Category: Insurance Coverage

Riot-Related Damage and Income Losses are Covered under Most Business Owners’ Policies

Following the deaths of George Floyd, Breonna Taylor, Ahmaud Arbery, Tony McDade, and Rayshard Brooks, protests against systematic racism in general, and police brutality in particular, have swept the globe. These protests have largely been peaceful, but a small, fractious group of individuals has used the protests as cover to incite violence, damage property, and loot businesses. While it might be cold comfort to the affected business owners to hear that property damage is not the norm, most have insurance that protects their pecuniary interest.[1]

 First-party property insurance policies generally include riot and civil commotion as covered causes of loss, unless there is a specific exclusion in the policy. Although courts have acknowledged that defining a “riot” can be difficult because they can vary in size, courts have identified at least four elements:

  1. unlawful assembly of three or more people (or lawful assembly that due to its violence and tumult becomes unlawful);
  2. acts of violence;
  3. intent to mutually assist against lawful authority where “lawful authority” is not limited to official law enforcement, but extends to those whose rights are or may be injured and who seek to protect those rights; and
  4. some degree of public terror (i.e., any minor public disturbance does not rise to the level of “riot”).

Blackledge v. Omega Ins. Co., 740 So. 2d 295, 299 (Miss. 1999).

Civil commotion likewise is undefined in most property policies. As a starting point, the term necessarily means something other than “riot,” since each term in an insurance policy is presumed to have its own meaning. See, e.g., Portland Sch. Dist. No. 1J v. Great Am. Ins. Co., 241 Or. App. 161, 171 (2011). Thus, while “civil commotion” may be similar to a riot, courts have construed the term more broadly, finding that civil commotion entails “either a more serious disturbance or one that is a part of a broader series of disturbances.” Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co., 368 F. Supp. 1098, 1138 (S.D.N.Y. 1973), aff’d, 505 F.2d 989 (2d Cir. 1974). In fact, most property policies contain no limitation on the breadth of commotion or the type of harm that it might pose to person or property.

In many policies, riot, civil commotion, vandalism, and malicious mischief are “specified causes of loss.” The practical effect of this designation is that numerous exclusions will contain exceptions for loss caused by these situations. For example, while damage to a business’s electronic data may be excluded, the exclusion may contain an exception for damage to electronic data resulting from specified causes of loss, such as riot or civil commotion. Similarly, even where the policy contains a pollution exclusion – purportedly excluding loss, damage, cost, or expense caused by or contributed to or made worse by the release of “pollutants,” which could include tear gas – that exclusion may not apply to loss or damage caused by riot, civil commotion, or vandalism.

If a policy covers riot or civil commotion, covered losses may include property damage to the building and its contents, and lost income while the building is under repair or subject to government orders affecting the business’s operations (e.g., curfews limiting hours of operation) where the order is the result of property damage elsewhere. Business insurance policies may also cover costs incurred in protecting insured property from future, imminent harm or continued damage. These costs might include hiring (or increasing) security personnel, boarding up windows and doors, securing inventory in place or moving inventory and operations off-site.

Prior to the riots in Minneapolis, Minnesota, the costliest U.S. civil disorder occurred after the acquittal of police officers involved with the arrest and beating of a black American, Rodney King, from April 29 through May 4, 1992, causing $775 million in insured losses.[2] More recently, there were approximately $24 million in insured losses following the death of Freddie Gray, a black American who died in police custody after suffering a spinal cord injury.[3] Insured losses are not yet available for the riots in Minneapolis, but the Property Claims Services (“PCS”) unit of Verisk Analytics designated the event as a catastrophe. On June 4, 2020, PCS included over 20 other states, making the civil unrest that started in Minnesota a multi-state catastrophic event.[4]

If your business has experienced or may experience a loss because of civil unrest or riots, you should begin keeping track of these losses – and costs incurred to avoid them – immediately. Save receipts and inventory damages. Contact your insurance company as soon as you experience a loss to report your claim and diligently log your interactions with your insurer and its representatives. If you feel your insurer wrongfully denied your claim or delayed payment, contact experienced insurance coverage counsel.

[1] The authors by no means intend to equate property damage and a lost life. Quite the opposite. One is recoverable (and insurable); the other is irreplaceable.

[2]  https://www.iii.org/fact-statistic/facts-statistics-civil-disorders (last viewed June 15, 2020).

[3] Id.

[4] Id. By June 4, 2020, at least 40 cities in 23 states had imposed curfews. National Guard were called in Washington, D.C. and at least 21 states.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.
For more on property insurance amid protests, see the National Law Review Insurance, Reinsurance and Surety law page.

A Word About Business Interruption Claims From Vandalism, Riot and Civil Commotion

The death of George Floyd is a national tragedy that should never have happened.  The winds of change are in the air and we can only hope that peace, understanding, justice and fairness for all will prevail.  What happened to George Floyd and the cries to end racial injustice, however, have been overshadowed in the eyes of many by the vandalism, looting and rioting that followed.  That brings us to insurance.

There have been many articles discussing whether and how the business losses arising from the vandalism and looting will be covered under insurance policies.  Because these losses took place during the novel coronavirus pandemic, the insurance coverage issues have become more complex.  This is particularly true for business interruption claims.

There are three issues that I thought were worth highlighting.  The first concerns the confluence of the existing COVID-19 stay-home orders and the vandalism and looting.  The second is the necessary nexus between direct physical damage and civil orders under coverage for civil authority.  Finally, the effect of anti-concurrent cause clauses in property policies.

