Does Your Insurance Protect Against FUTURE Damage Caused by COVID 19?
Now that we have seen much (not all) of the impact of the Coronavirus with COVID 19 (C-19), many businesses are taking stock on their current financial setting, including sources that may enable the business in question to cover some of the costs and injuries inflicted on the business by C-19.
One of the potential lifelines and support to meet the demands, financially, of C-19 is the government. Most forms of government help have been generated by the Federal government under one of 3 major pieces of legislation that were passed in March 2020. The more financially dominant law passed in March in this area is the March 27, 2020 law known as H.R. 748. This legislation is the Coronavirus Aid, Relief, and Economic Security Act or CARES. Unfortunately, this Act, while providing for payments to individuals, businesses and other entities that have suffered from C-19, does not provide businesses with payment for damage to the given business. The Act is mainly designed to help individuals and businesses regain their footing and to go forward in these difficult personal and economically challenging times.
Most state and local governments have faced their own “survival” issues in trying to help their citizens and residents on not only the medical issues, but also supporting their economic needs. With many businesses closed and millions of workers losing their jobs, the state and local governments have not been able to address with much support the struggling residents of the state in need of financial support for the damage they have suffered in the closure of businesses and the loss of jobs. The states have focused on the medical needs of their society and the future needs of gaining economic stability, going forward. Addressing the damage that has taken place and economically supporting those losses for past damage incurred is not the focal point for most state and local government agencies.
The need to help individuals and businesses for prior damage suffered by C-19 must be addressed most likely, if at all, by insurance that a given party or entity might have purchased. Such insurance might be what is known as “rent, business, or other interruption” insurance. Such policies possibly pay the insured for damage incurred by the insured when the business could no longer function. The cause of such interruption might be storms, fires and similar catastrophic events. These “force majeure” events (sometimes labeled as Acts of God) are the type of events that such interruption insurance often cover within the policy. (We have written on this issue of whether C-19 is the type of loss producing event, the pandemic, to come within such term as “force majeure.”) It is possible that courts will ultimate decide that those having interruption insurance are to be indemnified and paid by the insurer for the C-19 losses.
However, the focus of this Tip is on the issue as to whether, going forward, now that the pandemic is present, individuals and businesses will be able to be protected from liability to third parties and indemnified for their future losses, if any, for losses which occur subsequent to the time when these businesses re-open. When these entities undertake the difficult and dangerous posture of re-opening when the pandemic is still in place, albeit, hopefully diminished and becoming, a lesser issue, today, are they protected?
The CARES Act mentioned many types of “insurance.” For example, it mentioned FDIC Insurance, Insurance connected with payroll, medical, family leave, sick pay and other related Insurance, unemployment Insurance, Federal Old-Age and Survivors Insurance, etc. But, the CARES Act did not address insurance to protect those businesses that re-open, following their closure of business.
It seems obvious that firms considering reopening in the existing pandemic environment would be very concerned with injury they may face if the pandemic flares up and causes the entity to have additional losses, such as requiring a closing of their business, again. Further, now that businesses and individuals are aware of the damage caused by C-19, such parties may have liability to workers, among others, that contract the virus when they return to work. As such, a reasonably advised business owner might not choose to venture forward on a reopening, unless they were insured and protected in some manner from what could be a setting that generates great financial exposure to the business owner and others involved with the business.
The protection for the venturing owners of the business might well be a new insurance policy that protects the company or entity. Such protection via a policy could be generated by a governmental body, such as the state or Federal government. It might also be supported by a guaranty or other support by a governmental body to the insurance company, accepting part of the risk of such policy or protection for the business.
This type of protection is not a new idea. Following the losses suffered from the terrorism acts on 9/11/2001 in NYC et al, many companies and their insurers were concerned with future attacks. As such, there was concern that most insurance policies did not include insurance coverage for acts of terrorism. Such limits created a slowing of new lending, since lenders under their mortgages and deeds of trust insisted on being protected from acts of terrorism. Such protection normally would be something that an insured would seek under the property insurance on the subject property being covered. If the insurance did not protect the lender in the event of terrorism damage, the lender, often, would refuse to make the loan. This clog in the lending process created havoc in the real estate world, among other areas. To eliminate this issue, the Federal government passed the Terrorism Risk Insurance Act of 2002. (November 26, 2002, Terrorism Risk Insurance Act of 2002 (Pub. L. 107–297, 116 Stat. 2322) The Terrorism Insurance support by the Federal government resolved most of the issues in this area as to loans are related concerns.
This same issue for risk of loss as connected with disease or illness was faced in 2002, when there was the outbreak of Severe Acute Respiratory Syndrome or SARS. Some insurers were held to be liable for business interruptions that were generated by SARS. Following the SARS pandemic, many insurance companies changed their policies to attempt to make it clear that such pandemics would not be covered within the business interruption provisions of their policies.
Certainly, it is possible for the Federal government to create legislation, today, to address the need to protect businesses and others that are facing future exposure from this pandemic under C-19.
As more and more businesses consider re-opening, this anxiety and the need for protection will be important questions to address.
Dr. Mark Lee Levine,
Professor, University of Denver