Personal and Business Losses Due to Coronavirus May Be Covered by Insurance

By Edward J. Ozog and Timothy S. Tomasik

Tomasik Kotin Kasserman Says Savvy Consumers and Businesses Should Examine All Insurance Policies

Was your vacation cancelled? The NCAA cancelled March Madness, baseball’s opening day has been suspended indefinitely, and there is no more NHL or NBA. Who is responsible for the enormous sums of lost revenue that have occurred as a result?

The answer? Quite possibly your insurance carrier.

The time has come to take a few minutes to evaluate how government and corporate actions potentially impact you and your relationship with your insurer.

In these unprecedented times, the CDC and various governmental entities are providing daily updates accompanied by recommendations for prevention and mitigation of the spread of coronavirus (COVID-19)[1]. Importantly, governmental agencies are issuing orders requiring specific conduct.[2] These pronouncements create duties of conduct founded on public policy that have neither been the subject of our daily thought processes nor the feature of general planning about the manner in which the average person interacts with others.[3]

Are the Governmental Announcements Subjecting You to Potential Claims or Presenting the Opportunity for You to Make a Claim?

Most people are aware that breaching a duty owed to another makes the breaching party responsible for the damages caused by bodily injury. In many cases, the law founds duties on sound public policy intended for the public good. Hence, one should examine whether the plethora of governmental and health authority pronouncements impose a duty to engage in prescribed conduct to minimize the coronavirus threat. These directives may give rise to individual duties that were not part of our previous conception of obligations owed to others.

Statutes and case law have previously addressed standards of conduct relating to categories of business or occupations as part of the regulatory process. There is no doubt that some of these standards of care will be useful for defining and subscribing duties imposed by the recent regulatory actions. The medical profession, pharmaceuticals, hospitals, and nursing homes, for example, have established standards of care into which the CDC and Public Health authority actions blend almost seamlessly. Other entities, such as restaurants, bars, stadiums, concert halls, and the like, have new and additional regulatory requirements that were not part of ordinary business practices relating to hygiene. The average individual, however, is not acquainted with the increased standards of care imposed by the threat of coronavirus. Moreover, there are numerous possible circumstances that may give rise to potential liability that are not subject to ready categorization.

A General Examination of Your Existing Policies Is in Order

We suggest that you examine your existing policies to consider certain broad issues and general principles as may be relevant to a possible claim. The average person or business purchases liability insurance to protect itself from claims based on the alleged negligence of the insured that caused bodily injury to the aggrieved party. As discussed above, there may be circumstances where your “exposure” (no pun intended) to liability based on governmental mandates concerning the coronavirus epidemic may become an issue.

On the other hand, recovery may be possible under trip cancellation or disruption insurance due to illness or Quarantine. These policies will likely also include some medical coverage for injury and illness that occurred during the trip.

Another avenue to explore for coverage is the time element coverages of first party property policies such as business interruption, extra expense, and expediting coverage. Time element coverages also include extensions of coverage for ingress/egress, action by civil authority, and contingent business interruption for loss of suppliers or customers. Manuscript business interruption policies may also include language supporting a claim for disruption expenses involving employee travel.

We can address aspects of the above insurance policies that may be relevant to you. We also address the common policy conditions within each type of policy so that you have some basic understanding of your obligations in the event of a claim or potential insured loss.

Some General Comments on Insurance

When discussing insurance, you should understand that insurance law is a subset of contract law. Decisions interpreting insurance coverage rely on general contract law as well as specific rules of interpretation predicated on considerations, such as the vastly superior position the insurer enjoys over the insured when drafting a policy. Since the insurer drafts the policy, the insured is entitled to the benefit of the doubt created by ambiguity in the policy language. However, your disagreement with an insurer about the application of policy terms does not necessarily mean that a court will construe the language as ambiguous.

Liability, travel, and property insurance are predicated on the occurrence of a fortuitous event. The description of a fortuitous event may be a “risk” of loss or the occurrence of an “unexpected and unintended” event (accident). The description of coverage is intended to convey that the loss was neither expected nor intended from the standpoint of the insured. Neither liability nor property insurance will cover an expected or intended event.

