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COVID-19 – More Coverage Questions Than Answers?

September 16, 2022
April 14, 2020

The World Health Organization’s (“WHO”) formal declaration that the spread of the novel coronavirus COVID-19 is now a pandemic, with 1,844,863 confirmed cases, 117,021 confirmed deaths, and 213 affected Countries as of April 13, 2020 and growing.  This accompanied by the United States’ Federal Government and individual states’ “state of emergency” declarations have had a staggering impact on all businesses alike as well as their insurance carriers.

As the pandemic's impact on public safety becomes more apparent and as governors throughout the United States execute executive orders mandating the forced closure of businesses deemed to be non-essential, businesses’ concerns pivot from minimizing disruption to outright survival as they face the new reality of being unable to meet financial obligations. They are now submitting claims to their insurance carriers attempting to lessen the economic impact due to uncertainty surrounding when or if they will be able to resume operations.

Recent Legislation

The economic fallout from the COVID-19 pandemic has become increasingly prevalent as governors throughout the United States set forth executive orders mandating the closure of businesses deemed non-essential. In response to the probability that policyholders’ will not be entitled to coverage for business interruptions due to COVID-19, lawmakers from several states have taken it upon themselves to propose bills that would re-write policies and create coverage where there is none. 

To date, six states — Pennsylvania, New Jersey, Ohio, Massachusetts, New York, and Louisiana— have proposed legislation that would require insurers of certain businesses to retroactively provide business interruption coverage for COVID-19 losses, even where the policies contain a virus exclusion. The proposed legislation, although differing in each state, would generally require that policies be construed to recognize that COVID-19 caused physical damage to the policyholder’s property, notwithstanding the fact that the property did not sustain any physical damage due to the virus, and would effectively all but cancel the virus exclusion endorsement. In effect, the proposed legislation would re-write policies to create coverage for business losses and eliminate virus exclusion endorsements, for which premiums were not paid. Lawmakers would be shifting economic risks onto insurers and would create a financial lifeline for businesses through insurance coverage for risks not previously bargained for.

The proposed legislation has been met with a swift and forceful response from the insurance industry, with many warnings that such legislation is unfounded and unconstitutionally impinges the freedom to contract. Nevertheless, additional states will likely come forth within the near future with similar proposed legislation. There has been no state, thus far, to pass such legislation.  

Commercial Property Coverage

Business Interruption

Most commercial property policies require that the loss in business revenue be caused by the physical loss, damage or destruction of property.  Typically, this coverage extends to damage caused by natural disasters and environmental contamination cases. But, what if instead of visible damage to the property, the loss of or damage to the property was to be intangible and come in the form of a deadly and virulent microscopic organism not visible to the naked eye? Is there business interruption coverage available to those businesses that have been forced to shut down and/or halt operations due to the COVID-19 crisis? If surfaces are contaminated with COVID-19, does this constitute physical loss or damage? If the property is rendered uninhabitable, is this sufficient to trigger coverage? Possibly.

Courts have generally interpreted the “physical,” which modifies “loss” or “damage” in property insurance policies, as requiring that the loss or damage be “of or relating to that which is material.” The requirement that the loss or damage be “physical” therefore has been found to preclude coverage for losses that are solely intangible such as an economic loss unaccompanied by a distinct physical alteration to property. However, physical damage unnoticeable to the naked eye can still trigger coverage under business interruption policies. See, for example, Gregory Packaging, Inc. v. Travelers Property and Casualty Company of America, No. 12-cv-04418, 2014 U.S. Dist. LEXIS 165232 (D.N.J. Nov. 25, 2014) (concluding that ammonia release physically transformed the air); Motorists Mutual Ins. Co. v. Hardinger, 131 Fed. Appx. 823, 825-27 (3d Cir. 2005) (finding that bacteria contamination constituted a "direct physical loss" when it rendered the home uninhabitable); and Western Fire Insurance Co. v. First Presbyterian Church, 437 P.2d 53 (Sup. Ct. Col. 1968) (holding that a church vacated by a local fire department because of gasoline fumes had incurred “direct physical loss”).

The “physical loss of or damage to” requirement remains a necessary predicate to trigger business interruption coverage. The issue of whether an intangible, such as the COVID-19 virus, meets this requirement will vary by jurisdiction and is dependent on the specific language in the policy. Accordingly, it will be crucial to scrutinize the particular facts and policy to determine the availability of business interruption coverage, especially as many business interruption policies also contain exclusions and/or endorsements disclaiming losses due to virus or bacteria and specifically state that it applies, among other things, to “business income.” 

Contingent Business Interruption

Some businesses may have also purchased supply chain or contingent business interruption insurance – typically an extension to the property insurance policy. This protects against losses resulting from disruptions in manufacturing due to a supplier failing to deliver critical parts, supplies, raw materials or other components because of layoffs, shutdowns, quarantines or other workplace stoppages. 

