No matter how compelling from an economic perspective, the decision to reopen a business with the knowledge that a hazard still exists is not an accident. How’s this being addressed?

THE OTHER “B.I.” PROBLEM

Whatever happens in legislatures, agents, brokers, and carriers face questions about bodily injury coverage for COVID-19

By Joseph S. Harrington, CPCU

“Okay, so you’ve told us what isn’t covered. Now can you tell us what is covered?”

Things won’t get any easier for insurance agents and brokers, now that the country is slowly reopening in the wake of a pandemic that appears to be far from over.

For several months, commercial producers have had to explain to their clients why business interruption insurance, for the most part, does not apply to the biggest business interruption in U.S. history. Now that states are relaxing stay-at-home restrictions, commercial clients have a myriad of questions which can be boiled down to one: Can we be liable simply for reopening?

Republicans in Congress and the state houses want to minimize that risk by enacting measures that would grant businesses some level of civil immunity in cases where patrons or employees are infected with the COVID-19 coronavirus. Key Democrats have balked at the idea, claiming that expanded immunity might encourage businesses to open before it is safe to do so.

Now that states are relaxing stay-at-home restrictions, commercial clients have a myriad of questions which can be boiled down to one: Can we be liable simply for reopening?

It’s worth noting that even Kentucky Sen. Mitch McConnell, leader of the Republican majority in the U.S. Senate, supports standard carve-outs maintaining liability for acts of willful or gross negligence. This common exception recognizes that there is always some standard of care, however low.

Party time! Masks optional

Consider this: In mid-May, the Wisconsin Supreme Court struck down the governor’s extended stay-at-home order. Almost immediately, newscasts showed people in the Badger State gathering in restaurants and bars, generally in close proximity with each other, and almost always without face masks. After all, how can you eat and drink with a mask on? And what’s the point of going to a bar if you can’t circulate?

This behavior contrasted with that seen in subsequent weeks in other types of establishments across the country. Businesses permitted to do so reopened with mandatory or voluntary restrictions regarding the number of customers, the spacing of patrons, and the wearing of masks.

So, if a restaurant or bar reopens for business as usual—pretty much the only business it can provide, as take-out service is a poor substitute—would it be willfully or grossly negligent for not restricting patronage (apart from legal occupancy requirements), regulating how its customers moved about, or insisting they wear face masks?

That question is less pressing for businesses that do not rely on largely unregulated gatherings. Still, a major trend in modern commerce is to market an in-person “experience” at a time when people can purchase their commodities online. Given that competitive demand, no one wants to treat their customers like unwelcome threats that need to be controlled.

So, what would constitute gross negligence in reopening a business, presuming there was some immunity from simple negligence? The answer to that question will probably come down somewhere between two approaches, exemplified by the early guidance for reopening the economy proposed by the U.S. Centers for Disease Control (CDC) in April 2020, and the final guidance issued by the CDC a month later.

The original proposal was highly prescriptive compared to the final guidelines. For those desiring rules-based clarity, the former provided detailed steps and benchmarks to follow. For those favoring flexibility, the final guidelines emphasized principles to guide one’s judgment.

From a liability perspective, the detailed approach would essentially provide a checklist to demonstrate that a business had undertaken certain steps, but left open the possibility that something might be missed. The more flexible approach allows for more discretion, but requires more judgments businesses may have to defend.

Can carriers afford to be reasonable?

As previously noted, commercial producers have been in the unenviable position of having to explain why “BI” coverage in property insurance (for “business income” or “business interruption”) doesn’t apply in pandemics under most policies. Now, as the economy reopens, agents and brokers may have to explain why “BI” liability coverage (for bodily injury) may not apply in all cases.

Commercial insureds have to hope that health insurance covers the costs of treating those infected by COVID-19, but some accounts will undoubtedly face claims of debilitating injury and wrongful death arising from exposure to the virus.

While insureds and their agents and brokers will expect coverage for such claims under their general liability policies, the fact is that carriers cannot afford to be generous regarding an exposure of such potential magnitude.

First off, many insureds will be surprised to learn that an infection contracted by an employee in the workplace is generally not covered under workers compensation (although some states may require it) and is explicitly excluded from coverage under a standard GL policy.

It would be harder for GL carriers to avoid covering claims from customers and members of the public who have infections traced back to the insured business. But, for sake of solvency, insurers may have to try.

One potential approach to denying pandemic-related BI claims would be to invoke pollution exclusions by claiming COVID-19 is an “irritant or contaminant” under the standard policy definition of “pollutants.” Drafters of pollution exclusions probably did not have viruses in mind, but COVID-19 is like a pollutant in that it is a free-ranging, hazardous substance outside the control of the insured.

Another potential approach to denying coverage would be to challenge whether the loss arises from a covered “occurrence,” as defined in standard liability forms as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” No matter how compelling from an economic perspective, the decision to reopen a business with the knowledge that a hazard still exists is not an accident.

Carriers are working hard to avoid this type of scenario.

Just as they have advocated for a public program to compensate business owners for losses not covered by business interruption insurance, insurance trade associations are lobbying for liability protections that will allow enterprises to reopen without putting themselves or their liability insurers in jeopardy.

The author

Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.