The phrase “act of God” is sometimes used to describe an unexpected event, but an insured will generally not find the phrase “act of God” in any insurance policy. Therefore, the use of the phrase is not material to the determination of insurance coverage in the absence of its specific use to define coverage. No one would disagree that a flood, hurricane, or earthquake can be described as an “act of God.” However, for insurance purposes in the property insurance context, the policy will recite whether a flood, hurricane (windstorm), or earthquake is either included or excluded from coverage. The definitions and exclusions appearing in the policy will control the interpretation of coverage.

The term “force majeure” has also been suggested as relevant in the context of the coronavirus outbreak when addressing the performance due under a contract. Again, one must be careful concerning the context within which the term is used. “Force Majeure” may appear as a specific subsection within a contract that defines how obligations of the parties are addressed when agreed unforeseen circumstances intervene to prevent performance. The specific terms of the contractual provision govern how the parties address performance. A force majeure clause will be one of the first clauses examined when evaluating performance under a contract.

However, the term has been used in the vernacular to describe a wide variety of legal doctrines that may excuse a party from performing obligations undertaken in the contract. Legal doctrines within the wide penumbra of “force majeure” that are likely to be discussed more frequently are: impossibility of performance, commercial frustration, frustration of purpose, waiver, estoppel, anticipatory repudiation, cancellation, failure of condition precedent, and mutual rescission. Each doctrine is applied having regard to the specific contractual terms and factual circumstances. Further, the assertion of one theory may eliminate the opportunity to recover under another theory. In contrast, some theories may be asserted in the alternative; therefore, one should consider wise counsel in advance of presentation of any claim.

Since many individuals may renegotiate a contract in response to the coronavirus outbreak, the concepts of substitution of contract, novation, and mutual consideration will likely be the subject of discussion. When renegotiating a contract, it is important to understand that the new contract must recite and include “consideration” that is not solely the promises that were originally made.[4] One scenario in this regard is that the new contract would be unenforceable, and the original contract would be enforced subject to various equitable theories, such as unjust enrichment.

Liability Coverage

Liability coverage provides insurance for the costs to defend and indemnify the insured for claims made by a third party for “bodily injury” caused by an “occurrence” during the policy term up to a specific purchased limit of coverage.[5] Liability coverage therefore insures the named insured (and those designated additional insureds) for defense and indemnity of claims made by third parties for bodily injury allegedly caused by the negligent acts of the insured.[6]

The current coronavirus outbreak may trigger liability insurance coverage in a variety of ways. A homeowners insurance policy may be triggered where a claim is ade against the insured or a member of the household for negligently spreading the coronavirus. One who ignores the well-publicized symptoms or otherwise acts in disregard of government warnings may be called to account for such negligent acts if he/she spreads the virus to one or more individuals. As currently reported, the elderly, immune compromised, or those who are otherwise suffering from a severe chronic condition are statistically at higher risk of developing the disease and have a higher mortality rate. Of course, any claimant must prove the negligent act of the insured caused the bodily injury; however, an insured must nevertheless be cognizant of his/her obligation to comply with the terms of the policy to at least ensure that the costs of defense were paid by the insurer. Moreover, some policies provide that the costs of defense may be recoverable from the insured in the event that there is a finding of no coverage.

Homeowners policies may exclude bodily injury that arises out of the transmission of a communicable disease. However, an analysis may be performed to ascertain whether there was an insured accident or occurrence that caused the disease to avoid the application of the exclusion.

In contrast, Commercial Liability insurance policies may provide specific coverage for the spread of disease by an insured business entity, such as a food service provider or grocery or fruit and vegetable store. Such coverage may also have a specific sublimit and separate requirements or conditions. In the commercial context, the failure to comply with governmental orders, CDC standards, and other accepted procedures for cleaning and interaction with customers may be the basis for claims by patrons.

