New York Insurance Coverage Under Certain Policies in the Wake of COVID-19

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During the ongoing COVID-19 emergency, some may wonder whether they are covered for losses stemming from the pandemic under certain insurance policies. For business or property owners, the most common policies insureds turn to are general liability insurance and property insurance. For insurance policies subject to New York law, whether pandemic-related losses will be covered depends upon the specific policy language and the types of claims at issue.

General liability policies protect against the insured’s losses and damages from claims brought by third parties against the insured. Many of these policies include a force majeure provision that excludes claims or damages arising from external events, including “epidemics,” or the more general category of “acts of nature/god.” In New York, courts typically read such force majeure clauses narrowly and construe any ambiguities created by the policy language against the insurer.[1] Under New York law, an “act of nature/god” is any event not caused by human intervention.[2] New York courts do not appear to have addressed a situation akin to this one, but based upon that definition, a viral outbreak is likely to be considered an “act of nature/god,” since the virus arose in nature without human intervention. Insureds may nonetheless argue that the pandemic was caused by human intervention, e.g., a failure to practice social distancing that caused the virus to spread. 

Even if pandemic-related losses are not specifically excluded by a force majeure provision, these policies may not cover claims arising from certain types of losses. For example, most liability policies cover a third party’s claims against the insured for bodily injury suffered—e.g., alleged contraction of the coronavirus by a third-party due directly to the insured’s conduct—subject to specific policy language and exclusions outlined in the policy. But other COVID-19 “losses” might not be covered, for example if the claim arises from the insured failing to perform under a contract due to the pandemic or economic fallout therefrom; here the insured’s losses would arise from a breach of contract, and thus not generally covered by a liability policy absent specific language allowing such claims. In New York, the general rule is that commercial general liability policies do not cover losses arising from a claim for breach of contract against the insured.[3] 

Property insurance typically is limited to first-party claims, i.e., protecting the insured against physical damage to the insured’s property, such as buildings or equipment.[4] Many property insurance policies include coverage for “business interruption,” which typically “compensate[s] an insured for losses stemming from an interruption of normal business operations due to damage or destruction of property from a covered hazard.”[5] Like property insurance generally, business interruption insurance is often limited to loss of business income stemming from “direct physical loss of or damage to” specific physical property, and even then only “during the period of restoration” of that property.[6] 

Courts in New York have generally taken a narrow view of such coverage. For example, the United States Court of Appeals for the Second Circuit has held that an airline’s business interruption insurance did not cover losses arising from the government’s decision to suspend flights following the September 11th terrorist attacks where the airline’s facilities and equipment (including airplanes) suffered no physical damage as a result of either the attacks or the suspension of flights.[7] Accordingly, property insurance and business interruption insurance subject to New York law may not cover intangible, economic losses resulting from the COVID-19 pandemic (such as governmental directives to close). That said, specific policy language, as always, will control. For example, an insured outside of New York was able to recover under a business interruption policy even in the absence of physical damage to its property where hurricane damage blocked access to the property, and the business interruption insurance contained a provision covering business interruption due to loss of egress or ingress at the property.[8] In other cases outside of New York, courts have held that where chemicals, odors, or other pollutants render property uninhabitable, that is sufficient to trigger business interruption coverage, even though there was no physical damage to the property in the traditional sense.[9]

Legislative action may affect these policies as well. Legislatures in some states, such as New Jersey, are reportedly considering legislation to require “business interruption” insurers to provide coverage for economic losses due to pandemic-related business interruptions. These efforts could inspire legislators in New York and other states to take action as well.

It is critically important that insurance holders consult the specific language of their policies. Depending upon your business, you may have insurance policies in addition to general liability insurance and property insurance, such as directors and officers insurance, employment practices liability insurance, and representations and warranties insurance. Policy holders may believe they are covered for losses or breaches stemming from the COVID-19 pandemic by reason of the “type” of policy they purchased, only to find that the policy in question is much narrower than they thought.  

 

[1] 19 N.Y.3d 704, 708 (2012).

[2] E.g., 278 A.D.2d 571, 574 (3d Dep’t 2000); see also, e.g., 29 N.Y. 115, 119 (1864).

[3] 119 A.D.3d 103, 106 (1st Dep’t 2014); see also 10 N.Y.3d 635, 642 (2008).

[4] 272 A.D.2d 162, 163 (1st Dep’t 2000).

[5] 22 N.Y.3d 728, 731 n.1 (2014).

[6] 434 F.3d 165, 168 (2d Cir. 2006); see also 78 A.D.2d 377, 380 (2d Dep’t 1981)

[7] 439 F.3d 128 (2d Cir. 2006).

[8] 119 F. Supp. 2d 552 (E.D.N.C. 2000).

[9] E.g., 562 F.3d 399 (1st Cir. 2009); 131 F. App’x. 823 (3d Cir. 2005); 2014 U.S. Dist. LEXIS 165232 (D.N.J. Nov. 25, 2014).