First, some of the business interruption claims now being brought by businesses that had to shut down because of the protests or because of the curfew orders have been complicated by overlapping civil authority stay-home orders because of the novel coronavirus.  Where a business was closed because of COVID-19 stay-home orders or was open only to provide curbside pickup or delivery services, how is its loss of income and extra expense calculated if the business had to close because of the civil unrest?  Analyzing this issue requires much more space than this blog post can provide.  It is a complicated issue that depends on exactly what coverage is provided and how loss of income is calculated under the relevant business interruption coverage grant.

Just as an example, under a common business income and extra expense coverage form, the amount of business income loss is determined based upon the net income of the business “before the direct physical loss or damage occurred,” the likely net income of the business “if no physical loss or damage has occurred . . . ” and “the operating expenses, including payroll expenses, necessary to resume operations with the same quality of service that existed just before the direct physical loss or damage.”  When applied to the recent vandalism and looting business interruption losses, the net income before the vandalism and looting may have been much less than in months or years past because of the COVID-19 stay-home orders.  If no vandalism and looting had occurred, the likely net income would have been the same as under the existing COVID-19 stay-home orders; that is to say, most likely diminished from prior periods.  Yet some are pushing for the COVID-19 effect not to be considered at all in the calculation of net income in the context of business interruption losses due to vandalism and looting.

Second, civil orders that prevented ingress and egress to and from businesses because of the threat of violence from possible protests likely will not be sufficient to trigger coverage under business interruption civil order provisions.  The common form requires a nexus between direct physical damage and the civil order.  For example, the action of civil authority must be “taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage. . . .”  If a local government shuts down a business district in advance of a protest and before there is any physical damage to property, that civil order should not trigger coverage under the business interruption coverage grant.  A civil order that shuts down a business district after vandalism because the area is dangerous likely would result in some coverage under the business interruption coverage grant depending on other policy factors.

Finally, some property policies limit coverage to covered causes of loss and preclude coverage if the loss was caused in part by a non-covered cause of loss.  For example,

We will not pay for loss or damage caused directly by any of the following. Such loss or damage is excluded regardless of any other cause of event that contributes concurrently or in any sequence to the loss.  These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.

If an insurance policy excludes a cause like looting, but covers vandalism, even if the loss was caused in part by looting, the anti-concurrent causation clause would preclude coverage.  So too, if part of the loss claimed was caused by the novel coronavirus and the policy has a virus exclusion, that would preclude the loss even if part of it was caused by vandalism.

As always, it is most important to read the complete policy because not all insurance policies are the same.  Nevertheless, there is no doubt that business interruption losses arising from the recent civil unrest have been complicated by existing governmental orders covering the novel coronavirus.  It will take patience by all parties and careful analysis to work through these claims.

© Copyright 2020 Squire Patton Boggs (US) LLP

For more on business interruption claims, see the National Law Review Insurance, Reinsurance and Surety law section.

Legislation Enabling Policyholders to Obtain Insurance Coverage for Coronavirus Claims is Constitutional Part 1

On top of its human toll, the coronavirus pandemic has had massive economic effects.  Stay-at-home orders, which remain in place in much of the United States, have resulted in massive layoffs, spiraling claims for unemployment compensation, and unprecedented federal aid.

Many businesses affected by the pandemic have turned to their insurers seeking “business interruption” coverage.  As its name suggests, this coverage typically reimburses the policyholder for costs incurred when the business is unable to open.  Insurers have denied policyholders’ pandemic-related claims, contending that they only have to cover business interruption that results from a “physical injury” and that the damage that results from infestation with the coronavirus or a governmental shutdown order does not constitute “physical injury.”  Insurers have also cited the exclusions in many of their policies that purport to bar coverage for virus-related injuries.

Legislative Responses to the Crisis

One response to the insurance industry’s position has been introduction of legislation voiding virus exclusions and/or defining physical injury to include coronavirus.  New Jersey, Massachusetts, Ohio, New York, Pennsylvania, and South Carolina are all considering such legislation.  The proposed bills generally provide that, notwithstanding any other law or policy language to the contrary, every insurance policy that insures against loss or damage to property which includes the loss of use and occupancy and business interruption shall be construed to include coverage for business interruption resulting from COVID-19.  The bills typically provide mechanisms for insurers to seek reimbursement from a state established and managed fund for losses paid related to COVID-19.

Insurance Industry Responses to the Proposed Legislation

Predictably, the insurance industry has objected to this legislation.  For example, in a recent interview, Evan Greenberg, CEO of Chubb, said in an interview on CNBC state governments can’t force insurance companies to cover incidents not included in the policy.  “You can’t just retroactively change a contract. That is plainly unconstitutional,” Greenberg told “Mad Money” host Jim Cramer.  See https://www.cnbc.com/2020/04/16/chubb-ceo-making-insurers-cover-pandemic-losses-is-unconstitutional.html.