Similarly, day care centers, gyms, and other commercial entities where individuals congregate may be susceptible to claims for negligence in the performance of their services due to their failure to adopt prescribed standards of hygiene. These types of risks may be insured by Multi-Peril policy coverages that add coverage for the exposure unique to the individual entity and its operations. Package Multi-Peril policies may include reference to a variety of coverages within a pre-printed form, but the application of specific coverage is dependent on its explicit reference in the declaration page as part of the purchased insurance. As a consequence, any assessment of coverage requires the review of the complete policy, including the declaration pages and forms, as well as any endorsements issued during the term of the policy.

Since the CDC and local public authorities are actively investigating the spread of the virus through interviews and medical records, it is possible, for example, to hear that an individual(s) was identified as responsible for the spread of the virus into a nursing home or similar facility.[7] Therefore, one should not ignore the possibility of a claim involving the spread of the coronavirus.

Trip Cancellation & Disruption Coverage

Insurers offer products insuring against both cancellation of a trip as well as disruption during the trip. These coverages are typically packaged with medical insurance for illness and death occurring during the trip.

Coverage is provided for all travelers as part of a family group described in relation to the named insured, or insureds may be defined as “traveling companions.” The trip cancellation coverage usually takes effect on payment of the premium and ends with the commencement of the scheduled trip. Trip disruption coverage starts at the commencement of the trip and ends at a time defined within the policy, because it is anticipated that the disruption may extend past the scheduled return date.

The cancellation benefits are paid for the forfeiture of prepaid and non-refundable or non-refunded payments if your trip is cancelled due to one of the identified unforeseeable covered events. Coverage is typically provided for sickness, injury, or death of you, a family member, or a “traveling companion.” The insuring provisions may require that a medical reason be supported by a physician’s recommendation against travel. Some policies require that the physician certifying the disability not be related to any member of the trip. Narrowly drafted policies may even require that the diagnosis be made by a physician qualified and actively practicing in the area of the diagnosed malady preventing travel.

Quarantines may be insured. One travel policy says that a covered event is “being hijacked or Quarantined.” The term “Quarantine” may or may not be defined within the policy.[8] In the above policy example, Quarantine is defined as “the enforced isolation of you or your traveling companion for the purpose of preventing the spread of illness, disease, or pests.”

In another travel policy, coverage is afforded for the following reason: “You or a traveling companion is Quarantined.” However, the general exclusions within the same policy exclude coverage for “any loss that results directly or indirectly” from “an epidemic” which affects you, a traveling companion, or a family member. “Epidemic” is defined as “a contagious disease that spreads rapidly and widely among the population in an area and which is recognized as an epidemic by the World Health Organization (WHO) or Centers for Disease Control and Prevention (CDC).” The term ”Quarantine” is also defined in the same policy as “Mandatory confinement, intended to stop the spread of contagious disease to which you or your traveling companion may have been exposed.” The semantics and operation of this latter example of policy coverage is something to ponder in the event of the presentation of a claim for a trip cancellation due to the coronavirus.

An Illinois Statute Protects Specific Travelers for Trip Cancellation “Through No Fault of the Passenger”

Illinois adopted the Travel Promotion Consumer Protection Act (815 ILCS 420/). Relevant provisions of the Travel Act include: the required disclosure of information pursuant to Section 4 of the act so that the passenger is fully informed of the terms and conditions of travel and trip cancellation protection “in the event the transportation is canceled through no fault of the passenger.” Naturally, individual rights under the act will be determined by the definitions within the act and the nature of the charges. The Travel Act remains a valuable resource so long as the travel arrangements were made with a “travel promoter” as defined within the act.[9] Notably the definition of “travel promoter” does not include “an air carrier” or a “sea carrier,” to name two of five exceptions.[10] Individuals who have trouble obtaining refunds should contact the Illinois Attorney General Office, because Section 7 of the Travel Act assigns enforcement authority to the Attorney General.

Few people are aware that the average individual may have a cause of action if the booking “travel agent” violated the Travel Promotion Consumer Protection Act (815 ILCS 420/). The decision in McCoy v. MTI Vacations, Inc., 272 Ill.App.3d 494, 650 N.E.2d 605 (1995) cert. denied 272 Ill.App.3d 494 (1995) held that an individual has a cause of action under the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/10a) for violation of the Travel Promotion Consumer Protection Act.

