Insurance Coverage Issues Relating to Business Decisions to Reopen Amid COVID-19

April 20, 2020

Increasing numbers of businesses, large and small, have been publicly advocating or discussing plans to reopen amid the COVID-19 pandemic.  In some jurisdictions, companies may be considering resuming normal business activities even in defiance of governmental orders.  A wave of public nuisance claims and class actions may be expected to follow these decisions, which could be brought either by governmental (public) or private plaintiffs against private businesses.

Public nuisance suits may involve claims for damages or injunctive relief premised on injury to the public caused by a private party’s actions, such as injury relating to the creation or maintenance of a public health hazard.  For example, at least one state court of appeals previously held that, under a public nuisance theory, a city could sue lead paint manufacturers for allegedly contributing to public health hazards caused by lead paint.

In response to threatened or actual public nuisance lawsuits relating to decisions to reopen in defiance of governmental shut-down orders related to COVID-19, defendants may be inspired to examine their insurance policies in search of potential coverage for the attorneys’ fees required to defend the suits and for the damages claimed by the plaintiff or plaintiffs.  Although it is good practice to review all potentially available insurance policies when evaluating coverage claims, it is likely that most coverage issues relating to public nuisance claims for resuming business operations amid COVID-19 will involve commercial general liability policies.

Commercial general liability policies typically provide, in broad terms, coverage for personal injury and property damage, among other injuries.   Insurers also have repeatedly asserted in coverage disputes that coverage only exists when it is caused by an “accident,” rather than by intentional conduct.  However, the language of a policy’s “intentional acts” exclusion may be determinative.   In some cases, “intentional acts” exclusions have been rejected as a bar to coverage where a policyholder’s actions were intentional, but the specific damage that occurred was not intended.

In insurance coverage disputes related to public nuisance claims for acting in defiance of a governmental order, insurers may also be expected to assert defenses based on  exclusions that relate to illegal conduct or conduct that violates a governmental order.   Presumably, disputes regarding these exclusions may turn on whether a court ultimately interprets the language of the policy at issue as excluding coverage even for governmental orders whose validity policyholders may contest.

It is also important to note that insurers who do not receive prompt notice of claims or potential claims for public nuisance may seek to deny coverage on the basis of “late notice.”  Most commercial liability policies include provisions that purport to require policyholders to provide immediate notice of any claims or threatened claims.   The effect of these provisions may sometimes be modified by state statutes that, for example, require insurers to demonstrate prejudice in order to successfully deny coverage based on late-notice provisions.

Plaintiffs’ lawyers who are contemplating public nuisance lawsuits relating to decisions to disobey COVID-19 orders may be expected to send pre-suit letters, such as “litigation hold” letters, to potential defendants.  A “litigation hold” letter warns a defendant or potential defendant in a lawsuit that it must retain and avoid destroying evidence relating to the potential claim.  In the context of COVID-19 public nuisance claims, evidence that may be the subject of a litigation hold letter could include documents such as memoranda and correspondence relating to the decision to reopen and the attendant public health risks.   Insurers may be expected to argue that receipt of a “litigation hold” letter triggers the policyholder’s responsibility to provide notice of a potential claim.

Insurers may also be expected to take the position that notice, through litigation hold letters or otherwise, of a potential claim for public nuisance relating to COVID-19, may create a duty to disclose potential claims on new or renewal commercial insurance applications.  While some companies may be tempted to omit from applications threatened claims that have not yet resulted in formal court proceedings in order to avoid rate increases or outright denial of their applications, insurers may argue that any such omissions preclude coverage for later-asserted claims relating to COVID-19.  In addition, insurers may attempt to void a policyholder’s coverage entirely on the basis of misrepresentations on an insurance application.

-April Barker

The comments on these pages are the general opinions of the author, do not constitute legal advice and do not create an attorney-client relationship.