How Will the Business Insurance Industry Handle COVID-19?

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Veronica Baxter
November 6, 2020

We are several months into the coronavirus pandemic, and, with no vaccination available yet, business owners must create ways to continue operations despite distancing and masking mandates. Every responsible business owner has workers’ compensation, business interruption, and general liability insurance coverage. However, how insurance carriers will treat losses from COVID-19 is just starting to play out. Here is the latest news, and likely outcomes, from the perspective of a legal assistant who works for a prominent Philadelphia workers’ compensation attorney.

Workers’ Compensation and COVID-19

If an employee is exposed to the coronavirus at work and contracts COVID-19, that employee will likely be eligible for workers’ compensation benefits. COVID-19 will likely be treated as an occupational disease such as carpal tunnel syndrome.

If fortunate, an employee will have a mild case and only be out of work for a few weeks. But employees with underlying conditions can have more serious symptoms and may be left with continuing pulmonary issues requiring continuing treatment and perhaps hindering their ability to work. Cases of permanent partial or total disability may occur.

Insurance companies may balk at paying workers’ compensation for the following reasons:

  • The employee did not contract COVID-19 at work;
  • The employee did not contract COVID-19 while engaged in regular work duties;
  • The employee is suffering from a previous condition exacerbated by COVID-19.

Employees who can show that it was more likely than not that they were exposed to the coronavirus at work or while performing regular duties will likely be eligible for workers’ compensation benefits. Previous conditions will likely be treated as they always have, with a reduction in benefits in the amount necessary to recognize the effect of the condition on the employee prior to contracting COVID-19.

Business Interruption (BI) Insurance and COVID-19

Companies across the nation are filing claims for loss of business due to COVID-19-mandated closures. Insurance companies have taken the position that these closures are not a covered loss because losses from a virus or from bacteria are excluded. Whether that exclusion is enforceable is being litigated now. There are currently 101 federal lawsuits pending over denial of BI coverage. Early litigation has resolved in the insurance companies’’ favor, however, plaintiffs continue to press the issue, arguing that an exclusion buried deep in a 150-page document cannot be enforced.

Other theories under which plaintiffs can collect on a claim under their BI insurance include:

  • Spoilage, for restaurants;
  • Losses due to complying with civil authorities to close;
  • Losses due to complying with civil authorities to restrict the number of customers or clientele, or the hours of operation;
  • Losses due to additional measures mandated to sanitize.

As of April 24, 2020, eight US states had introduced bills that would require insurance companies to pay BI claims to small businesses.

This area of law is rapidly evolving, so if your business has suffered losses due to COVID-19, the prudent choice would be to file a BI claim whether your policy includes a virus exclusion or not. Even if your claim is denied initially, you may be paid eventually as the law evolves.

Commercial General Liability Insurance and COVID-19

Called “GL” insurance, commercial general liability insurance covers third parties’ claims against the insured company. Will GL insurance pay the claims of third parties who allege they were exposed to the coronavirus at the insured’s place of business and contracted COVID-19?

An Exclusion May Apply to Third-Party COVID-19

Perhaps. The insured business owner will hope this occurrence is covered because that triggers the insurance company’s duty to defend and covers the cost of litigation up to a limit set in the policy. But any of these policy exclusions may preclude COVID-19 coverage:

  • Communicable disease exclusion;
  • Organic pathogen exclusion (such as fungi, mold, mildew, yeast, or other microbes);
  • Pollution exclusion;
  • Expected or Intended exclusion (was the insured business’ conduct egregious?).

Absent an applicable exclusion, whether GI insurance will cover third-party coronavirus infection is a fact-based inquiry, and the facts of every case will be unique. Did the insured business follow civil authority mandates regarding hours of operation, sanitization, masking, and restrictions on the number of patrons present at any given time? Did the patron wear a mask and follow distancing protocols? How does the patron know they were exposed to the coronavirus at the insured business, and not somewhere else? These are early days in determining whether insurance will ultimately cover workers’ compensation claims, BI claims, or GI claims due to COVID-19. If you are an employee who contracted COVID-19 at work, or you are a business owner suffering COVID-19-related losses or being sued due to COVID-19, file your claim. Even if it is initially denied, case law may evolve or legislation passed in your favor.

About the author: Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with Larry Pitt, a lawyer that focuses on Workers' Compensation Philadelphia, PA.

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