Though most initial COVID-19 insurance-related analysis is focusing on first-party insurance, companies should also review their third-party insurance coverage in response to this pandemic.
Non-public companies would be well-advised in this review not to overlook directors and officers (D&O) insurance, which often provides quite broad liability coverage to such companies. Although D&O coverage for public companies is generally limited to “securities claims,” coverage for non-public companies generally includes any “claim” against the company not otherwise excluded. This broad coverage grant could prove extremely valuable for many non-public companies, given the volume and variety of lawsuits likely to result from COVID-19.
Despite the broad coverage promised by these policies, insurers facing daunting liabilities from this pandemic may have strong incentives to refuse coverage for COVID-19-related claims. In particular, insurers may assert that exclusions pertaining to bodily injury and pollution bar D&O coverage for any claims related to this virus. Non-public companies that respond by closely examining the precise terms of their D&O policy, bearing in mind that exclusions must be read narrowly and construed against insurers, will largely conclude that these exclusions will not defeat coverage.
Review the exclusions
A bodily injury exclusion is found in most non-public company D&O policies, but this exclusion should not apply to most COVID-19-related claims. As an initial matter, this exclusion often only precludes claims “for bodily injury” (that is, claims that directly seek recovery for a claimant’s bodily harm), but not claims tangentially related to bodily injury. Further, even more broadly worded exclusions barring claims “arising out of bodily injury” or “in any way involving bodily injury” have been read narrowly by courts to apply only when the claim is sufficiently connected to a bodily injury. For example, in Fireman’s Fund Ins. Co. v. University of Georgia Athletic Ass’n, Inc., the court held that the exclusion for any claim “in any way related to any bodily injury” did not apply because there was not a sufficient “nexus” between the plaintiff’s injury and his claim that the insured improperly failed to purchase disability insurance that would have covered his injury.
Similarly, most non-public company D&O policies contain a pollution exclusion, but for at least three reasons, it ought not to apply to most COVID-19-related claims.
- This exclusion is typically limited to claims concerning the “discharge” or “clean up” of pollutants, which may not be at issue in a COVID-19-related lawsuit, even if the virus were to be treated as a pollutant.
- While the definition of pollution and pollutant varies among policies, an express reference to viruses is not common. Many courts limit even exclusions that broadly define pollution to apply only to “traditional environmental pollution” like industrial waste.
- Even when the definition of pollution includes the substance at issue in a claim and the exclusion is broadly worded, courts may apply the exclusion only if pollution, not other alleged misconduct, is the focus of the claim.
Other limits on coverage
While these two exclusions will not categorically defeat D&O coverage for most non-public companies facing COVID-19-related claims, these companies should be aware that their D&O policies contain a number of other exclusions that may limit such coverage in certain instances. These exclusions include limits on claims concerning:
- A company’s performance of professional services;
- goods that are developed, manufactured, distributed, or sold by a company;
- a breach of contract by a company (unless the company would have been liable in the absence of the contract);
- disputes between insureds;
- the company’s management of employee retirement funds; and
- certain employment practices.
Whether these exclusions are present, and how they are worded, will vary among policies. As noted previously, some will apply only to claims “for” excluded conduct while others will have broader introductory language. But each must be read narrowly and in favor of coverage, so insureds should closely scrutinize any denial based on one of these exclusions.
In short, non-public companies facing potential litigation related to COVID-19 should keep in mind that their D&O policies likely provide much broader coverage than just securities-related claims. Although insurers may push back and exclusions may place certain limitations on coverage, these policies can still provide valuable protection against a range of COVID-19-related lawsuits that may arise against companies as this unprecedented situation unfolds.
Daniel I. Wolf is an associate at Gilbert LLP. He represents policyholders seeking recovery under D&O insurance and other lines of coverage. Dan can be reached at [email protected]. This article was first published on the Gilbert LLP website and is republished here with permission.