COVID-19: Are you being sued by your customers or employees?
Liability Insurance: CGL, D&O, E&O, and Workers' Compensation Coverage
As the incidence of coronavirus illness increases, businesses—particularly those in the hospitality industry—could also face claims by infected guests that they allegedly failed to exercise reasonable care in guarding against, or warning of, the risk of exposure to coronavirus. Intended to protect businesses against third-party claims for bodily injury resulting from exposure to harmful conditions, commercial general liability ("CGL") insurance policies should respond with coverage for these claims.
With respect to similar claims for bodily injury brought against a company by its own employees, most states' workers' compensation statutes provide that an employee is entitled to benefits for "occupational diseases." While "ordinary diseases of life" (i.e., those to which the general public is equally exposed) are generally excluded from workers' compensation insurance programs, if an employee can establish a direct causal connection to the workplace, there may be a valid argument for workers' compensation insurance coverage. Although coronavirus is transmitted primarily through animal or human contact (and thus arguably constitutes an "ordinary disease"), laboratory-acquired coronavirus illness could conceivably qualify for workers' compensation coverage. Nevertheless, to the extent that other claims for employee-related coronavirus illness do not qualify for workers' compensation benefits, coverage might still be afforded under certain CGL insurance policies.
In addition to CGL insurance, many health care providers also purchase errors and omissions ("E&O") insurance, commonly referred to as hospital professional liability coverage. These specialized insurance policies protect against damages that the health care provider is required to pay for bodily injury arising out of the provision of, or failure to provide, medical services. Although they typically exclude coverage for bodily injury to employees occurring during the course of their employment (which can be covered under workers' compensation insurance policies), hospital professional liability policies should respond with insurance for coronavirus-related bodily injury claims of non-employees.
In addition to third-party claims brought against businesses themselves, a company's directors and officers may be subjected to shareholder lawsuits alleging that their unreasonable actions (or inaction) in response to coronavirus or other infectious disease epidemics caused the company economic loss. In particular, a company's shareholders may contend that management allegedly failed to develop adequate contingency plans, allegedly failed to observe protocols recommended or required by governmental authorities, and/or allegedly failed to properly disclose the risks of coronavirus posed to the company's business and financial performance. Directors and officers ("D&O") insurance policies may provide coverage for the costs and liabilities arising from these shareholder lawsuits.
Although the majority of D&O insurance policies exclude claims for bodily injury (with some exclusions worded more broadly than others), when afforded a "strict and narrow construction," as they must be under the laws of most states, such exclusions should not preclude insurance coverage for shareholders' economic loss claims. Nevertheless, policyholders should be mindful of the fact that insurers may attempt to invoke certain D&O policies' so-called "absolute" bodily injury exclusions (e.g., excluding coverage for any claim "based on, directly or indirectly arising out of, or relating to actual or alleged bodily injury") to deny coverage for shareholder claims with any connection to a coronavirus-related bodily injury, no matter how attenuated. At the time of purchase or renewal, policyholders should therefore consider negotiating the removal of this "absolute" language or the addition of carve-outs to the exclusion that expressly preserve coverage for shareholder claims, whether or not they arise out of underlying bodily injury claims.
Along the same lines, policyholders should also examine the scope of their D&O insurance policies' "conduct exclusions." Many D&O insurance policies exclude coverage for certain misconduct by the insured, which can include deliberate fraud, dishonesty, and willful violations of the law. The particular language of these "conduct exclusions" can become significant if company management's response to coronavirus risk becomes the subject of shareholder litigation. Certain D&O policies require only that the proscribed conduct occur "in fact," while others provide that the exclusion applies only if the insured's misconduct is established by "final adjudication." Neither formulation of the exclusion is ideal from a policyholder perspective, as insurers may attempt to assert that they themselves can determine the exclusion's application (under the "in fact" trigger) or have the exclusion's application determined through insurance coverage proceedings (under the "final adjudication" trigger).
Where possible, policyholders should accordingly seek to have any conduct exclusions in their D&O insurance policies expressly worded to apply only if the insured's misconduct is determined through a "final, non-appealable adjudication in the underlying action," which should foreclose an insurer from attempting to trigger the exclusion absent a conclusive determination in the underlying litigation.
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