Coronavirus-related insurance disputes and litigation are likely to move beyond business interruption coverage and into workers compensation and general liability policy lines as states begin to lift restrictions on economic activity.
Business owners and corporate managers are considering how they can reopen while keeping their workers and customers safe. The decision-making process is likely to include reviews of workers compensation policies and general liability coverage in case workers or even customers get sick from Covid-19.
Even with thorough reviews, coverage disputes are likely to arise between insurance companies and their policyholders, according to former Mississippi Attorney General Jim Hood (D). From there, the race to the courthouse is going to begin, he said.
“There’s just going to be a bloodbath of litigation over the next 10 years,” Hood, counsel at Weisbrod Matteis & Copley, told Bloomberg Law.
Protecting the Workforce
Worker safety has been a top priority for hospitals, health clinics, grocery stores, gas stations, banks and other essential operations that have stayed open during the coronavirus pandemic.
Those concerns are going to be shared by a much broader groups of businesses as more and more states lift restrictions. Nearly half of U.S. states have announced plans to ease lockdowns meant to stop Covid-19’s spread, allowing different types of businesses to open in waves.
Most businesses will simply follow the rules put in place by local health authorities, including requiring masks and keeping customers and employees six feet apart. But that may not be enough to protect workers.
Workers compensation coverage typically covers injuries that employees develop on the job. The question both companies and insurers are going to have to answer is whether Covid-19 is covered under those policies, said Leann Walsh, a partner with K&L Gates LLP.
“I think the status of Covid as a coverable disease is varying and changing as states are starting to amend those benefits to deal with the Covid pandemic,” Walsh said.
Part of the Job
Most workers compensation policies do not cover people contracting easily transmissible viruses and other diseases, said Jeff Eddinger of the National Council on Compensation Insurance.
“If you’re a grocery store worker, that’s really not supposed to be part of your job,” he said.
Health centers and hospitals have what is known as needle-stick coverage, for when a doctor, nurse or other worker accidentally sticks themselves with an infected needle. That could conceivably be expanded to other types of communicable diseases.
Meat packing workers may also have coverage for specific food-borne illnesses like salmonella under their workers comp coverage, although it is unclear whether that would cover the coronavirus.
Many states also allow workers comp policies to exclude “normal diseases of life,” like the common cold. While Covid-19 is not a “normal disease,” it may fall within that exclusion, Eddinger said.
The biggest risk for employers is that workers compensation claims will be denied based on those exclusions, leaving employees with no recourse other than lawsuits.
“Even if the governor tells you to open up, that’s not going to protect you from a lawsuit,” Hood said.
The Trump administration and Republican lawmakers are insisting that an employer liability shield be included in a potential next stimulus package, although it is unclear whether Democrats will go along with the idea.
Businesses will also have to keep their customers as safe as possible from coronavirus.
Litigation is likely in instances where customers get sick and the illness can be traced by health officials to a specific restaurant, shop or office. That’s where general liability policies, and potential disputes, come in.
“Insurers are going to try to bootstrap coverage limitations in ways that policies were never intended to be limited,” said Cristina Shea, a partner at Reed Smith LLP.
General liability coverage litigation may be delayed until further in the future for a few reasons, however.
The majority of general liability policies have exclusions for mold and bacteria, not communicable diseases, said Michael Menapace, a non-resident scholar at the Insurance Information Institute, an industry group.
There are exceptions, like if a company is negligent in following accepted public health guidelines, he said.
The other delaying factor is that insurers typically have a duty to defend a policyholder in liability litigation brought by third parties.
In most instances, the insurer will agree to provide a defense for a policyholder, but issue a reservation of rights, Menapace, a partner at Wiggin and Dana LLP, said.
“They’re going to say we’re going to provide a defense to you at the moment, but we reserve the right not to pay an indemnity based upon what the jury decides,” he said.
Litigation expenses are another potential avenue for disputes between policyholders and insurers. Insurers may decide not to provide coverage for litigation expenses, depending on how a case goes.
In such an instance, the insurer will file a declaratory judgment suit in a separate court, seeking a judge’s blessing to stop covering a policyholder.
In the end, general liability coverage levels are going to come down to a basic question for the plaintiffs, businesses and insurance companies: was there an accident involved?
And an accident can be in the eye of the beholder, Menapace said.
“Without an accident, you have no GL coverage,” he said.