Law firms that defend insurers have similarly argued that “This proposed legislation …., is unfair and is likely unconstitutional, as it appears to run afoul of the Contracts Clause of the Constitution.”   That Clause prohibits States from “pass[ing] any . . .  Law impairing the Obligation of Contracts . . . .”  U. S. Const., Art. I, Sec. 10.  The insurer lawyers contend that “the proposed legislation would substantially impair insurance policies, as [it] would operate to rewrite policies to cause them to cover a risk they do not currently cover.…”   While acknowledging that the Supreme Court has upheld state laws that impair contracts, so long as they are reasonably tailored to fulfill a legitimate interest, insurer counsel contend that such laws are still unconstitutional.  Counsel claim that the proposed laws do not fulfill a legitimate interest because they “arguably benefit[] only a narrow class of businesses; the public at-large is only an indirect beneficiary.”  Id.  And counsel assert that the proposed laws are not “appropriate and reasonable” because they “attempt[] to shift the responsibility of providing financial assistance to small businesses from the government to certain insurance companies. . . .” Id.

Why the Insurance Industry Is Wrong about the Contracts Clause

This analysis is simply mistaken.  The case law interpreting the Contracts Clause demonstrates that legislation designed to provide relief to policyholders is constitutional.

As discussed below, under the cases, courts have established a balancing test that weighs the extent to which the challenged legislation contravenes contractual expectations against the purpose of the legislation and the means used to achieve that purpose.  Under that test, the proposed legislation is constitutional.

Basic Principles

The range of state legislative actions that can affect contractual relationships is broad. For instance, a state statute may render a contract wholly illegal.  See Stone v. Mississippi, 101 U.S. 814, 819 (1879) (upholding state statute outlawing lottery against claim that it violated contract rights of lottery company).  Or a statute may directly change the term of a contract.  E.g., United States Trust Co. v. New Jersey, 431 U.S. 1, 3 (1977) (state law abrogated covenant in contract with holders of state bonds); Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 416 (1934) (state law modified foreclosure provisions in mortgages).  Even a law that has nothing to do with either the express terms of the contract or its subject matter can affect the parties’ allocation of risk, such as a law that changes the statute of limitations for contract actions.  See J. Ely, Jr., Whatever Happened to the Contract Clause?, 4 Charleston L. Rev. 371, 377 & n.48 (2010) (discussing Contracts Clause cases involving statutes of limitations).

Yet, as the Supreme Court has made clear, “it is not every modification of a contractual promise that impairs the obligation of contract under federal law.”  City of El Paso v. Simmons, 379 U.S. 497, 506–07 (1965).  Even though the language of the Contracts Clause is  “facially absolute,” Energy Reserves Group v. Kansas Power & Light Co., 459 U.S. 400, 410 (1983), “the prohibition against impairing the obligation of contracts is not to be read literally,” Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. at 502.  Rather, “[t]he States must possess broad power to adopt general regulatory measures without being concerned the private contracts will be impaired, or even destroyed, as a result.”  United States Trust Co. v. New Jersey, 431 U.S. at 22.  In other words, the ban on impairment of contracts “must be accommodated to the inherent police power of the State ‘to safeguard the vital interests of its people.’’’  Energy Reserves Group, 459 U.S. at 410, quoting Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. at 434.

Though not specifically referenced in the Constitution, the “police power” gives state legislatures broad leeway to pass laws to protect the public health, safety, and welfare.  The classic case is Stone v. Mississippi, 101 U.S. 814 (1879).  There, a state statute outlawing lotteries was challenged by a company that had previously obtained a charter from the state to run a lottery.  Rejecting the challenge, the Court held that the state’s power to shield the public from the evils of gambling trumped the contract rights of the lottery company.  Id. at 819.  Over time, the definition of the police power expanded to include a wide variety of laws designed to protect the public.  See, e.g., Home Building & Loan Association v. Blaisdell, 290 U.S. 398, 444 (1934) (Great Depression “furnished a proper occasion for the exercise of the reserved power of the State to protect the vital interests of the community” by providing for mortgage relief for financially strapped homeowners); Manigault v. Springs, 199 U.S. 473, 480 (1905) (even if contract for sale of alcohol was permissible when made, state could later prohibit such sales without violating Contracts Clause).

As we’ll discuss in the next part of this post, since the New Deal, the Supreme Court has generally applied these principles to uphold state legislation against challenges brought under the Contracts Clause.  We’ll also discuss how these basic principles have been applied by lower courts in insurance coverage cases and why we think the proposed legislation passes muster under the Constitution.

© 2020 Gilbert LLP

ARTICLE BY Mark A. Packman of Gilbert LLP.
For more business policies & the coronavirus, see the National Law Review Insurance, Reinsurance, and Surety law section.

How Outdoor Sports and Recreation Operations Can Legally Protect Themselves in a Post COVID-19 Environment

There is a world history of pandemics that, at one point or another, crippled civilizations or dynasties.  In America’s more recent history, our country has experienced the Spanish Flu (1918 – 1920), the Asian Flu (1957 – 1958), and the H1N1 Swine Flu (2009 – 2010).  Though the Swine Flu is in our society’s most recent memory, the current Coronavirus infection and death numbers have already surpassed the total Swine Flu infection and death numbers.  The Coronavirus (COVID-19) has wreaked havoc on Americans and their interactions with each other because of the rapid rate at which the virus spreads.  Businesses have been impacted due to governmental orders to temporarily close or greatly reduce their services.  But with proper action, the spread of the virus will slow, the economy will rebound, and people will return to the extracurricular activities they enjoy.

As our country presses forward, the Coronavirus will change the way business owners conduct business – including operators in the outdoor sports and recreation business.

