COVID-19 and the Initial Wave of Insurance Claims

This spring, as the Coronavirus spread and wreaked havoc at a global level, businesses shuttered, mostly at the behest of government directives and stay-at-home orders, to help stop the proliferation of the virus and to curb its destruction. Loss of revenue from the closures has business owners filing first-party business interruption claims with their insurers to recoup their losses. The potential exposure to the insurance industry remains gaping.

Currently, these first-party business interruption claims are being denied by the insurers citing policy provisions that exclude losses due to “viruses” or “civil authority,” or require “physical damage.” The claimants are asserting that the virus’s contamination of the business qualifies as a direct physical loss because the virus can live up to several weeks on surfaces surreptitiously infecting others and creating physical harm. The insurers and claimants parsing of words is creating what will likely be a prolonged and expensive fight between the insurers and policyholders and the meaning of the provisions in the policies.

With the re-opening of our economy, first-party claims will most likely decrease as businesses open and happily thrive again, but third-party claims will most likely increase as everyone emerges back into the world and has high potential contact with the virus. A likely scenario for a third-party claim would be a customer working out at her gym who becomes ill with COVID-19 and then claims negligence for the gym’s failing to protect her from being exposed to the virus. Like gyms, businesses where the virus can spread easily from person to person within the same facility, will be at risk for these third-party claims. Understanding the policy language and its meanings will be paramount in determining the role the insurers have in these claims and their role to defend and/or indemnify. The insurers need to understand the potential consequences of a denial if the third-party claim is further pursued.

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