Insurance Coverage Opportunities In the Age of Coronavirus

© 2020 ERVIN COHEN & JESSUP LLP 0© 2020 ERVIN COHEN & JESSUP LLP
INSURANCE COVERAGE OPPORTUNITIES IN
THE AGE OF CORONAVIRUS
Ervin Cohen & Jessup LLP
9401 Wilshire Blvd., 9th Floor, Beverly Hills, CA 90212
Phone: 310.281.6384
E-mail: pselvin@ecjlaw.com
Connect with us:
Presented By: Peter Selvin

© 2020 ERVIN COHEN & JESSUP LLP 1
What are the key losses for which there could be insurance coverage?
• Lost business income resulting from national shut-down and stay at home orders;
• Lost business income resulting from shut-down of supplier or customer;
• Employee claims of illness or injury arising from exposure to pandemic;
• Third party claims of negligence.

Cases Have Already Been Filed
• Several restaurants have already sued their insurers to recover for business
interruption losses caused by shut-down orders;
• Passengers on cruise ships have filed suit against the cruise lines for personal injuries;
• Lawsuits have been filed against the directors and officers of publicly held companies
for minimizing or failing to disclose the risk of coronavirus in their public disclosures.

Forms of Insurance That May Respond
First Party Policies
• Property including Business Interruption (“BI”) Insurance
• Typical coverage extensions – Civil Authority, Prohibition of Access, Ingress and Egress
And Extra Income;
• Contingent business interruption insurance
• Dependent business premises
• Event cancellation
• Pollution

Forms of Insurance That May Respond (continued)
Third Party Policies
• General Liability Insurance – triggered by “bodily injury” or “property damage”
• Directors and Officers – triggered by “wrongful act”
• Worker’s compensation – triggered by employee claim for injuries sustained in the
course and scope of employment.

Forms of Insurance That May Respond (continued)
Business Interruption Coverage
Typical formulation:
“We will pay for the actual loss of Business Income you sustain due to the necessary ‘suspension’ of
your ‘operations’ during the "period of restoration". The ‘suspension’ must be caused by direct
physical loss of or damage to property at premises which are described in the Declarations and for
which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be
caused by or result[ing] from a Covered Cause of Loss.”
The individual elements: (1) “direct physical loss of or damage”, (2) “to property at [the insured]
premises”; (3) “caused by or result[ing] from a covered cause of loss; (4) resulting in “’suspension’ of
your ‘operations’”; (5) and causing “the loss of Business Income”.

“Direct physical loss of or damage”
• Some appellate decisions support the notion of non-structural property damage – gasoline or ammonia vapers,
noxious smoke or gasses, asbestos particles, bacterial infestation. See, e.g., Gregory Packaging, Inc. vs. Travelers
Prop. Cas. Co. of Am., 2014 U. S. Dist. LEXIS 165232 (D. N. J. 2014); Mellin v. Northern Security Co., 167 N. H. 544
(2015). Other cases insist that there must be a tangible or physical change in property in order meet the threshold
of “direct physical loss of or damage”. Universal Image Prods. V. Chubb Corp., 703 F.Supp.2d 705 (E.D.Mich. 2010)
• Helpful language from a California appellate case:
• “Despite the fact that a ‘dwelling building’ might be rendered completely useless to its owners, appellant
would deny that any loss or damage had occurred unless some tangible injury to the physical structure itself
could be detected. Common sense requires that a policy should not be so interpreted in the absence of a
provision specifically limiting coverage in this manner”. Hughes vs. Potomac Insurance Company, 199
Cal.App.2d 239 (1962).
• See also West. Fire vs. First Presbyterian, 165 Colo. 34 (1968) (“…no direct physical loss was incurred by insured
until the accumulation of gasoline under and around the church built up to the point that there was such
infiltration and contamination of the foundation, walls and rooms of the church building as to render it
uninhabitable and make the continued use thereof dangerous”)
• Thus, some courts have recognized that where non-structural damage has rendered property uninhabitable or
unusable for its intended purposes this may constitute “direct physical loss or damage”.