On May 5, 2020, North Carolina Governor Roy Cooper signed Executive Order No. 138 (the “Order”), which modifies Executive Order No. 121 (also known as The North Carolina “Stay at Home” Order).  The Order signaled the beginning of Phase 1, effective 5:00 p.m. on May 8, 2020, and the gradual reopening of North Carolina.  On May 20, 2020, Governor Cooper signed Executive Order No. 141, which outlines “Phase 2” of reopening North Carolina and will begin on May 22, 2020, at 5:00 p.m. (also known as the North Carolina “Safer at Home” Order).  The Order removes the distinction between essential and non-essential businesses, which were defined in Executive Order No. 121, thus allowing many businesses originally deemed non-essential to reopen.  Additionally, the Order explicitly provides that outdoor activities are allowed and that day camps and programs for children and teens are permitted to resume if they are able to adhere to certain guidelines and social distancing requirements.  Phase 2 allows for overnight camps for children and teens to resume, also as long as requirements are met.  As North Carolina moves through Phase 1 and into Phase 2, several state parks will reopen to the public.  Phase 2 does not permit Mass Gatherings of more than ten people indoors or more than twenty-five people outdoors nor does it allow for indoor fitness facilities to reopen.  Please click HERE for a summary of what Phase 2 allows and does not allow.

As outdoor sports and recreation businesses prepare to eventually reopen, business owners should evaluate their legal documents to determine if the business is adequately protected in the event of this continuing pandemic or another pandemic.  Two items to consider are the contractual language in event contracts and liability waivers.

Update Contractual Language Regarding Event Cancellation or Postponement

Outdoor sports and recreation businesses that provide services such as race organization, adventure vacations, guided excursions, exhibition management, or outdoor recreation conference organization have been forced to cancel or postpone events if the event was scheduled to take place during one of the many state or local government orders to shut down.

Businesses that plan these events often expend costs associated with the event as the planning progresses.  In light of the Coronavirus, most businesses should revise their contractual language involving event production, especially in cases where there is a “no refund” policy.

If the current contractual language does not address governmental orders related to government-ordered shutdowns, pandemics, or does not contain a force majeure provision, then the contract likely should be revised to include such provisions.

The contractual language that addresses pandemics and governmental orders to shut down can help limit the business’s financial liability in the event of event cancellation or postponement due to a future pandemic or governmental order to shut down.

Update Liability Waivers

Outdoor sports and recreational activities come with inherent risks for participants and sometimes even for event spectators.  When a participant or spectator gets injured during the activity, there is potential liability exposure to the other participants, the event organizers, and the activity providers.  Liability exposure is greatly reduced with a proper liability waiver signed by the participant or agreed to by the spectator before the activity begins.

There are several key components to an effective liability waiver.  One such component is the assumption of risk provision.  This provision identifies (1) the activity at hand, (2) the inherent risks associated with engaging in or observing such activity, and (3) that these risks cannot be eliminated no matter the level of care taken to avoid injury.

In light of the Coronavirus, outdoor sports and recreation business owners should examine the assumption of risk provision in their liability waivers.  They should seek legal guidance in adding language to provide that participants are at risk of coming into contact with certain communicable diseases or viruses similar to COVID-19.  The waiver should also be updated to reflect that participants agree to waive claims arising from injury, illness, or death associated with these assumed risks.

Many runners and tri-athletes are looking eagerly to the day when they will once again be allowed to sign up for and compete in races and events. Others are awaiting the return of guided white-water rafting trips, lazy days floating on a tube down a local river, or visiting an adventure center to challenge themselves on a ropes or zip line course.  Owners of these outdoor sports and recreation operations should use this time to get their documents in order to protect themselves against potential future lost revenue or liability in the event of another pandemic or if a government order to shut down occurs.

© 2020 Ward and Smith, P.A.. All Rights Reserved.

For more on the return of sports, see the National Law Review Entertainment, Art & Sports law section.

Department of Banking and Insurance Mandates Insurance Premium Refunds

On May 12, 2020, the New Jersey Department of Banking and Insurance issued Bulletin No. 20-22.  As a result of the COVID-19 pandemic and the resulting reduction in loss exposure for insurers, the Department has ordered insurers to make an initial premium refund or other adjustment for certain specified lines of insurance.  Premium refunds are required for the following types of insurance: (1) medical malpractice insurance; (2) commercial liability insurance; (3) commercial multiple-peril insurance; (4) workers compensation insurance; (5) commercial automobile insurance; (6) private passenger automobile insurance; and (7) any other line of coverage where the measures of risk have become substantially overstated as a result of the COVID-19 pandemic.

The premium refund may be provided as a premium credit, a reduction in premium, a return of premium, dividend, or other appropriate premium adjustment.  The premium refunds must be implemented “as quickly as practicable,” but in no event later than June 15, 2020.

Insurers may also provide additional premium relief to individual policyholders on a case-by-case basis for recent, current, and upcoming policy periods or any portion thereof.  Examples of reclassifications set forth in the Bulletin include, but are not limited to: (1) reclassifying a personal automobile exposure from “commute use” to “pleasure use”; (2) reclassifying a physician practice to part-time status; or (3) excluding payroll for employees who are being paid but not actively working.

Insurers are required to notify each affected policyholder no later than June 15, 2020 regarding the amount of the refund or adjustment.  In addition, insurers are required to provide an explanation of the basis for the adjustment, including a description of the policy period that was the basis of the premium refund and any changes to the classification or exposure basis of the affected policyholder.