However, similar to business interruption, coverage is generally triggered when the supplier suffers a direct physical loss or damage to their property; the insured is not required to show any physical damage. Likewise, the policy may also contain exclusions disclaiming and/or limiting coverage for losses stemming from viruses or bacteria.

Event Cancellation

Governments have banned large gatherings, and in some instances have issued mandates limiting gatherings to no more than 10 people. People have also been implored to practice social or physical distancing from one another. In the wake of these efforts to plateau the spread of the virus, and in compliance with government mandates, an unprecedented number of events have been canceled or indefinitely suspended. The economic ramifications of these cancellations may be staggering. 

Event cancellation insurance policies generally provide coverage for specified losses as a result of the cancellation, disruption or the rescheduling of an event due to circumstances beyond the control of the policyholder. Whether coverage is provided for losses related to the cancellation of events due to COVID-19 will depend on the specific terms of the policy. Certain policies contain an exclusion for cancellation due to uncommon or catastrophic events. Additionally, policies may contain a “pandemic” or “government-issued quarantine exclusion.” If a policy contains such an exclusion, it may preclude coverage or limit the amount of coverage available. Policies purchased after January 2020, after the start of the outbreak of COVID-19, likely include such exclusions. 

The continued spread of COVID-19 will likely cause further event cancellations, as the trajectory of the pandemic and its timeline remains uncertain. The claims submitted by policyholders will undoubtedly spike, as event organizers attempt to recoup their losses. 

Civil Authority  

Some policies include more comprehensive business interruption coverages, like “civil authority” coverage. The general rule is that this coverage is intended to apply when a civil authority (e.g., state, local or federal governmental entity) prohibits access to an insured’s premises due to direct physical loss of or damage to property other than at the insured’s premises. What qualifies as “impairment” sufficient to trigger the coverage has been the subject of numerous coverage disputes. However, one thing is clear, the same obstacle that would preclude coverage under standard business interruption policies—the lack of physical damage—would also preclude coverage for civil authority coverage. See, e.g., Cleland Simpson Co. v. Firemen's Ins. Co., 11 Pa. D. & C.2d 607, 59 Lack. Jur. 61 (Lackawanna Ct. of Common Pl. 1957), aff'd without opinion, 392 Pa. 67, 140 A.2d 41 (Pa. 1958) (finding no coverage because the city ordered businesses to close to prevent fire; there was no physical loss or damage); and Kean, Miller, Hawthorne, D'Armond McCowan & Jarman, L.L.P. v. Nat'l Fire Ins. Co., 2007 U.S. Dist. LEXIS 64849 (M.D. La. 2007)(holding that coverage was not available for business losses suffered as a result of advisories and recommendations issued by the governor and other authorities “asking” and “encouraging” residents to stay off streets immediately before Hurricane Katrina coming ashore).  

As the COVID-19 pandemic continues to unfold, state and local governments have issued various orders profoundly impacting the ability for businesses to operate. The extent the civil authority orders prohibit access to a business’s premises varies by location and is becoming increasingly more restrictive. As a result, coverage analysis related to civil authority orders will likely be extremely fact specific and will have to include a determination of whether a covered loss even occurred. 

Virus/Bacterial/Microorganism Exclusions

Following the 2003 Severe Acute Respiratory Syndrome (SARS) outbreak in China, insurers added exclusions for losses caused by viruses or bacteria. The standard ISO form for this exclusion, which is added by endorsement, provides that there is no coverage for business income as a result of “any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease.” This exclusion appears clear and unambiguous and will likely have a significant impact on COVID-19 business interruption claims.

The microorganism exclusion typically precludes coverage for “mold, mildew, fungus, spores or other microorganisms.” The question of whether a virus is a microorganism is unresolved. Typically, a “microorganism” is defined as a living thing too small to be seen with the naked eye but visible under a microscope. There is substantial dispute, however, as to whether a virus is a living thing, and thus, a microorganism. Accordingly, if COVID-19 is found to be a microorganism, the microorganism exclusion may preclude coverage.  

General Liability Policies 


In the context of third-party bodily injury claims, businesses such as restaurants, grocery stores, hotels, the airline industry, schools, and medical facilities, face never before seen potential exposure. Commercial general liability policies provide coverage for “bodily injury” caused by an “occurrence,” which is usually defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Thus, before we even get to the exclusions, the question becomes: Do these claims constitute injury caused by an “occurrence”? It depends. Despite the definition, which appears clear and concise, for decades jurisdictions have disagreed on what actually constitutes an occurrence and, therefore, a careful review of applicable law will be required. Nevertheless, three main arguments come to mind. There may be an argument that the insured knowingly, recklessly or intentionally disregarded the risks of COVID-19. However, if history with assault and battery cases teaches us anything, most complaints will be “artfully plead” to include claims for negligence. Another point of contention may be whether the insured reasonably knew or foresaw that the injury would occur. This could lead to extensive discovery on what the insured knew when and what actions (inactions) were taken to prevent potential exposure. Another argument that may have more “teeth” is proximate cause, especially with the up to 14-day latency period with COVID-19. It may be difficult for an injured party to prove that they contracted the virus from the workplace rather than an infinite number of places that they may have been in the past couple of weeks. The answer to these issues is unclear. But one thing that is clear from the recent lawsuits is that the continued spread of COVID-19 will lead to a growing number of third-party bodily injury claims, each with their own unique set of facts and coverage questions.  

