As the COVID-19 pandemic continues to wreak havoc on businesses, conflicting opinions are being offered about the potential applicability of certain insurance policies to COVID-19 losses. However, the COVID-19 landscape is changing daily and insurance coverage for such claims will be the subject of extensive litigation and legislation. Companies should take steps now to preserve potential insurance claims and best position themselves to pursue such claims in the future, if appropriate.
While countless articles have been written about the vagaries of insurance policy language that may respond to COVID-19 losses — e.g., first-party property, general liability, event cancellation, directors and officers, workers compensation, and specialty insurance products, just to name a few — based on our discussions with business leaders, practical advice about how to preserve insurance claims is what is needed now while companies fight to keep employees safe and businesses operational. This is what we would tell CEOs and risk managers if we only had time for the proverbial “elevator speech” regarding COVID-19 and insurance.
1. Act now to understand your coverage.
Businesses need to act now to understand and preserve their insurance coverage as it may apply to business losses and third-party claims arising directly or indirectly from the COVID-19 pandemic. At this point, it is impossible to predict how the human and economic impacts of COVID-19 will unfold and the nature of litigation that will result from it. However, based on decades of experience in mass torts and natural disasters, it is clear that the layers of impact from COVID-19 will be extremely broad and unpredictable.
Insurance is an important asset of all companies that is often misunderstood and underutilized. In order to be in a position to apply this asset to the full spectrum of potential COVID-19 losses, available coverage must be identified, collected and understood in relation to anticipated losses and third-party claims; many different types of coverage may be available to pay claims.
As part of this analysis, do not rely on generalizations from the insurance industry or trade publications regarding what lines of insurance may or may not respond to COVID-19 losses. Rather, be sure to review your specific policies. Although insurance policies can be fairly standardized and often implement industrywide policy forms — especially regarding more historic lines of coverage, such as general liability insurance — policy language can and often does differ. While many commentators have opined that these business losses are not insured, these pronouncements are overly broad, often inaccurate and subject to a changing legislative and judicial environment. Slight policy language variations can be the difference between coverage or not. Policy language not only often differs across issuing insurers but also as a result of manuscripted endorsements that alter standard form policy language. These manuscripted endorsements often address key policy exclusions and other terms. The language of your specific policy governs and blanket generalizations about coverage, or not, should not be accepted at face value.
2. Consider providing notice of circumstances that may result in a claim.
Many lines of insurance are written on a “claims made” basis. This means that the policy is triggered when a claim is made against the policyholder during the policy period, regardless of when the wrongful act that gives rise to the claim took place. Most claims made policies allow for a notice of circumstance. This extends coverage under a current claims made policy for events that may produce a claim in the future, so long as notice of the circumstance is given to the insurer during the current policy period. In the event that a claim related to the circumstance ripens in the future, the claim relates back to the policy under which the notice of circumstance was provided.
3. Course of dealing matters.
As with any other insurance claim, actions taken early with respect to a claim often have significant impacts on coverage down the road. Businesses need to understand the provisions of their insurance policies and the potential arguments that they may advance for coverage in order to create the most favorable record and course of dealing with the insurers in question. They should track and document losses in real time and create a written record with their insurer regarding their reasons for denial of a claim. Experienced coverage counsel can assist in anticipating defenses that insurers are likely to raise either in coverage litigation or in confidential settlement discussions, drafting appropriate notices, responding to information requests and compiling the proof of loss.
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