As a starting point, it is important to appreciate that insurance policies are subject to the rule of strict construction. When the language in an insurance policy is ambiguous, meaning that it is susceptible to more than one reasonable interpretation, courts will adopt the interpretation that is most favorable to the insured. Accordingly, ambiguous insuring agreements will be interpreted broadly, and ambiguous exclusions and limitations will be interpreted narrowly.
Determining a cause of loss
Of course, all coverage determinations depend on specific facts and policy language. Sometimes, there is no clear answer, and it is possible to argue either side. This article is intended to provide information only, not legal advice, for a particular situation. With all of that said, here are few observations:
Typically, business income and business property coverages depend on the cause of loss. Insurance Services Office (ISO) Form CP 10 30 Causes of Loss – Special Form is common. It defines covered cause of loss to mean “direct physical loss” unless otherwise limited or excluded.
In my opinion, government-mandated closure is not direct physical loss. Furthermore, CP 10 30 excludes losses resulting from the enforcement of any ordinance or law regulating the “use” of any property. It also excludes damage resulting from “delay, loss of use and loss of market.”
On the other hand, where the virus is actually present, it could be argued there has been direct physical loss in the form of contamination. Form CP 10 30 contains an exclusion for damage caused by “fungus,” “bacteria,” and “wet rot.” In order to be effective, the exclusion must clearly exclude damage caused by viruses. Some policies are endorsed with ISO Form CP 01 40, which excludes damage caused by viruses by name. However, Form CP 01 40 applies only to property coverage, not business income coverage.
What liabilities are covered?
There is also the question of liability coverage. Typically, a liability insurer agrees to indemnify the insured for damages that the insured becomes legally obligated to pay as the result of an “occurrence.” “Occurrence” means “an accident, including continuous or repeated exposure to substantially the same harmful condition.” See, e.g., ISO Form CG 00 01. The Supreme Court of Ohio has held that an accident is “unexpected” and “unintended.” There must be an element of fortuity. At the same time, it has been held that liability insurance is not intended to insure business risks that are the normal, frequent, or predictable consequences of doing business and that businesses can control and manage. So far, these business risk concepts have been applied only in the arena of building construction.
It might be argued that infection resulting from coronavirus is the result of “continuous or repeated exposure.” This policy language was developed to address bodily injury and/or property damage that develops over time, such as in the case of pollution or asbestos. Again, coverage determinations are fact-specific, and there are legal arguments to be made based upon the policy language.
One potential liability scenario involves allegations of negligent failure to disinfect, resulting in bodily injury to the claimant in the form of infection. Bear in mind that the question of what constitutes negligence is distinct from the question of coverage. Many policies are endorsed with limitations for damage or injury caused by fungi and bacteria. [See, e.g., ISO Form CG 21 67.] Some exclusions refer to biological pathogens, generally.
Another scenario involves allegations of negligent failure to disinfect, resulting in property damage in the form of loss of use. Any number of exclusions might apply, such as the exclusion for damage pertaining to impaired property. An example of impaired property is tangible property that is not physically injured, but that is less useful because the insured failed to fulfill the terms of a contract or agreement.
As you can imagine, this is only the tip of the proverbial iceberg.
Scyld Anderson, partner at Isaac Wiles, has experience in the areas of insurance coverage, personal injury, general negligence litigation, and in county and municipal defense. He can be reached at [email protected].
This article is reprinted with permission from Isaac Wiles.