The Coronavirus and the CGL Policy

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.

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¹"Frequently Asked Questions," Centers for Disease Control and Prevention, updated May 29, 2020.

²CG 00 01 04 13 © Insurance Services Office, Inc. 2012

³Section V. Definitions 3. "Bodily Injury"

⁴Section V. Definitions 17. "Property Damage" a.

⁵Section V. Definitions 17. "Property Damage" b.

⁶"Frequently Asked Questions," Centers for Disease Control and Prevention, updated May 29, 2020.

⁷Section V. Definitions 13. "Occurrence"

⁸2. Exclusions a.—The exception to this exclusion carves out coverage for intentionally caused bodily injury IF that bodily injury resulted from the use of reasonable force to protect persons or property.

⁹Christopher C. French, "Debunking the Myth that Insurance is not Available or Allowed for Intentional Torts or Damages," Hastings Business Law Journal, 2015, pp. 65 and 78.

¹⁰Coverage B—Personal and Advertising Injury Liability 2. Exclusions d. Criminal Acts

¹¹"Illegal—Forbidden by law; unlawful," Black's Law Dictionary, 8th edition, p. 763.

¹²"Negligence—Any conduct that falls below the legal standard to protect others against an unreasonable risk of harm," Black's Law Dictionary, 8th edition, p. 1061.

¹³Section V.—Definitions 13. "Pollutants"

¹⁴Section V.—Definitions 5. "Employee" includes a "leased worker." "Employee does not include a "temporary worker."

¹⁵Section I—Coverages—2. Exclusions e. Employer's Liability

¹⁶"The phrase `arising out of' must be read expansively, incorporating a greater range of causation than that encompassed by proximate cause under tort law." Bagley v. Monticello Ins. Co., 430 Mass. 454, 457 (1999).