COVID-19 Claims and Your Commercial General Liability (CGL) Policy
Over the past year, over 1,300 lawsuits have been filed by insurance carriers and policyholders over the question of whether property policies cover losses incurred by businesses that suffered business interruption due to the COVID-19 pandemic. So far, about 85% of those suits have been resolved in favor of insurers. Most of the 15% that favored policyholders are now on appeal.
Less numerous have been lawsuits in which insureds seeks coverage under their commercial general liability (CGL) policies for tort claims by third parties alleging to have suffered bodily injuries from exposure to the coronavirus. As businesses begin a phased reopening nationwide, such claims are expected to markedly increase, and insurance experts anticipate a corresponding increase in disputes over coverage for those claims.
Some states, including Michigan, have passed laws or issued administrative orders immunizing individuals and businesses from tort liability arising from exposure to the coronavirus. For example, on October 22, 2020, Michigan Governor Gretchen Whitmer signed House Bill No. 6030 into law. Titled "COVID-19 Response and Reopening Liability Assurance Act," the statute immunizes from tort liability persons acting in compliance with local, state and federal COVID-19 laws, including executive orders. The law, which covers tort claims arising after March 1, 2020, does not apply to government enforcement actions.
Businesses that are not exempt from COVID-19 liability under such laws, or who are sued despite that exemption, may have coverage for such claims under their CGL policies. Almost every business purchases CGL coverage to protect it from claims for “bodily injury” caused by occurrences that take place during the policy period. Those policies typically define “bodily injury” to include “sickness or disease sustained by a person.” Suffering ill health effects from exposure to the COVID-19 virus clearly falls within this definition.
Less clear is whether claims alleging emotional distress, but not alleging a physical manifestation of injury, are covered by CGL policies. To illustrate, in June 2020 Carnival Corporation, through one of its operating lines (Princess Cruise Lines), was sued in a dozen lawsuits—including a class action—by former passengers alleging to have been exposed to the novel coronavirus while sailing from San Francisco to Hawaii aboard the cruise liner Grand Princess. The lawsuits allege that Carnival was negligent for failing to advise passengers of the likely infestation of the ship with the COVID-19 virus, failing to screen or medically examine any passengers or crew, and failing to implement any quarantine or social distancing protocols during the voyage.
One class of claimants asserted that Carnival caused intentional infliction of emotional distress by exposing them to the virus, but did not allege that they actually contracted COVID-19. Whether or not such claims would be covered under the insured’s CGL policy turns on the policy’s definition of “bodily injury.” If the definition includes “mental anguish”—as many do—there should be coverage (assuming no coverage exclusions apply). If “mental anguish” is not part of the definition of “bodily injury,” coverage becomes more questionable. There is no consensus among the courts on whether emotional distress, without a physical manifestation of injury, constitutes “bodily injury” under standard CGL policies.
If there is “bodily injury,” the next step in the coverage analysis is to determine whether a policy exclusion applies. Unlike most property insurance policies, CGL policies issued pre-pandemic rarely exclude coverage for harm caused by viruses. (There are exceptions, however, and in the wake of the pandemic, many insurers will no doubt add “virus” exclusions to their standard CGL policies going forward).
Some CGL policies contain “communicable disease” exclusions, which preclude coverage for bodily injury arising out of the actual or alleged transmission of a communicable disease. “Communicable disease” is rarely defined in this exclusion or elsewhere in the policy. Insurers will no doubt contend that COVID-19 is a communicable disease, and most courts would probably agree (we are unaware of any reported decisions that address this precise issue).
Many CGL policies are endorsed by a “fungi or bacteria” exclusion. Given that COVID-19 is neither a fungus nor bacteria, this exclusion should not apply.
CGL policies typically include a “pollution exclusion.” One common version of the exclusion bars coverage for bodily injury that would not have occurred but for “the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.” Whether this exclusion precludes coverage for COVID-19-related losses is likely to depend on how the policy defines “pollutants” and how courts in the applicable jurisdiction have interpreted that definition.
Many CGL policies define “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” This wording raises two related questions: (1) Is the coronavirus a “pollutant,” and, if so, (2) Did the actual or threatened discharge, dispersal, seepage, migration, release or escape of that pollutant cause the harm alleged by the claimant?
Whether the virus is a “pollutant” will likely turn on which state’s law governs the interpretation of the CGL policy. In states like Illinois, California and New York, a “pollutant” has been interpreted to mean a typical industrial pollutant, which would not include viruses. Other states interpret the meaning of “pollutant” more broadly, some concluding that viruses (or other types of disease-carrying organisms) can constitute “contaminants.” Michigan courts, which have tended to reject the “industrial pollutant” rationale, have not specifically addressed whether the exclusion is meant to include exposure to viruses.
Even if a court concluded that the novel coronavirus was a “pollutant,” policyholders can still argue that the spread of the virus from one person to another did not result from its migration, discharge or release. This is similar to the argument made by policyholders—with considerable success—that immobile substances like lead in lead-based paints is not a pollutant because it does not migrate through the environment. How courts will address this issue in the context of exposure to the coronavirus remains to be seen.
Businesses that are subject to claims that their acts or omissions caused claimants to contract COVID-19, or suffer emotional distress due to the threat of such harm, should carefully review their CGL policies, and the law of the applicable jurisdiction, to determine if they are covered against such claims. In most cases, absent exclusions in the policy specifically targeted at viruses or communicable diseases, there should be coverage.