“To property at the insured premises”
• While according to reports the coronavirus may remain or be “present” on surfaces or in the air,
insurers will likely argue that this element requires that that the insured “prove” the presence of the
virus at the premises and the presence of the virus “caused” the suspension. See, e.g., Columbiaknit,
Inc. v. Affiliated FM Ins. Co., 1999 LEXIS 11873 (D. Oregon 1999) (even physical damage that occurs at
the molecular or microscopic level must be “distinct and demonstrable”). Thus, insurers will argue that
the perceived “threat” that virus may be present at the insured premises will not be enough.
• If proof of the presence of the virus at the insured premises is required by the courts, this will be high
bar for the policyholder. If required by courts, policyholders will have to demonstrate that coronavirus
was actually present at the insured premises and that the presence of the virus “caused” the
“suspension”. The more direct cause of the “suspension” may be the governmental shut-down and
stay at home orders, which implicate the Civil Authority, Ingress and Egress and possibly other
coverage extensions.

“Caused by or result[ing] from a covered cause of loss”
• Important to ascertain whether your policy is “Named Perils” or “All Risk”.
• “Named Perils” is a property insurance term referring to policies that provide coverage only for loss
caused by the perils specifically listed, such as fire, flooding and earthquake. It contrasts with all risks
coverage, which applies to losses from all causes that are not excluded. In this regard, an “all risks”
policy is interpreted broadly to cover any kind of risk. See, e.g., Cincinnati Ins. Co. vs. Banks, 610 F.
App’x 453, 457 (6th Cir. 2015) (“An all-risk policy automatically covers any loss unless the policy
contains a provision expressly excluding the loss”).
• Note that certain perils may be excluded pursuant to insurance policy exclusions. In this regard, the
key exclusions which carrier may argue that apply to coronavirus include virus, mold/microbe,
communicable disease or pollution exclusions.

“Resulting in ‘suspension’ of your ‘operations’”
• Key issue: did the business completely cease operations or just slow down?
• Compare Buxbaum vs. Aetna Life and Casualty Company, 103 Cal.App.4th 434 (2002) (complete suspension of
all business operations required for business interruption coverage to be triggered) with Lexington Insurance
Co. vs. Island Recreational Development Corp., 706 S.W.2d 754 (Tex. 1986) (because policy failed to require
complete suspension, coverage was afforded for period of time the restaurant required to resume its normal
business operations); American Med. Imaging Corp. vs. St. Paul Fire & Marine Ins. Co., 949 F.2d 690 (3rd Cir.
1991) (insurer obligated to cover insured for time periods of sub-normal operations).
• As in all cases, the particular policy language will control.

“Causing the Loss of Business Income”
“Business Income” means the:
a) Net Income (Net Profit or Loss before income taxes) that would have been earned
or incurred; and
b) Continuing normal operating expenses incurred, including payroll.”

Civil Authority
We will pay the actual business income loss sustained by you…if an order of civil or military authority limits, restricts or
prohibits access to property not insured under this Policy provided that:
a) Such property sustains direct physical loss or damage by a covered cause of loss;
b) Such property is within the distance from the covered location as shown…in the Declarations under Interruption
by Civil or Military Authority; and
c) The effect of such order is to partially or totally prohibit access to a covered location.
• Note that the trigger for coverage involves property that is not insured under the policy. That property (which must be
situated within a specified geographical range of the insured premises) must have sustained “direct physical loss or
damage”. See United Air Lines, Inc. vs. Insurance Co. of Pennsylvania, 439 F.3d 128 (2nd Cir. 2006) (“There is thus no duty
on the part of ISOP under the policy to indemnify United for all damages it incurred, including lost earnings, that
resulted from the government’s decision to shut down nationwide air service for several days, and the Airport for
several weeks, in the wake of the September 11 terrorist attacks”).
• Key issue will be whether orders associated with coronavirus operate to bar access to insured’s premises. Compare
Assurance Co. of Am. Vs. BBB Serv. Co., 593 S.E.2d 7 (Ga. Ct. App. 2003) (hurricane evacuation order triggered Civil
Authority coverage) with Southern Hospitality, Inc. vs. Zurich American Insurance Company, 393 F.3d 1137 (10th Cir.
2004) (order arising from 9/11 did not necessarily bar access to insured’s hotel).

