Basic & Coverage Issues

Severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2 or the "novel coronavirus") is the virus. COVID-19 ("COVID" for short) is the disease. The former causes the latter. Lawyers and judges please note the difference.  Or read more here.

Most insurance policies have three, basic working parts: 

• inclusionary or grant-of-coverage terms and provisions (what's covered);
• exclusions (what's not covered); and
• conditions (what's required before or after a loss for coverage).

Almost all legal proceedings involve burdens of proof. In insurance coverage disputes, ordinarily: 

• the policyholder or insured must prove that a loss is covered in the first instance (i.e., falls within inclusionary terms and provisions); and 
• the insurer must prove that either the loss is either excluded from coverage or the claim is not payable by reason of the policyholder or insured's breach of one or more policy conditions.

These are the insurance contract parties' ultimate burdens of proof.  Burdens of proof on dispositive motions in lawsuits are a different thing. 

Generally speaking there are two types of motions a party can make to end or "dispose" of a lawsuit before trial:

1. motion to dismiss (or "summary dismissal"), usually made by the defendant(s); and 
2. motion for summary judgment.

As of August 15, 2020, only four COVID BI coverage lawsuits -- two in federal court and two in state court -- had reached decision on a dispositive motion.   

If you think your insurance policy is wordy now, imagine how long it would be if it included definitions of EVERY SINGLE ONE OF ITS WORDS. Possible, but not practical, agree?

Insurance policies are sometimes called "contracts of adhesion" because the "party of the second part" -- the person or entity buying the policy -- has little to no input into drafting the policy language.    As such, any policy language that is found by a court to be ambiguous (and there is a whole set of legal rules regarding when a policy term can be said to be "ambiguous") is construed or interpretation against the party that drafted that language -- the insurer.  

In COVID BI litigation, courts have resorted to dictionary definitions of undefined policy terms.  Punctuation and grammar count, too.  

Commercial property insurance policies are not all alike. Depending on the insurer, polices offer some or all of these types of business interruption coverage:

• business income loss coverage;
• civil authority coverage; 
• extra expense coverage;
• "Sue and Labor" coverage.
• contingent business interruption/expense coverage.

Most commercial property insurance policies issued in the United States afford "all risk" coverage, meaning generally that all risks of loss are covered unless excluded.  

In the UK, most commercial property insurance policies afford "named peril" or "insured peril" cover, meaning generally that a loss is covered only if it was caused by one of the perils specifically named in the policy.  

They are different words and, most agree, mean different things. All sorts of arguments have been raised about the intended meaning and reasonable interpretation of these words relative to a commercial property insurance policy's business interruption coverages. Some even have argued in the COVID BI litigation context that "loss" has a broader meaning than "damage", even when modified by the words "direct" and/or "physical".  

Most commercial property insurance policies that afford all-risk coverage state their "Covered Cause of Loss" as being "direct physical loss" (with "loss" sometimes being defined and sometimes not being defined) "direct physical loss or damage", or "accidental direct physical loss". Note that these policy terms do not contain commas. That's important to their meaning and interpretation.  

 In 2006, in the wake of the global SARS virus outbreak, the Insurance Services Office (“ISO”) developed the virus and bacteria exclusion.  ISO Form CP 01 40 07 06, the virus and bacteria exclusion, states:

• We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.

Since 2006, some commercial property insurers began including this exclusion or something similar in their policies.  

You may have heard about but not seen what's been called  "pandemic exclusion.  Most US commercial property insurance policies do not contain a "pandemic exclusion" (many travel insurance policies do, however). This has led to arguments being made and complaints being pled to allege that a business' losses are not due to the novel coronavirus, which many policies exclude, but to the COVID-19 pandemic, which the policies do not exclude.

Reinsurers (insurers of insurers) have already begun requiring pandemic exclusions in their agreements or "treaties" with the insured or ceding insurer.  Can we expect the ceding commercial property insurers to submit pandemic exclusions for regulators' approval and then use?