OK, first of all, the title of this article refers to the supreme court of the United Kingdom (UK), not the United States supreme court (SCOTUS). A proliferation of articles has followed the recent pro-policyholder decision of the UK court, raising the question of how or if this ruling might impact judicial decisions in the U.S.
In my opinion, I believe this decision will have minimal impact on U.S. courts, the primary reason being the significant difference in policy language in the forms used in the UK.
According to information provided by Herbert Smith Freehills:
“The eight insurer defendants agreed to participate in the test case. The FCA represented the interests of the policyholders, many of which were small to medium sized enterprises. There were 21 sample wordings considered, but the FCA estimates that, in addition to these particular wordings, some 700 types of policies across 60 different insurers and 370,000 policyholders could potentially be affected by the test case.
“The case was determined without live factual or expert evidence and on the basis of certain agreed facts (such as to particular steps taken by the Government). Extensive documentation, such as pleadings and submissions, was created for the test case and is available on the FCA website:”
More complete information on the case from Herbert Smith Freehills and samples of the policy wordings can be found here:
(A tip of the hat to Ryan Maxwell at Hurwitz & Fine, P.C. for providing these sources.)
Additional information can also be found on the UK’s Financial Conduct Authority (FCA) web site:
As mentioned above and in great detail in the Herbert Smith Freehills documents, the policy language in most of the reviewed forms in use in the UK is significantly different, and much broader, than the standardized language used in U.S. policies, but there may be policies and endorsements in use in the U.S. under which coverage can be found.
In my book “Why Insurance Doesn’t Cover the COVID-19 Pandemic,” I include the following information relevant to how some U.S. policies do (or might) provide coverage:
Prior to 2020, there were products in the marketplace designed to specifically cover pandemics. Their existence might represent some evidence that, without these products, mainstream P&C policies generally do not cover pandemics.
In 2018, Marsh introduced a parametric insurance product for infectious disease outbreaks called “PathogenRX” underwritten by Munich Re and based on analytics provided by Metabiota, Inc. that could be tailored to cover specific types of diseases, losses and expenses. According to media accounts, literally no one elected to purchase the product even though it won an insurance product innovation award. To dig deeper into the development of this product, click here.
There have also been various types of “loss of attraction” policies that often responded to business interruption losses without a “direct physical” damage requirement. For example, one policy covers “…occurrences at any ‘insured location’ of violent assault or death, food contamination, infectious disease or contagion….” However, this particular form excludes certain viral diseases.
Some policies may have additional coverage options such as:
We will pay for the actual loss of Business Income you sustain caused by “Contamination” that results in an action by a public health or other governmental authority that prohibits access to the described premises or production of your product.
“Contamination” is defined to mean “…a defect, deficiency, inadequacy or dangerous condition in your products, merchandise or premises.”
Would this “contamination” language respond to a COVID-19 claim? Maybe, maybe not. In many, if not most, cases, there is not a complete prohibition of access to premises. Does “access” refer to the public or also the business owners? And does the burden of proof fall on the insured to demonstrate an actual dangerous condition on the premises? We will examine these issues later when we discuss coverage for orders of civil authority.
Other nonstandard policies may have “Contagious Disease” coverage options for business interruption if a public authority orders closure due to such disease allegedly being manifested by any person on the premises. Another policy has a coverage option with a sublimit for Extra Expense incurred for disinfecting a premises by order of a public health authority due to the presence of a contagious biological agent.
A regional carrier’s endorsement called “Business Income And Extra Expense – Limited Extension For Food-Borne Illness” actually appears to cover more than loss arising from a food-borne illness [emphasis added]:
The suspension of your “operations” at the described premises due to the order of a civil authority; or adverse public communications or media reports, resulting from the actual or alleged:
- Food or drink poisoning of a guest at the described premises; or
- Exposure of the described premises to a contagious or infectious disease.
Glancing only at the title, one would not know that there is quite possibly coverage for COVID-19, again illustrating the importance of the “RTFP! Doctrine” of insurance policy interpretation.
Sometimes coverage is even more “iffy.” For example, in February 2019, I wrote about a new Berkshire Hathaway small business insurance product called “THREE.” This policy purported to provide property, business income, general liability, professional liability, D&O, cyber, auto, and workers compensation coverage in a policy form that was…get this…just 3 PAGES long.
In a March 2020 blog post, I asked, “Does THIS Policy Cover Business Income Losses Due to the Coronavirus Pandemic?” This policy has a bizarre business income coverage insuring agreement that appears to provide the full business income limit as long as the business doesn’t relocate. This appears to be the only specific exclusion applying to business income coverage:
We do not cover any damage to property (or Business Interruption), nor any claim made against your business, that is caused by pollution, asbestos, or a nuclear event. Pollution means damage caused by the spreading or escape or presence of any contaminant (whether it is solid, liquid or gas), including chemicals and waste. Asbestos means the presence or escape of any asbestos at all. Nuclear means nuclear reaction or radiation or radioactive contamination, however caused.
This seems to imply that business income coverage is triggered by “damage to property” but it doesn’t actually say that and it certainly doesn’t appear to require “direct physical loss or damage.” If a “pollution” exclusion is the only basis for denying a COVID-19 claim, is that likely to hold up in most jurisdictions? And what about the issue of orders of civil authority?
Even if you are certain you have coverage under a “Pandemic Event Endorsement,” that doesn’t necessarily guarantee that the insurer will indemnify you. For example, one of the earliest lawsuits filed in the U.S. District Court for the Southern District of Texas was SCGM, Inc. v. Certain Underwriters at Lloyd’s. The plaintiff was insured under a Pandemic Event Endorsement but, according to the complaint, the Lloyd’s agent allegedly advised that COVID-19 “…is not covered under the Pandemic Event Endorsement as it is not a named disease on that endorsement.”
The actual endorsement says that a “Covered Disease” includes over two dozen specific pathogens, including “Severe Acute Respiratory Syndrome-associated Coronavirus (SARS-CoV) disease,” and its “mutations, or variations.” The plaintiff effectively asserts that SARS-CoV-2, the virus that causes COVID-19, is a mutation or variation of SARS-CoV. The status of this lawsuit is unknown at this time.
More recently, since the pandemic began, some insurers have been offering some COVID-19 coverages for very selective business segments. For example, in June, a COVID-19 remediation coverage endorsement was introduced by one carrier for environmental contractors doing decontamination work, though at a minimum premium of $25,000 and a deductible of $50,000.
As early as February 2020, ISO made two advisory COVID-19 coverage forms available to subscribing insurers:
- Business Interruption: Limited Coverage For Certain Civil Authority Orders Relating To Coronavirus
- Business Interruption: Limited Coverage For Certain Civil Authority Orders Relating To Coronavirus (Including Orders Restricting Some Modes Of Public Transportation)
For an analysis of the coverage provided by these forms, click here.
The introduction of these coverage forms could be viewed as supporting the premise that, without them, there is no coverage for the exposures addressed by these forms. Whether they or any similar coverage forms find their way into the marketplace, at least in the immediate future, is doubtful because of affordability issues and potential adverse selection.
There are endorsements like this in the marketplace which is why policyholders shouldn’t be told to not bother filing suit…at least until someone RTFP’s.