Ingress and Egress
“We will pay the actual business income loss sustained by you…caused by direct physical loss or damage
by a covered cause of loss to property not insured under this Policy, provided that:
“Such direct physical loss or damage to such property partially or totally prevents physical ingress to
or egress from a covered location…”
• Note that this coverage may be triggered in the absence of any action by Civil Authority and in the
absence of “physical loss or damage” at the covered location. See, e.g., Fountain Powerboat Industries
v. Reliance Insurance Co., 119 F. Supp. 2d 552 (E.D.N.C. 2000) (“the court finds that no requirement of
physical loss to the property is required under the contract of insurance in order to trigger business
interruption coverage under the ingress/egress clause”)

Contingent Business Interruption Insurance
• This form of insurance provides for payment of business income loss in the event that your company’s
supplier or customer sustains a direct physical loss or damage to their property which wholly or
partially prevents the supplier from supplying their goods or services to you; or wholly or partially
prevents the customer from accepting your goods or services. This form of insurance is sometimes also
referred to “Dependent Business Premises” coverage.
• Key questions in this area include whether the impaired party qualifies as a “supplier” or “customer”.
See, e.g., DIRECTV vs. Factory Mutual Insurance Co., 2017 WL 2629134 (9th Cir. 2017) (interpreting the
meaning of “direct supplier”); Archer-Daniels-Midland Co. vs. Phoenix Assurance Co., 936 F. Supp. 534
(S.D. Ill. 1996) (no damage to insured’s property required).

Exclusions
Note that under California law exclusions are narrowly construed, whereas coverage grants are broadly
construed.
The key exclusions likely to be asserted by insurers include:
• Virus, mold/microbe, fungus, communicable disease exclusions. See, e.g., Sentinel Ins. Co. v.
Monarch Med. Spa, Inc., 105 F. Supp.3d 464 (E. D. Pa. 2015) (“as the parties negotiated and
presumably paid for a fungi bacteria virus exclusion, these exclusions bar coverage and Sentinel has
no duty to defend or indemnify…”).
• Pollution exclusion. But California case law suggests that this exclusion is limited to environmental
pollution, not a pandemic caused by a virus. See Villa Los Alamos Homeowners Association vs. State
Farm Gen. Ins. Co., 198 Cal.App.4th 522 (2011). See also Keggi v. Northbrook Prop. & Cas. Ins. Co., 13
P.3d 785 (Ariz. Ct. App. 2000) (pollution exclusion did not bar coverage for injuries sustained from
drinking bacteria-contaminated water).

Notice
• A key issue in insurance coverage is whether notice of claim has been timely. Generally, the terms
specifying notice will be found in the “Conditions” section of an insurance policy. Failure to give notice
in a timely fashion, or to provide a proof of loss where same is required, may be a bar to coverage.
• “Notice–prejudice” rule typically applies to “occurrence” policies, whereas “claims made and
reported” policies require that claims must arise and notice must be given during policy period and
often within specified time.
• For this reason, policyholders should give prompt notice of claim where a loss has been sustained.

Key Take-Aways
1. Specific policy language will control. For this reason, it is important to review the terms of your
policy to see if coverage may be afforded for a loss and if certain coverage extensions – such as
Civil Authority, Ingress and Egress and Contingent Business Interruption – are available.
2. Be particularly aware of the notice provisions. If your company has sustained a loss that may be
covered, give notice as soon as possible.
3. Note any exclusions that may apply in this particular situation and may bar coverage.
4. The good news: as noted above, coverage grants are broadly construed, whereas exclusions are
narrowly construed. In addition, insurance policies are interpreted in accordance with the
insured’s objectively reasonable expectations. This means that in close cases, the win goes to
the insured.

Peter S. Selvin – Biography
• Peter is a seasoned lawyer who represents policyholders in connection with insurance coverage and recovery efforts principally in
the Property and Casualty, Professional Liability, Directors of Officers, Commercial General Liability and Cyber-insurance areas. He is
a partner in Ervin, Cohen & Jessupʼs li ga on department.
• Since 2007 Peter has been annually listed in “Best Lawyers in America”® for both Insurance Law and Commercial Litigation. He has
also been listed since 2007 as a Southern California “Super Lawyer” by Law and Politics, Inc. He has consistently maintained the
highest (“AV”) rating with Martindale-Hubbell.
• His policyholder clients have included publicly traded and privately held companies as well as individuals. Peter also represents
Marsh, the worldʼs leading insurance brokerage and risk management company, in connec on with insurance-related litigation.
• Peter has written and lectured extensively on insurance coverage and recovery issues, especially in the areas of Directors and
Officers Liability Insurance and Cyber-Insurance.
• Peterʼs career highlights include his gradua on from UCLA law school in 1980 and his aﬃlia on, ﬁrst as an associate and then as a
partner, with the Los Angeles office of Loeb & Loeb, where he specialized in insurance coverage and business litigation.
• Peter has published numerous articles concerning insurance coverage and recovery in such publications, and with such
organizations, as The D&O Diary, Risk & Insurance, the International Bar Association, the Association of Business Trial Lawyers,
Executive Counsel, the Los Angeles Daily Journal and the American Bar Association.
• Peter has been a panelist for the California Lawyerʼs annual Cybersecurity Roundtable. He has also given presenta ons and
webinars on insurance coverage topics for such organiza ons the Risk Insurance Managers Society (RIMS), the Directorsʼ
Roundtable, The Knowledge Group, Litigation Counsel of America and the International Bar Association.