Property Time Element Coverages

The typical first party property coverage provides insurance to the named insured for physical loss and damage to the described insured property in the event of a happening of an insured event. Such policies are commonly described as providing “all risk” coverage.[11] Time element coverages such as business interruption or business income loss, extra expense, and expediting expense may be added to satisfy the demand for protection of loss of business operations owing to the damage caused to the physical property of the business. The time element coverages typically provided coverage for the period of reconstruction of the physical damage that was insured in the basic property coverage.

Insurers also provide extensions of coverage for acts of civil authorities that required the insured to stop production or close their business based upon an order received from a governmental authority. Insurers also recognized that there would be occasions where the ingress or egress from the insured’s property might be compromised. Hence, insurers provide time element coverage to pay for loss when either ingress or egress from the insured’s property occurs. The foregoing coverage may require physical damage due to an otherwise insured peril to trigger its operation.

Insurers may also extend business interruption coverage to insure loss to the insured’s business when a supplier cannot deliver goods to the insured so that the insured could continue its operations. This coverage is referred to as contingent interruption coverage, because it covers the contingencies involved as part of the insured’s business to either manufacture or sell its goods. Contingent business interruption or expense coverage provides coverage in the event of loss of either suppliers or customers, or both. Some policies cover the insured’s loss when acts of civil authority bar a supplier from furnishing goods or prevent a customer from making purchases. Companies with global business supply chains purchase specially drafted forms to ensure continuity of their business models, including all of the above described coverages. Classic examples of such claims are those by U.S. auto and computer manufacturers for contingent business interruption and extra expense loss when Japanese companies could not deliver parts owing to the earthquake and the meltdown at the Fukushima nuclear power plant.

While the basic property policy coverages are not likely to cover loss of business simply described as loss due to coronavirus, one should keep an open mind to examine in detail the policy provisions in relation to events that caused loss of income, extra expense, and expediting expenses. This is particularly important where the policies are manuscript policies specially drafted for the insured’s needs. Therefore, a competent and careful review of policy language by an experienced attorney may leave open the opportunity to claim coverage under one or more theory. Of course, the presentation of such a claim must be made with attention to the policy language and the proper characterization of the cause of loss.

Conditions in the Event of Loss: Requirements in Case Loss Occurs

The common policy conditions of the above policies are prompt notice, cooperation, and the furnishing of documentation in support of any claim. The specific characteristics and requirements appearing in the individual policies are crafted to ascertain information necessary to the insurer processing the claim.

We hope that by discussing the common policy conditions, you recognize the thought processes involved in preparation of a claim in consideration of the coverage claim. You should understand the necessity of a plan to obtain coverage in the event a claim is made against you or you are evaluating whether to make a claim for your own loss.

Prompt notice must be given in the case of all coverages. Liability policies require notice to the insurer on receipt of a claim asserted against the insured or receipt of a suit filed against the insured.

Trip cancellation insurance requires prompt notice in relation to either the start of travel or the actual date of cancellation. Trip disruption insurance requires notice within a very short period of time of the disruption. Typically, the insured is provided a 1-800 number to call. The insured is expected to immediately contact the insurer, because the policies provide services to assist the traveler to minimize inconvenience and expense. It is in the best interests of the insured to take advantage of all the services that the insurer is willing to provide as part of the coverage.

Property policies require prompt notice upon knowledge of loss or damage. The time limit for notice may be described as “reasonable” or “timely,” or a specific limit may be set forth establishing whether notice will be regarded as late.

The terms of the individual policies should be carefully examined when providing notice of claim in order to describe the circumstances of the claim that will trigger coverage. For example, some pollution exclusions have been modified to exclude both “virus and bacteria” in response to the dramatic increase in “mold” claims in 1990s.

The duties in event of loss under liability policies require the insured to furnish information about the time, place, and circumstances of the alleged “occurrence,” as well as the name and addresses of any claimants and witnesses. The liability policy will also require the insured to furnish details relating to any legal proceeding. The insurer also requires the insured’s assistance in the defense and settlement of any claim, including attendance at depositions and trial.

