Will Your Commercial General Liability Insurance Policy Cover COVID-19 Claims?


By J.P. Harris and Michael Lambert

May 15, 2020

As the economy reopens and patrons return to shop at retail stores, go to hair salons and enjoy meals at restaurants, many business owners are justifiably concerned about exposure to lawsuits from patrons claiming that they have contracted COVID-19 at their place of business.  Even though plaintiffs may have difficulty proving they contracted the virus at one particular establishment, as opposed to any of the other possible sources of infection, business owners will be forced to incur thousands of dollars of litigation defense costs to demonstrate that the plaintiff really cannot connect all the required dots.  After months of generating little or no revenue, business owners will detest having to spend resources defending meritless lawsuits.  Companies justifiably wonder whether their Commercial General Liability insurance policies (CGL) will cover the costs to defend and dispose of lawsuits from patrons claiming they contracted the virus on their premises.

CGL policies provide coverage for third party claims, or claims brought by someone outside the insured organization, for bodily injury.  These insurance policies provide two valuable forms of coverage: payment of defense costs and indemnity protection.  Typically, when a plaintiff files a lawsuit against an insured business for a loss covered by the policy, the insurance company will pay a law firm to defend the business in that lawsuit.  If the business is found liable at trial for a covered loss or if a settlement agreement can be reached with the plaintiff, the insurance company pays the judgment or settlement amount (the indemnity coverage).  Of course, the defense costs and indemnity payments are all subject to the insured company’s deductible or self-insured retention, so the first dollars to defend any claim come from the insured business.  Each and every lawsuit, even if covered, will cause some amount of financial pain to businesses.

There is, however, some uncertainty as to whether COVID-19 claims will be covered by CGL policies.  The first potential trouble spot is that CGL policies only cover an “occurrence,” which is usually defined to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”  Courts generally define “accident” to mean “an undesigned contingency, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated, and not naturally to be expected.”  Whether claim is a covered occurrence often turns on whether the insured business reasonably foresaw the injury that was suffered.  In a world where potential exposure to COVID-19 is well known and governmental authorities have promulgated guidelines for preventing the disease, an insurer might argue that a patron’s exposure could not have been “accidental.”

The New Hampshire Supreme Court applies two tests to determine whether an insured’s act was an accidental cause of injury — one subjective, the other objective. The subjective test asks whether the insured business actually intend to cause the injury.  It is unlikely that businesses will intentionally try to infect their patrons with COVID-19, so this part of the test will presumably not apply.  An insured’s act might be deemed intentional (and therefore not a covered accident) when the conduct is so inherently injurious that “it cannot be performed without a certainty that some injury will result.”  Inherently injurious conduct need only be “certain to result in some injury, although not necessarily the particular alleged injury.” This part of the test is deemed to be objective (rather than subjective) because the analysis is “conducted from the standpoint of a reasonable person in the position of the insured.”

It is possible to construct facts under which an insured business acts so irresponsibly in allowing an infection to spread that it was reasonably certain that injury would result and therefore the lawsuit would not be covered by the insurance policy – completely ignoring official guidelines, for example.  Most businesses will presumably make diligent efforts to clean and follow governmental guidance, which will increase the chances of coverage.  Even so, an insurance carrier might resist coverage despite diligence by arguing that the injury is not so unusual, fortuitous, unanticipated or unexpected because of the pervasiveness of guidance and coverage of the pandemic.  The circumstances of coverage might change over time, as guidance and events evolve.  For example, three months ago, social distancing was not so entrenched in our lives.  If a business did not enforce social distancing three months ago, it would be harder for an insurer to characterize that failure as inherently injurious conduct.  Today, failing to implement robust social distancing protocols arguably makes transmitting the virus foreseeable.  What is foreseeable might also change by geography, as some areas have higher infection rates than others.  A business owner in a “hot spot” might need to adopt measures different than a similar business in an area with fewer positive cases.  This sliding scale not only affects the risk of claims but it might also impact whether subsequent lawsuits are covered by a CGL policy.  One thing is clear:  each circumstance will be different and coverage under a CGL policy will turn on the very specific facts unique to each circumstance.

Even if there is a covered occurrence, several exclusions commonly found in CGL policies could preclude coverage.  Many CGL policies have exclusions for communicable diseases.  Some policies define communicable diseases to include viruses and some do not, so the language of the policies will be key to determining the application of this exclusion.  The term “communicable” has been interpreted by one court in New Hampshire to mean “an infectious disease that is transmissible,” which is a broad definition that might prevent coverage for COVID-19.  Many policies have exclusions for fungi, mold, and microbes.  Again, the language of these exclusions is key, as this exclusion has been extended to viral infections in some instances.  Some policies have exceptions to this exclusion to bring back coverage for person-to-person transmission, which is a common way for COVID-19 to spread.  Additionally, most CGL policies have exclusions for expected or intended results.  As discussed above, with so much information available as to the risks of COVID-19 and with explicit governmental guidance to prevent its spread, this exclusion might also preclude coverage.  Any of these exclusions could leave businesses on their own do defend patrons’ suits.

If a patron sues a business alleging that he/she contracted COVID-19 while shopping, eating or otherwise using the business’s services, the business should promptly notify its insurance carrier of the claim.  The carrier will then respond explaining the extent to which it will cover the defense and indemnity costs of the lawsuit or identify any reasons why it will not cover the claim.  Business owners should not take an insurance company’s denial of coverage or reservation of rights lightly, as the risks can be significant.  Business owners who have received declination or reservation of rights letters should promptly consult with an attorney to evaluate the insurance company’s position and determine whether there is a basis for challenging that position. Business owners who have received declination or reservation of rights letters should promptly consult with an attorney to evaluate the insurance company’s position and determine whether there is a basis for challenging that position.  Business owners may have a basis for filing a lawsuit against the insurance carrier seeking a declaration that the policy covers the patron’s claim.  There is a limited time, only six months from the date of the patron’s initial lawsuit, to sue the insurance company.  After six months, businesses lose protections afforded to them by New Hampshire law, including the ability to recover any attorneys’ fees incurred in the lawsuit against the insurance company.  In the unfortunate event of a patron filing a lawsuit, companies should very quickly consult with their lawyers to analyze the insurer’s coverage decision and take appropriate steps to preserve what insurance coverage is available.