Does Business Interruption Insurance Cover COVID-19?

Insurance Law Basics

The basic idea of insurance is to pool and transfer risks. We engage in activities that involve risks. We can’t all individually bear the potential losses. We want to pool risks with other people. The insurance company is essentially a facilitator of this pool. They evaluate this risk and quantify it. They calculate probabilities of risks and arrive at a premium amount. Premiums usually vary in some correlation to the risk and amounts of loss. Underwriters agree to take on these risks. The insurer studies and spends significant resources on actuaries to figure out how likely a risk is to happen. There are a variety of these risk sharing legal vehicles such as indemnification but insurance policies are by far the most common. Within the product liability context, there is a significant presence of contractual indemnification throughout the supply chain at various levels to protect component makers. This might also involved additional insured provisions so more people who identify risks can be covered.

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Insurable Interests

You must have an insurable interest in order to obtain insurance. Once you buy a policy, you are no longer bearing the risks that now are borne by the insurance company. This has to be balanced by the person who might be willing to take more risks due to the knowledge that they do have insurance. That introduces moral hazards that the insurable interest requirement is designed to address.

Claims Made v. Occurrence Policies

Coverage is the key decision but time can also factor into this process. Claims made policies are usually a year long and will cover any claims made during that period of time. It is possible to purchase additional coverage extended beyond the date of the policy. Claims made policies revolve around retroactive dates and dates the policies end. The date that determines which policy applies is when the claim is made and insurance policy is reported. There may be an extended reported period but it depends on the contract. If the acts underlying those claims took place. The insurance company cannot take the risk of covering claims since the beginning of time. The claims made coverage will usually apply only if the loss is after the retroactive date. If it is before the retroactive date. Occurrence policies provide coverage for loses related to a policy term. This usually involves the personal injury during the policy. The coverage extends and there is no “tail coverage.” If the loss occurs during the policy period and the report is after the policy, it applies.

Insurance Policies

This document is a contract between the insurer and insured. Contract interpretation is critical to this area of law because coverage often depends on intent and there is considerable ambiguity. Ambiguity is typically resolved in favor of the insurance company because they are drafted by them. In most jurisdictions, ambiguities are resolved in favor of the drafter of the contract although typically the contracts are made to be as unambiguous as possible. Insured typically have to obtain insurance through the insurer’s website or an insurance agent. Agency principles can come into play when determining whether the insurer ultimately is bound when an agency is involved. For additional named insured, this is typically a very complex area that an insurance lawyer can make a major difference keeping track of original policies and evaluating them for the enforceability of insurance coverage for an additional insured. Some jurisdictions have case law that stands for the proposition that only allow the four corners of the contract to be reviewed when determining insurance company obligations. Other states might allow consideration of extrinsic facts and evidence. This distinction can mean that only the lawsuit and contract itself will be presented to the Court not necessarily extrinsic evidence that brings significant context.

Types of Insurance Policies

Property and Casualty Insurance: Homeowner’s, renter’s insurance and auto insurance fall into this category. This is the most common policy that most people are familiar with. They usually aim to cover property damage, bodily injuries in certain cases, etc.

Commercial General Liability insurance: This is the typical policy taken out by a business. It covers basic premises liability type claims and other business risks.

Errors and Omissions: These aim to provide insurance coverage for professionals that might make an error or omission in their practice that introduce significant risks.

Directors and Officers: This is another business related policy that relates to the risk of managerial decision making.

Other Insurance Lines: This is a catch all category to insure essentially anything. You are free to contract but you will have to work with an agent or company in order to negotiate this. It revolves around special risks such as injuries to athletes.

Key Provisions of Insurance Policies

Definitions: Nowhere is it more important to carefully review all definitions in an insurance policy. There are a range of so-called “terms of art” that will be strictly construed with these definitions. In the insurance litigation context, court cases have also ruled on what types of common definitions might be read into terms in the contract so there isn’t much leeway to interpret these definitions.

Declaration Pages: This includes key information at the beginning of the policy. It is often one or several pages that includes basic line item information in general terms. It will typically include the named insured and also a table of contents referencing forms that are part of the overall policies. It would not be feasible to draft a form for every single person. For that reason, form templates are often used. Insurance attorneys can usually research issues that arise in insurance litigation and reference form language or other court cases involving similar language to help guide the process of resolving insurance coverage disputes. Unfortunately, this limits the range of interpretations that can come from that exact language because there are typically a range of cases dealing with similar or even identical provisions due to the high incidence of common form insurance contracts. Policies typically have manuscript forms endorsed with unique language for that policy. So a common way insurance policies will look will be template forms and a slight alteration to the policy if needed for that policy.

Policy Exclusions: Insurance law often comes down to what is and what is not covered. The policy usually provides broad coverage that is then limited quite significantly by express exclusions also included in the contract.