Fungi/Bacteria Exclusions

Most policies contain a fungi and/or bacteria exclusion. However, COVID-19 is a virus, not bacteria. Nevertheless, will the exclusion be interpreted so that the COVID-19 virus qualifies as bacteria? Based on the language of standard fungi/bacteria exclusions, it would likely be a stretch for the exclusion to apply.

Pollution Exclusions

Even though most general liability policies provide coverage for third-party “bodily injury” or “property damage,” the vast majority include exclusions for any injury arising, directly or indirectly, out of pollution. Pollutants are generally defined to include contaminants or irritants, and typically neither of those terms are defined in an insurance policy. Does it matter that COVID-19 is a viral infection, and not bacterial? Does the fact that COVID-19 is not man-made but naturally occurring have an impact? Does the mechanism for transmittal change things, e.g., that it can be spread through the inhaling aerosol droplets? The issue of whether viruses or bacteria constitute a pollutant is not well settled. The law in each jurisdiction, the particular facts of the case and specific language of each policy will be critical in determining whether the pollution exclusion applies to bar coverage.


There are a range of third-party claims flowing from COVID-19 that may trigger coverage under E&O policies. Generally, E&O policies provide broad coverage for a “breach of duty” or any negligent “act or omission” related to an insured’s “professional services.” What constitutes a “professional service” is a cornerstone and key issue in the coverage world pertaining to E&O policies. 

In determining whether an omission or activity falls within the definition of professional services, courts generally look at the nature of the conduct rather than to the title/position of those involved. Typically, a professional service is defined as one arising out of a vocation, calling, occupation, or employment involving specialized knowledge, labor, or skill, and the labor or skill is predominantly mental or intellectual, rather than physical or manual. 

It is anticipated that medical professionals will face claims for COVID-19-related bodily injuries as the result of failing to properly diagnose, quarantine, treat or limit exposure. In conjunction with coverage disputes, it is anticipated that insurance agents and brokers will be named by unhappy insureds as well based on the failure to secure appropriate insurance. Ultimately, whether defense and/or indemnity must be provided to the professional will depend on specific policy language and the facts of the third-party claim.


In times like this, where so much is in flux, what a company does—or fails to do—can greatly impact the share price. A company’s directors and officers may be prone to shareholder lawsuits alleging that their unreasonable actions (or inaction) in responding to the COVID-19 outbreak caused the company economic loss, with the most prominent issue being adequate and timely disclosure. Did the company provide its investors with assessment and plans for addressing material risks to their businesses and operations resulting from COVID-19 “to the fullest extent possible?” There is also the potential that mismanagement and mishandling claims will be asserted based on allegations that the company management failed to respond sufficiently and appropriately to changed operating conditions and/or failed to secure alternative supply agreements. Norwegian Cruise Lines and Inovio Pharmaceuticals have been the first to be hit with coronavirus-related securities class action lawsuits. 

Generally speaking, D&O policies are designed to respond to claims of wrongful acts that result in financial loss. Although D&O policies often contain bodily injury exclusions, these exclusions may not apply to economic losses sustained. For example, a company’s response or failure to respond to the coronavirus pandemic in light of its particular industry and workforce may be in violation of health and safety, environmental, employment, consumer protection, and/or other violations of law, for which a shareholder action or enforcement action is commenced and under which some D&O policies may provide coverage.   

Employers Liability

Employment practices liability insurance (EPLI) protects against claims arising from the employer-employee relationship—from the job application process to termination and including allegations of all forms of discrimination. Many employers have already taken precautions limiting all non-essential travel and developed action plans regarding staggered work environments, telework and self-quarantine. COVID-19 has a substantial impact on the workplace. 

What if an employer fails to take into account the federal and state mandates relating to COVID-19? Could there be invasion of privacy concerns if an employer asks employees about personal travel, health or family history? Employee health issues, remote work, election of protected time off and other obstacles all carry an increased risk of exposure to wage and hour, discrimination, retaliation and harassment claims. These claims could trigger defense obligations under employer liability policies.

EPLI policies are tailor-made. Coverage terms, conditions and exclusions vary within the market and by policy. Employers and employees alike are in uncharted territory with COVID-19. 

Chartwell Law’s insurance coverage attorneys remain committed to assisting their clients in these uncertain times. Should you require assistance determining whether a submitted claim anywhere in the United States is covered, please do not hesitate to contact us.