronavirus / COVID-19 Insurance Coverage
Businesses are routinely being denied coverage as they turn to their insurers to recover policy benefits for losses suffered from the novel coronavirus pandemic. However, coverage denials should not be accepted without careful consideration of policy language and application of the established principles for interpretation of insurance policies under California law. In short, under California law, insurance coverage is interpreted broadly so as to afford the greatest possible protection to the insured, whereas exclusionary clauses are interpreted narrowly against the insurer. (MacKinnon v. Truck Ins. Exch. (2003) 31 Cal.4th 635, 648.)
Moreover, where a policy provision is ambiguous because it is capable of two or more constructions, both of which are reasonable, then such ambiguity should be construed against the insurer (who created the ambiguity to exist) in order to protect the insured’s reasonable expectation of coverage. (State of Calif. v. Continental Ins. Co. (2012) 55 Cal.4th 186, 195.)
Any questions you might have should be directed to San Diego Coronavirus business insurance lawyer Peter Schluederberg.First Party Coverage
Many Commercial General Liability (“CGL”) business insurance policies provide coverage for interruption of business losses. Such business interruption provisions are generally found in connection with business “property damage” coverage and provide for recovery of lost profits where business interruption losses are caused by “direct physical loss or damage” to covered business property. Insurers have been publicly taking the position that there is no business interruption coverage for coronavirus losses arguing the virus does not cause physical damage to property, but this position is overstated. For example, there should be no doubt that business property contaminated with the coronavirus has suffered direct physical damage constituting “property damage” and losses related to such property damage should trigger coverage. Indeed, there are several cases under other circumstances around the country where courts have held that property may have suffered covered “property damage” due to exposure to conditions making it unsafe or unfit to use even where the property’s physical structure has not changed.
Policies should also be checked by a qualified San Diego Coronavirus business insurance attorney to determine whether “property damage” is defined to include “loss of use” of tangible property that is not physically injured. Such “loss of use” coverage may apply to coronavirus losses. “Loss of use” coverage is not limited to loss of all possible uses and has been found to apply where a business has lost its right to a particular use of leased premises due to revocation of a conditional use permit, on the grounds that a lessee has a tangible property interest in leased premises and that loss of any significant use can constitute a loss of use. (Thee Sombrero v. Scottsdale Ins. Co. (2018) 28 Cal.App.5th 729.)
Business interruption coverage is also available under many business policies where a “civil authority” limits or prohibits access to insured premises. This coverage does not always require physical loss to the property and may provide another path to coverage while avoiding the property damage issue.
Contingent business interruption coverage may be available to some businesses for losses due to damage to the insured’s suppliers or damages impacting customers upon whom the insured business depends. Again, it is important to consider the language of the policy as the terms of such coverage vary widely.
In addition to challenging coverage under the policy insuring agreement, insurers can be expected to cite exclusions to avoid coverage. However, the burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable language and to establish that claims are specifically excluded. (MacKinnon v. Truck Ins. Exch., supra, 31 Cal.4th at p. 648.) Pollution exclusions should generally not apply as they are intended for losses “resulting from events commonly regarded as environmental pollution.” (Villa Los Alamos Homeowners Ass’n v. State Farm Gen. Ins. Co. (2011) 198 Cal.App.4th 522, 526.) Fungi and bacteria exclusions have been added to many policies, but will often not apply as the coronavirus is not a bacteria or fungus. Even recently added policy exclusions for viruses or pathogens must be carefully reviewed to determine whether they are limited to only the virus or the disease or defined broadly enough to exclude losses from both. Thus, some exclusions may apply to claims for damage caused by the novel coronavirus, but not the COVID-19 disease. Further, some of these exclusions are virus-specific and apply only to identified viruses such as Ebola.Third-Party Coverage
It can be anticipated that there will be third-party claims filed against businesses and individuals for bodily injury and potentially property damage allegedly caused by insureds negligently failing to protect plaintiffs against exposure to the virus. CGL policies provide defense and indemnity coverage for bodily injury or property damage caused by an “occurrence” which is usually defined as an accident. Property damage claims will be subject to the same “direct physical loss” issues as discussed for first party coverage claims. Yet, “bodily injury” claims will not be subject to such arguments.
Depending on the circumstances, insurers may also raise issues regarding whether the claims arise from accidents, as they might argue with regard to first-party property damage claims. However, an accident may occur, even when the insured engages in a deliberate act, where some additional, unexpected, independent, and unforeseen happening occurs that produces the damage. (Liberty Surplus Insurance Cor. V. Ledesma & Meyer Constr. Company, Inc. (2018) 5 Cal.5th 216, 226.) Further, third-party claims for negligent supervision or hiring may involve damages caused by accidents. (Id. at 229.)
Directors and officers policies as well as professional liability errors and omissions policies should also be considered for businesses faced with third-party claims arising from the coronavirus pandemic as they may apply in appropriate cases.
Bottom line, insurance companies can be expected to take an aggressive position in denying insurance claims for losses arising from the coronavirus pandemic. As a coverage analysis for such claims will depend upon the particular policy language at issue and the unique facts and circumstances of each specific claim, consultation with an experienced San Diego insurance coverage attorney familiar with Coronavirus denials is highly recommended for businesses and individuals alike.
For a free consultation about your business insurance related questions or concerns, call Peter Schluederberg for a free and confidential consultation. He can be reached at 760-571-5500 or via an online questionnaire.