Coronaviruses are a large family of viruses that are common in people and
many different species of animals. There are many types of human coronaviruses,
including some that commonly cause mild upper-respiratory tract illnesses.
COVID-19 is a new disease caused by a novel (or new) coronavirus that has
not previously been seen in humans. It is not the same as the coronaviruses
that commonly circulate among humans and cause mild illness. The new
coronavirus that is called SARS-CoV-2 has caused COVID-19.
On February 11, 2020, the World Health Organization announced an official
name for the disease. Abbreviated as COVID-19, "CO" stands for
"corona," "VI" for "virus," and
"'D" for disease.1
As organizations begin a phased reopening around the country, a chief
concern will be the organization's potential liability to persons claiming
they have contracted COVID-19. Will these organizations be protected by
liability insurance for such claims? The answer is—as usual—it depends.
Does the CGL Policy Cover Claims for COVID-19?
The Insurance Services Office, Inc. (ISO), commercial general liability
coverage form2 or CGL policy provides coverage for
damages that result from bodily injury or property damage—subject to all other
policy terms and conditions. But does the CGL policy include coverage for the
defense and payment of damages arising from suits alleging the organization was
legally liable for transmitting COVID-19? Consider some pivotal matters.
Bodily injury. The definition of bodily injury incorporates
the phrase "sickness or disease sustained by a person,"3 which should leave no doubt that COVID-19 constitutes bodily
injury under the CGL policy.
Property damage. Whether the existence of the virus in or
on property of others constitutes physical injury to tangible
property4 remains an open question. Similarly,
whether loss of use of tangible property that is not physically
injured5 may result from the presence of the virus
is also unsettled. And there is no case law directly on point.
But a review of cases that examine the meaning of tangible property and
physical injury may be instructive. For example, in Essex Ins. Co. v.
BloomSouth Flooring Corp., 562 F. 3d 399 (1st Cir. 2009), the First
Circuit Court of Appeals, applying Massachusetts law, the question was—for the
purposes of determining the duty to defend—whether an offensive odor permeating
a building (alleged to be caused by the installation of defective carpeting)
constituted physical injury to tangible property. The insurer took the position
the odors injured the air, which was not tangible property, and further that an
odor cannot constitute physical injury to property. The court rejected both
positions, finding that an unwanted odor that permeated the building was
"reasonably susceptible to an interpretation that physical injury to
property" had been claimed. However, the court did concede that if the
odor did not permeate the building, the odor may not constitute physical injury
to property.
In the above case, the insurer's position that the odor injured the air
and, therefore, did not involve tangible property (and thus did not result in
the loss of use of tangible property) may be also asserted with the
coronavirus. According to the Centers for Disease Control and Prevention,
coronaviruses are generally thought to spread from person to person through
respiratory droplets when an infected person coughs or sneezes—and less so by
touching surfaces because of the poor survivability of the virus on
surfaces.6
Intentional acts. For coverage in the CGL policy to be
triggered, the bodily injury or property damage that results in the damages
being claimed must be caused by an occurrence. This generally means that the
bodily injury or property damage must be the result of an accident—and an
accident need not be abrupt but may happen over time—or an occurrence that
"includes continuous or repeated exposure to substantially the same
general harmful conditions."7
Supplementing the accident requirement is the first CGL policy exclusion:
the insurance does not apply to bodily injury or property damage that is
expected or intended from the standpoint of the insured.8
Some, including a few courts, have concluded that the CGL policy includes an
"intentional acts" exclusion. That is, if bodily injury or property
damage resulted from an intended act, the CGL policy provides no coverage. This
is an unfortunate misreading of the CGL policy—the CGL policy does not include
an "intentional acts" exclusion.
Most jurisdictions follow the rule that the
injury or damage must be expected or intended, not merely the act itself,
before coverage is lost for the claim.9
Here are a few court decisions that support the above.
In order to avoid coverage on the basis of an
exclusion for expected or intentional injuries, the insurer must demonstrate
the injury itself was expected or intended. Physicians Ins. Co of Ohio v.