Travel insurance policies generally require furnishing proof to establish the necessity to cancel the trip and documentation in support of the actual monetary loss. In the case of illness, a letter from the treating physician would not be an unexpected request. We will know soon whether insurers will dispute the isolation orders issued by the governors of Illinois, New York, California, and Washington constitute “Quarantine” within the coverage provision.

Evidence of the actual financial loss is considered essential as part of any travel insurance claim. Hence, one should keep records of expenditures and receipts to prove the monetary loss.

First party property policies require not only notice but active efforts by the insured to minimize both physical and economic loss. The insured must cooperate with the insurer’s investigation and prepare and supply documentation, receipts, and other information in support of the claimed loss. The insurer may request that the insured provide a sworn statement in proof of loss providing specific details relating to the loss. The document may be a pre-printed form furnished by the insurer. If the insurer does not furnish a form, then one should inquire as to the expected content of the proposed proof of loss. Some property policies may also allow the insurer to require the insured to appear for an examination under oath to provide details relating to the loss. It is not advisable for an insured to be examined under oath by an insurer without the assistance of a lawyer who has previously appeared in this proceeding.

Observations About Presentation of Any Claim

While the above policies have common requirements and conditions in case loss occurs, the precise duties must be understood and implemented to assure either a recovery or defense and indemnity. There may be circumstances when an insured’s performance is excused or waived by the insurer; therefore, the inexperienced insured should consider timely advice to avoid impairing its opportunity to recover.

You must be cognizant of the individual duties within each type of policy to formulate a strategy to put your claim in the best light. Your claim presentation strategy is dependent upon a detailed evaluation of your insurance coverage. Since pandemic claims are not part of ordinary business practice, we recommend the retention of an attorney to evaluate your claim and represent your interests. An experienced Chicago insurance coverage attorney can analyze issues in light of previous management of claims.

Conclusion

Governmental guidelines and mandates concerning the coronavirus are suggesting a new manner of interaction by individuals with fellow citizens. Whether governmental action will be interpreted as requiring duties of action or inaction that subject individuals or businesses to liability remains a critical issue for society to resolve. Further, the responsive measures to the coronavirus is causing a re-examination of the operations of business on many levels, including the relationships of businesses with employees and customers. The time is ripe to consider your insurance given the present circumstances, since insurance is a recognized mode of spreading risks, and you have already paid for coverage. The upheavals in social interaction caused by governmental action suggest it is time to do a personal evaluation of your liability and financial exposure to risk as well as evaluate whether you have a claim for loss.

Author: Edward J. Ozog has represented both insurers and insureds in coverage matters for more than 40 years. Ed was National Counsel for several international insurers where he provided advice in thousands of cases involving complicated coverage issues. Ed has tried many coverage cases, the longest of which was more than 200 trial days. After more than 30 successful years representing insurers, Ed decided to utilize his knowledge and experience to represent insureds in their evaluation of insurance coverage and the presentation of claims.

About Timothy S. Tomasik:

Chicago attorney Tim Tomasik has built a reputation as an elite trial attorney throughout his 28 years practicing law. He has successfully recovered hundreds of millions of dollars for clients in complex cases involving aviation litigation, medical malpractice, premises liability, and mass disasters. He served as one of the lead counsel on the Plaintiffs’ Executive Committee for 9/11 litigation, and he helped secure a $1.2 billion settlement on behalf of insurance companies and small businesses for property damage and business interruption.

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[1] Message to the Congress on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak, March 12, 2020, Donald J. Trump, President. See, Keeping Commercial establishments safe, Keeping the school safe, Keeping the workplace safe, Keeping the home safe, recommendations issued by the White House, available on the White House website: www.whitehouse.gov.

See, CDC – What you need to know about coronavirus disease 2019 (COVID-19); CDC - Coronavirus and Travel in the United States; CDC – People at Risk for Serious Illness from COVID-19; CDC - What to do if you are sick with coronavirus disease 2019 (COVID-19); CDC – Interim US Guidance for Risk Assessment and Public Health Management of Persons with Potential Coronavirus Disease 2019 (COVID-19); see also, www.cdc.gov/COVID19.