While the across the board initial premium refunds referenced above will not require any action by individual policyholders, businesses and individuals should review their current and projected activities and reach out to their insurer to see if there is an opportunity for an additional “case-by-case” premium reduction.  For example, if a physician practice has reduced hours for its physicians so that all physicians are working part-time, this may provide the opportunity for a further reduction in medical malpractice premiums.

The text of the bulletin can be found here.

 

© 2020 Giordano, Halleran & Ciesla, P.C. All Rights Reserved
For more on COVID-19s effects on Insurance, see the Insurance Reinsurance and Surety section of the National Law Review

May is Motorcycle Safety Awareness Month: Please Drive and Ride Safely

May is Motorcycle Safety Month, which highlights the need for all drivers to be especially aware of motorcycles as well as all vehicles on the roads. With the recent beautiful weather, I’ve seen and heard more motorcycles in the last week than I have in months. Please be especially vigilant and respectful of others as you drive, whether you are on a bike, in a car, or truck.

Because we don’t see as many motorcycles during the winter months, we are not as sensitive to their presence and often simply do not “see” them. Many crashes occur when a car or truck makes a left turn in front of a bike or pulls out of a driveway or side street in front of one. Please, expect that more motorcycles will be out now and look twice or even three times before making a turn or pulling into a street. Also, be even extra careful when driving after dark as the single headlight may confuse you or look farther away than it actually is.

Motorcycles come in all shapes and sizes. Some are small enough to be blocked by your windshield pillars or rear view mirror. They may travel in your blind spots and be unseen and unheard by you.

Please do not rely on your hearing to warn you of an approaching motorcycle. While we may associate the sound of a bike with the presence of one, most of the sound we hear occurs after the bike has passed. Depending on its speed, a bike may “sneak” up on you from behind or from a side road. Rely more on your vision and extra effort to be sure you can make a maneuver or turn safely.

Also, we bikers must be very careful and respect all drivers on the road. Many of us have not ridden for a few months, and I recommend we all take it slow and easy during our first few decent rides of the spring. Make sure your bike is in good physical shape and do a thorough check to be certain everything is functioning properly before riding. Also, make sure to wear the proper gear. Make sure you dress warmly enough for the ride in cool air. Wear the proper helmet if you are riding in New Jersey or another state which requires one. Consider attending a rider safety refresher course if you have not had one in a while. While riding, remember that often the roads have more gravel and debris on them from spring rains so be mindful when riding on curving roads where you may not see a hazard until you are upon it. Ride at a safe speed for both the conditions and how you are feeling as well as your expertise. Always keep a safe distance from other bikes and vehicles.

All, please understand that bikers are taught to drive defensively and to assume others will not see them. Therefore, riders drive in the portion of the lane where it is most visible to other drivers. However, we riders want to be seen, we do not want to be invisible to anyone. We are not being obnoxious, rather we are practicing safe riding.

Both motorcyclists and motorists should recognize the dangers of driving at all times. By practicing a little more vigilance and looking twice, we can all stay safe on the roads.

COPYRIGHT © 2020, STARK & STARK

For more on road safety, see the National Law Review Utilities & Transport law section.

Social Distancing During Wedding Season: Mitigating Loss and Securing Insurance Coverage

In a typical year, March flowers hint at wedding showers soon to be celebrated.  But 2020 is not a typical year.  As travel and crowd size restrictions continue to tighten, the wedding industry—which relies on large gatherings of people, many of whom travel for the occasion—has been and will continue to be significantly impacted.  And wedded bliss is big business; as reported by NPR, “Americans spent $54 billion on more than 2 million weddings” in 2019.

As my colleagues have noted, insurance may be an invaluable resource to businesses impacted by the coronavirus and related restrictions.  How does this apply to the wedding industry, including venues, event planners, photographers, videographers, caterers, musicians, florists, and potentially airlines, hotels, and online travel vendors?

For all such businesses, vendors’ own losses (also known as “first-party claims”) may be covered by the following types of insurance:

  • Property Insurance, which can apply when a property cannot be used for its intended purpose, even absent structural damage or destruction. Thus, for example, the contamination of a wedding venue, rehearsal dinner site, church, photography studio, or other location due to the presence of coronavirus may be covered.
  • Business Interruption Insurance, which is designed to reimburse policyholders for profits lost due to a covered risk. Such insurance may apply both for amounts lost while a company is out of operation and while the company has resumed operation and is working back up to full capacity.
  • Contingent Business Interruption Insurance, which covers loss sustained by one company as a result of impacts on a third party, such as a supplier. For example, loss may be sustained by a domestic wedding vendor because a dress ordered from China will be delivered late due to restrictions in place there.  And given how many vendors can work together on a single wedding, this coverage type could conceivably apply to more than one loss in connection with a single event.
  • Business Income Insurance, which may apply to loss of income that results from governmental orders that limit the business’s ability to operate. Although such coverage often is time-limited, how those limits apply will—as always—be subject to specific policy language and facts.
  • Event Cancellation Insurance, which generally applies when loss results from a cause “beyond the insured’s control.” Although this coverage typically is discussed in the context of concerts and the like, if contained in vendors’ policies, it could apply to wedding-related losses as well.

Regardless of the insurance type, vendors would be wise to keep records of how virus-related restrictions impact their business.  Those facts will be key to any claim.