Swanson, 58 Ohio, 3d 189, 569 N.E.2d 206 (1991).
This court has consistently stated that the
resulting injury which ensues from a volitional act of an insured is still an
"accident" within the meaning of the insurance policy if the insured
does not specifically intend to harm or is not substantially certain that harm
will occur. Quincy Mutual Fire Ins. Co. v. Abernathy, 393 Mass. 81
(1984).
Insurance coverage is not excluded because the
insured's actions are intentional unless he also intended the resultant
damage. The exclusion is inapplicable even if the insured should reasonably
have foreseen the injury which his actions caused. United Serv. Auto.
Ass'n v. Elitzky, 517 A.2d 982 (Pa. Super. 1986).
Resulting damage can be unintended even though
the act leading to the damage was intentional. Continental Cas. Co. v.
Rapid-Am Corp. 609 N.E.2d.506, 510 (N.Y. 1993).
The point here is this—COVID-19 claims by persons against an organization
may allege failure to require social distancing, the failure to wear or require
the wearing of a mask, or other acts that may be deemed intentional. Coverage
positions or coverage denials that rely on "intentional acts"
exclusions in the CGL policy in such situations would usually be
erroneous—coverage applies unless the insured intended to infect another.
Illegal acts or conduct. One state's insurance
regulator warned businesses of the "illegal acts or conduct"
exclusion in liability coverage that would apply if that business was
noncompliant with business closure orders. While certainly defying such orders
is never recommended, a business or organization that reopens but which may be
in technical violation of such orders is a different matter. For example, a
restaurant that is allowed to open with only 25 percent capacity, but which
inadvertently seats more patrons, say 26 percent, should not be without
liability insurance.
For starters, the CGL policy does not exclude "illegal act or
conduct." While personal and advertising injury does exclude criminal
acts, the exclusion applies only arising out of a criminal act committed by or
at the direction of the insured.10 And there is
case law addressing whether liability insurance will apply if bodily injury or
property damage occurs while engaging in illegal acts.
Pennsylvania courts have rejected attempts by
insurance carriers to disclaim coverage solely because a complaint includes
allegations of criminal conduct. Erie Ins. Exch. v. Moore, No. 20 WAP
2018, 2020 Pa. LEXIS 2239 (Apr. 22, 2020).
We initially note that the insurance contract
does not contain a "violation of law" clause; liability coverage
applied as long as allegations of negligence were separate and distinct from
the criminal act. Eisenman v. Hornberger, 264 A.2d 673 (Pa. 1970).
Negligence separate and distinct from the criminal act is illustrated in
Eisenman. Two young men broke into a home and stole liquor. To
minimize detection, the men lit matches to find their way around the home; when
the matches burned out, they dropped them. One match fell between cushions of
an overstuffed chair, ignited the material, and, after smoldering for hours,
resulted in a fire that completely destroyed the home. The careless use of the
matches was found to be negligence separate and distinct from the commission of
the crime, and thus coverage applied to the liability of the young men.
Stated differently, lack of strict compliance with business closure (or
reopening) orders may amount to an illegal act or illegal conduct—but unless
the illegal conduct (rather than negligence) was substantially certain to
result in bodily injury, the CGL policy should apply. For example, in the
situation where the restaurant inadvertently seated to 26 percent of capacity,
CGL coverage would still apply to bodily injury due to a trip and fall on the
broken restaurant stairs.
More broadly, if the CGL policy excluded illegal11 conduct, the policy might well be found illusory. After all,
negligence is, by definition, conduct that falls below a legal
standard.12
Some Exclusions That May Apply
Pollution exclusion. Whether the coronavirus qualifies as a
pollutant will likely be the subject of substantial debate. However, whether
the coronavirus may reasonably be labeled as a solid, liquid, gaseous, or
thermal irritant—such as smoke, vapor, soot, fumes, acids, alkalis, or
chemical13—appears doubtful. This category of
pollutants does not suggest it comprises a virus, even considering some wild
claims made by insurers attempting to apply the CGL pollution exclusion to all
manner of substance.
