How liability insurance responds (or not) to COVID-19

If your clients are sued as a result of the COVID-19 pandemic, don’t assume they will be covered by a commercial general liability policy.

General liability policies have exclusions; and for COVID-19, the most relevant exclusion is probably pollution, suggested Stephen Fraser, U.S. casualty claims leader for Marsh Inc.

“I think we can expect insurers to argue that [commercial general liability claims arising from COVID-19] will fall within the pollution exclusion,” Fraser said during Managing the Coronavirus Outbreak’s Continuing Effects, a recent webcast hosted by the New York City-based commercial brokerage.

“It’s a very broad definition of pollution,” Fraser said of the common commercial general liability policy exclusion. “It includes solid, liquid, or gaseous contaminants or irritants. There are grounds to argue that this should apply only to industrial chemicals or waste, but insurers have used this language to deny claims for things as common as smoke and grease and mud.”

He was answering a two-part question from an audience member. The first part was, given the current litigious environment in the United States, should businesses be preparing for lawsuits from customers and other third parties? The second part to the question was: Will general liability and excess liability policies respond to litigation from COVID-19?

Though the question pertains to the United States, both Canada and the U.S. use British common law, so Canadian coverage disputes – and negligence lawsuits – frequently cite decisions not only from Canada but also the U.S., Britain and the British Commonwealth.

There are several scenarios in which a business could be named in a lawsuit, said Fraser.

“You can imagine scenarios where a vendor brings a virus into a factory, it results in sickness and closure of the factory. Someone will be trying to think of a way to sue the vendor.”

There is also a risk if a business remains open after learning of a potential incident – and thereby exposes members of the public, said Fraser.

Some special policies provide pollution coverage – both first-party property damage and third-party claims, Fraser noted. But those tend to have unique wording. So depending on the wording, it may potentially cover viral contamination but they may be subject to sub limits –  or a requirement like a certain percentage of the property is affected.

“So you really have to review the policy,” Fraser said of stand-alone pollution insurance.

It could be tough to make a liability claim on a CGL policy even if the pollution exclusion did not oust coverage. “The claimant has to show the [alleged] act or neglect caused the infection,” said Fraser. “This virus has a really long latency period, so it may be difficult to show who or what caused it.”

When a client is sued by a plaintiff alleging property damage, it may be hard to prove that is covered by CGL.

“Insurers may take the position that closure or quarantine is not physical injury,” Fraser said. “They may take the position that the mere presence of a virus on a property does not constitute physical injury to the property.”