Vendors also may seek coverage for claims filed against them if, for example, they provided services for a wedding that occurred before restrictions were put in place and attendees were exposed to the virus.  Such third-party claims potentially could be covered by General Liability Insurance, Workers’ Compensation Insurance, and Employers’ Liability Insurance.

When submitting a claim for first- or third-party losses, policyholders should expect insurers to reserve rights or deny claims based on limitations in the policies that may, on their face, appear to apply.  However, policyholders should never accept at face value an insurer’s reservation or denial.  For one thing, limitations on coverage are construed narrowly, and whether they apply depends on specific policy language and facts.  For another, if reasonable people could read a coverage limitation differently, the policy is ambiguous, and will be construed in favor of coverage.

Finally, regardless of the type of insurance, a key factor for the wedding industry will be mitigation, or minimizing loss.  Common law and many insurance policies require policyholders to try to minimize the negative impact of an event on their business.  For wedding vendors, this might mean accommodating couples by postponing services.  That, in turn, means that vendors ultimately will receive payment, but only after a gap in income.  In an industry that tends to be locally based and relies on word of mouth, this approach is a smart business practice.  And, in some instances, insurers may reimburse policyholders for both the amount they spend to minimize loss (e.g., costs associated with finding a new date and dealing with associated logistics), any income they lose during the “gap” period that they are unable to defer, and the opportunity costs resulting from weddings being rescheduled when others might otherwise have taken place.  In short, working with your clients to save their big day might be the right choice in more ways than one.

© 2020 Gilbert LLP

ARTICLE BY Jenna A. Hudson of Gilbert LLP.
For more on COVID-19 impacts on various industries, see the National Law Review Coronavirus News section.

COVID-19 Insurance Impacts

In the throes of the COVID-19 pandemic, businesses have been significantly impacted and, whenever possible, should turn to their insurance carriers for coverage to mitigate the fallout from this virus.  As an initial step, policyholders should consider the insurance coverages listed below that may be triggered by COVID-19 losses or claims:

  • Business Interruption Coverage
  • General Liability Coverage
  • Workers Compensation Coverage
  • Directors and Officers Coverage

Policyholders should keep in mind that each situation is unique, based on the policy language, factual circumstances and applicable state law. As a starting point, policyholders should examine their policy language carefully to determine whether coverage may exist for COVID-19 related losses or claims.

Property Policies-Business Interruption Coverage

Business interruption coverage in general

Some policyholders might benefit from claims under business interruption coverage in their Property Policy in the wake of COVID-19, even though this kind of coverage is generally triggered where there is physical loss or damage. Courts vary on whether contamination rendering a building uninhabitable or unusable constitutes physical damage. Given that COVID-19 rendered buildings uninhabitable and unusable, the issue that may arise is whether COVID-19 contamination constitutes physical damage. We are aware of at least one case where a policyholder is suing its insurance carrier for business interruption coverage arguing that COVID-19 constitutes physical damage because the virus contaminates surfaces.

Policy exclusions must also be taken into consideration when determining coverage. After epidemics such as SARS, MERS, Zika, and Ebola, many insurance companies wrote in exclusions for infectious diseases. However, state legislatures might intervene and forbid these types of exclusions as a matter of public policy. For example, recently the New Jersey state legislature introduced a bill that would require insurance companies to cover business interruption losses as a result of COVID-19 despite the presence of these types of exclusions.

Given the level of uncertainty resulting from the pandemic, and the significant adverse financial impacts many businesses are facing as a result, the New York State Department of Financial Services (NYSDFS) issued a letter instructing insurance companies to provide policyholders and NYSDFS with an explanation of benefits letter to provide clarity around business interruption coverage under the policies at issue.

Contingent business interruption coverage

Some policyholders might benefit from contingent business interruption coverage in their Property policy, which is triggered when someone in your supply chain cannot perform due to a covered loss which in turn interrupts your business. In the case of the COVID-19 pandemic, businesses have certainly been impacted as a result of supply chain interruptions of third parties. Whether contingent business interruption coverage is available depends on policy language.

Off-premises business interruption coverage

This type of coverage is triggered where a service, such as electricity, water, sewage, communications, or gas, is disrupted leading to business interruption. We may see these essential services heavily challenged by COVID-19 impacts on the workforce and there may be adverse effects that have not yet reached businesses, but may be coming soon.

“Civil Authority” coverage

Some Property policies include “civil authority” coverage which covers losses as a result of a government or civil authority restricting access to the policyholder’s premises. Policies differ as to the terms of coverage including duration of coverage, whether the premises has to be damaged by a covered cause, and whether coverage extends broadly, such as when the civil authority restricts, hinders, impairs access, or narrowly, such as when the civil authority “prohibits” or “denies” access. Generally, civil authority coverage applies when there is a direct link between the civil authority’s order and the policyholder’s loss. For policy holders in localities where the state or local government has ordered a shutdown or curtailment of businesses to curb the spread of COVID-19 policyholders might recover under civil authority coverage.

General Liability Coverage

Businesses with general liability policies might be covered against third-party claims arising out of COVID-19. General liability policies typically cover third-party claims for “bodily injury” and “property damage” under “Coverage A,” and personal injuries, such as false imprisonment, under “Coverage B.” “Property Damage” is typically defined to include both physical injury to tangible property and loss of use of tangible property that is not physically injured.

