This contributor argues that insurance carriers should engage in a comprehensive analysis of policy language in expiring policies to determine whether the included wordings effectuate underwriting intent and seize any opportunity to bolster that intent. (Shutterstock) This contributor argues that insurance carriers should engage in a comprehensive analysis of policy language in expiring policies to determine whether the included wordings effectuate underwriting intent and seize any opportunity to bolster that intent. (Shutterstock)

A recent class-action lawsuit filed by the owner of The Crescent Plaza Hotel against Zurich American Insurance Co. in the Northern District of Illinois illustrates the reappearance of one of the arguments litigated numerous times. The Crescent Plaza Hotel’s suit alleges Zurich’s addition of a Communicable Disease Endorsement to its manuscript commercial property policy at renewal implies coverage for COVID-19 losses existed prior to the inclusion of the Communicable Disease Endorsement, according to the case filing.

Interestingly, Zurich had not expressly denied the business interruption claim submitted by the Crescent Plaza Hotel at the time the suit was filed. The Crescent Plaza Hotel relied on Zurich’s denial of other customers’ business interruption claims and statements made by Zurich’s CFO, George Quinn, that “Zurich’s business interruption coverage ‘wording typically includes a virus exclusion [and] more than 99% of [Zurich's] contracts in North America will have that wording.’” It contends Zurich’s wide-scale denial of business interruption claims combined with Quinn’s public statements is an effective repudiation of coverage under the policy.

Specific exclusions

According to the complaint filed by The Crescent Plaza Hotel, the expiring policy contained specific exclusions for microorganisms and biological materials, but not for virus or disease. At renewal, Zurich included a Communicable Disease Endorsement excluding coverage for losses arising out of the transmission of disease.

Does Zurich’s inclusion of a Communicable Disease Endorsement at renewal imply coverage for losses arising out of pandemics in its expiring policy?

Courts in several jurisdictions considered a similar question presented during the wide-spread asbestos and silica coverage litigation. Specifically, courts considered whether the addition of a specific exclusion endorsement rendered the absolute pollution exclusion ambiguous.

Relevant case law

In Above It All Roofing & Construction, Inc. v. Security Nat’l Insurance Co., the court considered whether interpreting “pollutant” as including asbestos rendered the addition of an Asbestos Exclusion Endorsement “superfluous.” The insured argued that because the policy definition of “pollutant” did not specifically include “asbestos,” asbestos did not qualify as a “pollutant,” as that term was defined in the policy.

The court rejected the insured’s argument, stating that it was “not persuaded that an Oklahoma court would require an insurance policy to include every potential ‘pollutant’ in its definition of the term.” In reaching its conclusion, the court cited prior decisions rejecting the argument that the existence of a separate exclusion for asbestos created an ambiguity in the absolute pollution exclusion. Consider RLI Insurance v. Gonzalez, in which the court rejected the insured’s argument that the inclusion of an Asbestos Exclusion was evidence that the general pollution exclusion did not apply to silica dust claims: “‘[S]uperfluous exceptions are commonplace’ in insurance contracts and ‘have the effect merely of mak[ing] assurance doubly sure.’”). Thus, the court concluded the pollution exclusion barred coverage for the injuries arising out of exposure to asbestos, regardless of the inclusion of an Asbestos Exclusion Endorsement.

Similarly, in Garamendi v. Golden Eagle Insurance Co., the court analyzed whether a carrier appropriately denied coverage for “bodily injury” claims arising out of an employee’s inhalation of silica dust. Challenging the denial, the insured argued the absolute pollution exclusion did not preclude coverage for silica claims because the carrier added an endorsement specifically excluding “coverage for claims based on exposure to asbestos, a natural product like silica.”  The insured asserted that because there was no comparable explicit endorsement for silica, “a reasonable insured would understand that the pollution exclusion does not apply to claims for exposure to silica.”

The court rejected the insured’s argument, reasoning, “[i]n light of the widespread asbestos litigation that has been ongoing for approximately a half-century, it is not surprising that an insurer seeking to exclude coverage for asbestos claims would include an explicit provision making that exclusion unmistakably clear.” Thus, the court entered judgment in favor of the carrier finding the absolute pollution exclusion negated coverage for the silica claims.

Why these decisions matter

The majority position supports the conclusion that a carrier’s addition of a Communicable Disease Exclusion does not imply that coverage for losses arising out of viruses existed prior to the addition of the exclusion. The Crescent Plaza Hotel conveniently ignored that it must establish coverage exists under the Zurich policy before the burden of proving the applicability of exclusion shifts to Zurich. Regardless, pursuant to existing case law, Zurich’s addition of the Communicable Disease Endorsement should not render any existing exclusions ambiguous or imply coverage for losses caused by a virus are otherwise covered by the policy.

The suit presents a reminder to carriers to pay close attention to their policy wordings at renewal. Carriers should engage in a comprehensive analysis of policy language in expiring policies to determine whether the included wordings effectuate underwriting intent and seize any opportunity to bolster that intent.

Cheri Trites-Versluis is the director of policy analysis for RiskGenius. She can be reached for further comment or information via email at [email protected]. These opinions are the author’s own.

Also by this contributor: COVID-19, business interruption and bad faith litigation