See, Prevention: What to Expect During Self-Quarantine for Coronavirus, According to Doctors. By Korin Miller, March 7, 2020.

[2] See, www2.Illinois.gov: Gov. Pritzker Executive Orders Numbers 5 to 10 related to the COVID-19. See also, Illinois Department of Public Health (IDPH) Business and Organization Guidance; IDPH COVID19 Health Care Provider & Facilities; Schools Guidance; Community Planning Organizations Guidance; Adult Day Program Guidance; Long Term Care Facilities Guidance; Homeless Shelters Guidance; Household Preparedness at www.dph.illinois.gov.

[3] The medical profession, hospitals and nursing homes are well acquainted with specialty standards of care relating to disease control, yet the extraordinary efforts to control the outbreak of coronavirus is certainly not a “common” practice even in these professions.

[4] You might hear phrases such as “past consideration is no consideration” or “where a party is already under a duty to perform there is no consideration.”

[5] The Insurance Services Offices Homeowners 2 – Broad Form [HO 00 02 10 00] provides Bodily Injury coverage meaning bodily harm, sickness or disease, including required care, loss or services and death that results. Liability coverage is provided if a claim is made or a suit is brought against an insured for damages because of bodily injury caused by an occurrence to which this coverage applies.

“Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period in bodily injury. The Personal Liability coverage does not apply to Communicable Disease defined as “Bodily injury” … which arises out of the transmission of a communicable disease by an “insured.”

[6] Commercial General Liability Coverage Form ISO [CG 00 01 10 01] provides coverage for “bodily injury” caused by an “occurrence” in the “coverage territory.”

The coverage is applicable for bodily injury only if is caused by an “occurrence” that takes place in the “coverage territory.” Bodily injury must occur during the policy period. And further the bodily must not have been known to the insured prior to the policy period.

[7] On March 17, 2020, Governor Pritzker announced the first Illinois death from the virus and a cluster of 22 infected at the Chateau Nursing and Rehabilitation Center in Willowbrook, Illinois. See Chicago Sun-Times, “1st Illinois Death and a New Cluster of Cases”, p. 19, 3/18/2020; Chicago Tribune, “State records first virus death as problems mar primary vote” & “Cluster tied to Willowbrook nursing home draws scrutiny”, p. 1, 3/18/2020.

[8] The dictionary definition of Quarantine is …2. Any isolation or restriction on travel or passage imposed to keep contagious diseases…from spreading, 3. The state of being quarantined, 4. A place where persons … having contagious diseases … are kept in isolation, or beyond which they may not travel, 5. Any period of seclusion, social ostracism etc. Webster’s New World College Dictionary, Third Edition, 1996.

[9] “Travel promoter” means a person, including a tour operator, who sells, provides, furnishes, contracts for, arranges or advertises that he or she will arrange wholesale or retail transportation by air, land, sea or navigable stream, either separately or in conjunction with other services. 815 ILCS 420/2(a).

[10] “Travel promoter” does not include (1) an air carrier; (2) a sea carrier; (3) an officially appointed agent of an air carrier who is a member in good standing of the Airline Reporting Corporation; (4) a travel promoter who has in force $1,000,000 or more of liability insurance coverage for professional errors and omissions and a surety bond or equivalent surety in the amount of $100,000 or more for the benefit of consumers in the event of a bankruptcy on the part of the travel promoter; or (5) a riverboat subject to regulation under the Illinois Gambling Act. 815 ILCS 420/2(a).

[11] The development of property insurance coverage was initially based on insuring against the occurrence of named perils. Hence, common reference to the purchase of a “fire insurance” policy that only covered fire, explosion and smoke damage. In the 1950’s the property insurers drafted “all risk” coverage that insured against all risk of physical loss and damage caused to the named property. Exclusions were then drafted to except out of coverage specific risks so as to limit the all-risk coverage. The industry changed in the late 1980’s and early 1990’s to provide a tighter or narrow form of “all risk” coverage described as a “special” or “broad” form, to prevent and insured from forming an expectation that “all risk” meant coverage for “all loss.”