Under Coverage A, businesses may be at risk for claims alleging that the business did not take proper precautions to mitigate the spread of COVID-19, thus resulting in bodily injuries. Princess Cruise Lines recently was sued by two of its passengers after the ship was quarantined because of a COVID-19 outbreak, alleging that the company did not take proper precautions to prevent the spread of the virus despite knowing that some passengers were infected. The occurrence giving rise to the claim must be “accidental” and there may ultimately be an inquiry whether companies knew and ignored risks, or whether the circumstances amount to an accident. Coverage claims will also have to address any potentially applicable exclusions to coverage under general liability policies.

In terms of liability under Coverage B, companies may be sued for false imprisonment as a result of improper or unwarranted quarantines.

Workers Compensation Coverage

Businesses that face claims from their employees who contracted COVID-19 in the course of employment should turn to workers compensation policies for coverage. Generally, workers compensation provides coverage for employees who were injured by accident or contracted a disease in the course of their employment. Many state statutes carve out coverage exceptions for “ordinary diseases of life,” meaning diseases that can be contracted by the general public. Whether insurers cover workers compensation claims for employees who contract COVID-19 through the course of employment is yet to be determined.

Directors and Officers Coverage

Businesses are also at risk of shareholder and securities suits, particularly in the context of disclosing the impacts of COVID-19 on business. The U.S. Securities and Exchange Commission (SEC) has been active in monitoring the impact of COVID-19 on publicly-traded companies, investors, and the market. On March 4, 2020, the SEC issued a press release, through which the SEC Chairman encouraged companies to provide investors with as much information as possible regarding COVID-19 impacts, plans, and risks. A class action lawsuit has already been filed against Norwegian Cruise Line alleging deceptive practices by the company in hiding the impacts of COVID-19 on the business, and subsequent stock losses.

If you have paid your premiums, you are entitled to all of the benefits your policies provide. In these challenging times, be sure to check all of your insurance policies for potential coverage.

© 2020 Van Ness Feldman LLP

Coronavirus and Commerce: Possible Insurance Implications

The coronavirus pandemic and its consequences are spreading throughout the world at an alarming rate.  Governments at all levels and the private sector are scrambling desperately to mitigate these consequences even as new closures, stricter quarantines, and fresh fears develop on an hourly basis.

While some industries are more directly impacted than others (e.g., airlines and hospitality), the economic losses associated with coronavirus cut across sectors and are reverberating throughout the economy.  As companies look to mitigate coronavirus-related losses, they should carefully review their insurance policies to determine whether they provide coverage for losses associated with the disease.  While coverage will ultimately turn on the specific terms of the relevant insurance policies and the precise nature of the losses, a number of insurance lines may provide relief.

First-Party Property Insurance – Business Interruption Insurance

Business interruption insurance is a common component of commercial property insurance policies.  In general, business interruption insurance covers loss of income that a business suffers after an interruption of their business operations.  Often, business interruption coverage is triggered as a result of “direct physical loss of or damage to” insured property as a result of an otherwise covered peril.  Depending on the specifics of the claim, a dispute may ensue as to whether “physical loss” occurred as a result of the coronavirus.  The term “physical loss” has been the subject of litigation in many jurisdictions and the outcome of such disputes is not uniform.  Property that becomes unusable or uninhabitable as a result of the coronavirus may be sufficient to satisfy the requirement of “physical loss.”

Some property insurance policies also include contingent business interruption coverage.  Contingent business interruption insurance provides insurance for lost earnings resulting from a third-party supplier or distributor shutdown directly impacting the policyholder’s operations.  Typically, contingent business interruption insurance requires that the type of damage sustained by the third party be a covered type of loss for the policyholder.  Contingent business interruption insurance is often marketed to businesses such as hotels, restaurants, or food vendors that derive business from nearby properties that draw large crowds (e.g., sports stadiums).  Given cancellation of sporting events and conferences, this coverage could potentially be significant.

Specialized Insurance Policies

There are many types of insurance that provide specialized coverages.  For example, trade disruption insurance is political risk insurance that covers loss of gross earnings and extra expenses resulting from delay or failure of materials to arrive due to actions or inactions of a foreign government.  As the coronavirus and the response thereto continue to evolve, potential governmental restrictions on travel and trade will continue to be fluid.  This is just one example of more specialized insurance that could come into play.  Companies should be sure to evaluate all potentially applicable policies (or sublimits within policies) that may respond to coronavirus-related losses.

Commercial General Liability Policies

Commercial general liability insurance typically provides coverage for “all sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which th[e] insurance applies.”  This is coverage for third-party claims against the company.  Although causation may be difficult for plaintiffs to prove based on the specific facts, an important aspect of commercial general liability insurance is that it provides defense for third-party claims and the insurer’s duty to defend is broader than the insurer’s duty to indemnify.

Given the nature of coronavirus, it is not difficult to envision scenarios in which individuals assert claims against companies alleging that they were exposed to coronavirus as a result of negligent behavior by company employees.  Companies should turn to their commercial general liability insurer for both defense and, if ultimately necessary, indemnity of such claims.

Conclusion

The coronavirus pandemic is an evolving threat with catastrophic human and economic consequences.  While the first priority of companies should be the safety of their employees and customers, they should also look to mitigate the economic impact of the disease, including utilizing insurance tools as applicable.  While coverage will ultimately depend on the specific facts associated with the loss and the relevant policy language, companies would be well served to review all of their potentially applicable coverages, including but not limited to those discussed above.