Business Interruption Insurance Coverage In The Age Of Coronavirus
ByPeterS.Selvin
Businesses whose operations have been shut down due to the coronavirus crisis rightly look to their business
interruption or business income policies for relief. As a general matter, in order to trigger coverage those policies
require (1) direct physical loss or damage; (2) to covered property: (3) arising from a covered peril; and (4)
resulting in the suspension of the business’ operations.
In cases where coverage is triggered, an insured business may be entitled to recover the net income it would
have received but for the interruption and its operating expenses during the time its operations have been
suspended.
Given the number of businesses affected by the current crisis, it is virtually certain that courts will be asked to
construe these policies in light of the unique risks posed by the pandemic.
Chief among the issues is whether businesses whose operations have been shut down during the crisis can
demonstrate “direct physical loss or damage”. In this regard, there are a number of cases from outside California
which have held that contamination of business premises – by chemical agents, including gasoline and ammonia,
and in one case bacteria – could satisfy this policy requirement. And there is an older California case which held
that the requirement of “direct physical loss or damage” would be satisfied where the location was sufficiently
impaired to render it unhabitable or unfit for its customary use.

Business Interruption InsuranceCoverage In The Age Of Coronavirus (continued)
There is no definitive guidance from the California appellate courts about whether the financial and
business dislocation occasioned by the kind of viral pandemic currently underway satisfies the “direct physical
loss or damage” prong typically required under business interruption policies.
Importantly, the physical loss or damage must be “to the covered property” – typically to the business
premises itself. The caselaw is unclear whether this means that an insured must prove that its premises have
in fact been contaminated by the bacteria or virus or whether an insured’s loss of use of its business premises
because of the pandemic will suffice.
In order to secure coverage, an insured must also demonstrate that the physical loss or damage must arise
from a “covered peril”. In some cases, the definition of “covered peril” defaults to “direct physical loss” – tying
into the first threshold that an insured must cross. In other cases, a loss arising from a bacterial or viral
contamination may be expressly excluded. In all cases, the specific policy language will control.
The last prong is suspension. To trigger business interruption coverage, it is typical that an insured must
demonstrate a “complete suspension” of business operations, not just a slowdown in operations. In view of
the government-ordered directives about the closing of restaurants, bars and theaters, this prong should be
satisfied in the present circumstances.

Business Interruption InsuranceCoverage In The Age Of Coronavirus (continued)
Finally, some business interruption policies offer coverage for business losses occasioned by action of a
“civil authority”, such as a city or state, which prohibits access to a business’ premises. While the exact
phrasing of this coverage will vary from policy to policy, some policy forms require that this coverage is
activated only if a covered cause of loss cases damage to property other than the insured’s business premises.
This form of coverage would come into play, for example, if a building adjacent to the insured’s premises
burned down and emergency vehicles blocked access for a time to the insured’s premises, thereby
temporarily shutting down its business operations.
In all cases, business owners should
• review their existing portfolio of insurance policies with a qualified professional to ascertain whether
there are opportunities to make a claim for reimbursement of lost business income;
• maintain up to date operating records so that they are able to demonstrate a documented record of
historical net income and ongoing operating expenses; and
• evaluate whether their current coverage package is adequate in both scope and limits for future
contingencies.

© 2020 ERVIN COHEN & JESSUP LLP 21© 2020 ERVIN COHEN & JESSUP LLP
INSURANCE COVERAGE OPPORTUNITIES IN
THE AGE OF CORONAVIRUS
Ervin Cohen & Jessup LLP
9401 Wilshire Blvd., 9th Floor, Beverly Hills, CA 90212
Phone: 310.281.6384
E-mail: pselvin@ecjlaw.com
Connect with us:
Presented By: Peter Selvin
Disclaimer: The views and opinions expressed in this presentation are
not necessarily the views of Ervin Cohen & Jessup LLP or any of its clients.

Insurance Coverage Opportunities In the Age of Coronavirus

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