In addition, the fact that ISO filed a the Communicable Disease Exclusion
(CG 21 32 05 09) over 10 years ago suggests that ISO was not content to rely on
the pollution exclusion to eliminate coverage for diseases such as the avian
flu, severe acute respiratory syndrome (SARS), and rotaviruses. See the
Communicable Disease Exclusion discussed later.
Employers liability exclusion. This exclusion for bodily
injury to employees14 of the insured "arising
out of and in the course of: Employment by the insured; or; Performing duties
related to the conduct of the insured's business"15 would will likely eliminate coverage under the CGL policy
for claims made by employees against their employer when that employee is
infected with COVID-19 during the organization's reopening.
For the most part, states' workers compensation laws provide exclusive
remedy to employees injured in the course of employment—generally prohibiting
employees from suing employers for work-related injuries. However, it is
unclear whether COVID-19 will be considered an occupational disease for those
employees who are not first responders or healthcare professionals. In other
words, as workers compensation benefits may not be available for some
employees' medical benefits and lost wages, tort actions against employers
may result. Nonetheless, employers will likely not be protected by the CGL
policy for employees claiming damages because of bodily injury when contracting
COVID-19 while on the job.
Communicable disease exclusionary endorsement. This
exclusion must be added by endorsement CG 21 32 05 09 and does not
automatically come as part of the standard CGL policy. Put differently, this
exclusion applies only if this endorsement is rightfully attached to the CGL
policy.
The exclusion is broadly worded and applies to both bodily injury and
property damage and personal and advertising injury arising out of the actual
or alleged transmission of a communicable disease. While the endorsement does
not define communicable disease, it does eliminate coverage for "artful
pleadings" such as alleged negligence or other wrongdoing in supervising,
hiring, employing, training, or monitoring of others that may be infected with
and spread the disease, negligence in testing for a communicable disease,
failure to prevent the spread of the disease, or failure to report the disease
to authorities.
This exclusionary endorsement, according to the drafter, ISO, is intended to
eliminate coverage for categories of disease such as the avian flu, SARS, and
rotavirus. While the exclusion does not specifically name the novel
coronavirus, it will be very problematic to argue COVID-19 is not included
within the exclusionary wording.
As the exclusion applies to not only the actual but also to the
alleged transmission of a communicable disease, an insurer will likely
be able to avoid defending suits against an insured that may be groundless,
false, or even fraudulent. Simply stated, even if the facts strongly indicate
that the coronavirus was not transmitted to the plaintiff by the insured, the
insurer will not be obligated to defend (see "The
Duty To Defend—Groundless, False, or Fraudulent").
In addition, the preamble "arising out of" may eliminate coverage
for suits that alleged multiple causes of bodily injury—as "arising out
of" has been interpreted in some instances to apply even when there are
concurrent or sequential additional factors in the chain of
causation.16 However, all jurisdictions have not
stretched "arising out of" so widely.
Conclusion
Whether the CGL policy applies to a particular suit claiming damages against
an insured for COVID-19 depends greatly on the specific facts of the situation.
What should be evident is that bodily injury coverage in the CGL policy
contemplates sickness and disease, even though property damage may not allow
coverage for the presence of the coronavirus. Coverage defenses such as
reliance on "intentional acts" exclusions that assume intentional
acts that result in unintended bodily injury are outside of the CGL policy are
very often misplaced. Further, attempts at coverage denials because of
"illegal acts or conduct" are usually not well-founded and should not
be applied to inadvertent or technical violations of executive orders in
restarting or reopening a business or organization—particularly if the
violation was not the cause of the bodily injury or property damage.
While the pollution exclusion should not apply to viruses, suits by
employees against their employer will very likely be excluded from coverage. If
the CGL policy has been amended with the communicable disease exclusionary
endorsement, any coverage, including defense, would appear to be eliminated for
any allegations of COVID-19 infections.
Finally, as interpretation and construction of insurance policies is a
matter of law for the courts to decide, courts will have the final say on
whether the CGL policy covers COVID-19 claims.