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Client Alert: COVID-19 Insurance Coverage Considerations

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With shutdowns and slowdowns becoming the new norm, businesses across all industries are facing significant losses. As companies begin to feel the economic effects of COVID-19 (coronavirus), they should carefully review their insurance policies to determine whether the losses may be covered and the steps and timing for seeking insurance coverage. This involves two important tasks:

  1. Review Insurance Policies. Companies should consider their own losses (first-party) and claims by others (third-party). Depending on the type of loss or claim, different insurance coverages may be available, including event cancellation, business interruption, contingent business interruption, directors and officers, and commercial general liability.
    1. Event Cancellation Insurance usually covers losses resulting from the cancellation, postponement, or relocation of an event for reasons beyond the control of the event organizer. These policies may contain exclusions for infectious disease, and some may require a government mandate for the disruption.
    2. Business Interruption Insurance is typically included as part of a commercial property insurance policy and covers economic losses (lost profits and extra expenses) resulting from a disruption in business operations. Business interruption coverage usually requires “direct physical loss of or damage to” covered property. Thus, interruptions stemming from “preventative” shutdowns may not be covered. But contamination by the coronavirus may cause the property to be unfit for its intended use and constitute physical damage. Even then, some policies contain virus, pandemic, or communicable disease exclusions, which likely would exclude coverage for losses related to the coronavirus.
    3. Contingent Business Interruption Insurance covers economic losses resulting from a disruption in the operations of a supplier or customer. As with business interruption insurance, this coverage often is triggered only by physical damage to the supplier’s or customer’s covered property.
    4. D&O Insurance coverage may apply if investors or customers sue a company and its directors and officers for losses incurred from breaching a quarantine order or failing to take timely or appropriate action to mitigate the impact of a disease, resulting in additional sickness, a company shutdown, and eventually, lost revenues. Many D&O policies, however, have a broad bodily injury exclusion.
    5. Commercial General Liability Insurance covers defense and indemnity costs incurred for lawsuits alleging bodily injury, e.g., that a company’s operations caused or exacerbated the amount of bodily injury to others. Again, some CGL policies have exclusions for disease.
  2. Understand Next Steps To Preserve Potential Insurance Coverage. In the event of potential coverage, the insurance policy will contain specific obligations, including:
    1. Give Timely Notice. Notice provisions vary widely, but failure to timely and properly give notice could provide the insurer a reason to deny your claim. Insurance brokers often assist in giving notice on the policyholder’s behalf.
    2. Mitigate Losses. Take the measures you can to mitigate your losses. Failure to do so may result in a reduction of any ultimate insurance claim.
    3. Calculate & Document Losses. Determine a plan for quantifying your losses, and preserve all information needed to calculate those losses.
    4. Examine Contractual Relationships. If you owe indemnity obligations to others for losses or claims that are potentially covered by one of your insurance policies, you should notify your insurer. Similarly, if you are an additional insured on another party’s policy, you should consider notifying its insurer of your losses.

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