© 2020 Gilbert LLP

Wisconsin Supreme Court: “Retroactive Defense” Can Satisfy An Insurer’s Duty to Defend

The Wisconsin Supreme Court has issued numerous decisions over the past few years regarding an insurer’s duty to defend its insured under liability insurance. On February 13, 2020, the Court added Choinsky v. Germantown School District, Case No. 2018AP116, 2020 WI 13, where it clarified one of the four recognized procedures for insurance carriers to contest coverage while avoiding a breach of the duty to defend.  The four procedures are: (1) defend under a reservation of rights; (2) defend under a reservation of rights but seek a declaratory judgment on coverage; (3) enter into a nonwaiver agreement with the insured where the insurer preserves its right to contest coverage; and (4) file a motion to bifurcate and stay the liability determination until coverage is determined.  Choinsky addressed a wrinkle to option 4, where the insurer files the appropriate motions but the circuit court denies the stay.

In Choinsky, retirees of the Germantown School District brought a class action in 2013 after a District decision caused them to lose their long term care benefit.  The retirees alleged breach of contract, breach of implied contract, breach of the duty of good faith and fair dealing, and promissory estoppel.  The District tendered the defense to its insurer, which the insurer denied a week later.  Then, following option 4, the insurer promptly moved to intervene in the pending suit, to bifurcate the coverage and liability issues, and to stay a liability determination until coverage was decided.  Almost three months later, the circuit court granted the motion to intervene and bifurcate, but denied the motion to stay.  The insurer then agreed to retroactively defend from the date of tender until coverage was resolved.  As a result, the District had to defend itself on both coverage and liability for approximately five months and was later reimbursed only for its attorney fees on the liability defense.

After two motions by the insurer for summary judgment were denied, coverage was tried to a jury in April 2016.  The jury found that the District decision makers had acted negligently, and the circuit court accordingly determined that there was a duty to defend.  After the liability trial resulted in a jury verdict in favor of the District, the District moved again for attorney fees it incurred in proving coverage pursuant to Elliott v. Donahue, 169 Wis. 2d 310, 485 N.W.2d 403 (1992), and Newhouse v. Citizens Security Mutual Insurance Co., 176 Wis. 2d 824, 501 N.W.2d 1 (1993).  The circuit court denied that motion, reasoning that since the insurer had followed a judicially-sanctioned approach to the coverage determination, it could not be held liable for breach of contract.  The Court of Appeals affirmed.

The District argued to the Supreme Court that its insurer should be on the hook for the fees the District expended in proving coverage because the insurer initially refused to defend and cannot cure that choice by agreeing to defend six months later.  It further argued that there was a breach since the insurer didn’t start paying defense fees for almost one year after tender.  The Supreme Court held that the insurer had taken “timely” action when it responded to the tender within one week and when the insurer sought to intervene in the liability case.  The Court said that the time it took the circuit court to decide the motion for stay and then the denial of a stay caused the problem, and urged circuit courts to give these issues priority on their dockets.

The Court also concluded that any damage to the District for the insurer’s initial coverage denial was remedied by the insurer reimbursing for attorney fees retroactive to the date of tender, stating that in the situation presented “the insurer must defend its insured under a reservation of rights so that the insured does not have to pay to defend itself on liability and coverage at the same time.  Additionally, the insurer must reimburse its insured for reasonable attorney fees expended on a liability defense, retroactive to the date of tender.” 2020 WI 13, ¶ 19.

In his dissent, Justice Kelly criticized the majority: “I don’t agree, however, that an insurer can buy its way out of its breach of [the duty to defend] by reimbursing its insured for defense costs.” 2020 WI 13, ¶ 47.  He noted that the District did not receive a defense for over 5 months, and he called the retroactive payments a new concept that will incentivize insurers to refuse the duty defend between tender and resolution of coverage issues.  In doing so, the insurer “risks nothing doing so because, in the worst case, it simply pays for the defense it refused to provide.” 2020 WI 13, ¶ 56.

All coverage matters are fact-specific, and time will tell how prophetic Justice Kelly’s warning turns out to be.  The insurer in Choinsky acted in a timely fashion by responding within weeks of tender.  If an insurer takes a longer time to respond, a court might come to a different conclusion.  And while the Supreme Court again “encouraged” all circuit courts to decide motions to bifurcate and stay expeditiously, that is not always possible.  Some motions can, for one reason or another, take longer than in Choinsky and some types of claims really can’t be stayed. Environmental cases, for example, can be triggered by a “responsible party” letter from the Environmental Protection Agency or the Wisconsin Department of Natural Resources.  Johnson Controls, Inc. v. Employers Ins. of Wausau, 2003 WI 108, ¶ 92, 264 Wis. 2d 60, 665 N.W.2d 257.  It is difficult to imagine how an environmental investigation could be stayed while coverage is decided.

For now, under Choinsky it appears acceptable that an insured may be forced to defend itself on two fronts for five months– however there is no set rule and, as a result, could that mean that 10 or even 12 months is acceptable?  What if a dispute then arises over the reasonableness of fees and that dispute lasts a year and there is no payment for 24 months?  There is room to test the limits, but Choinsky suggests a safe harbor for insurers of at least a few months if insurers file “timely” bifurcation and stay motions.  Insureds should be aware of Choinsky and push to minimize the time they subject to simultaneously defending coverage and liability.

© 2020 Davis|Kuelthau, s.c. All Rights Reserved