By Phillip Smith
Smith Smith & Feeley LLP
There has been a lot of discussion recently about the extent to which insurance might cover claims related to the coronavirus outbreak. At least so far, lawyers for insureds and insurers have mostly focused on whether there will be coverage for business interruption claims that insureds present under property insurance policies.
However, it is a virtual certainty that some third parties who sustain injury arising from the outbreak will file tort lawsuits against insured businesses that allegedly played a role in the chain of events leading to the injury. Consider, for example, a grocery store whose infected employee continued to show up for work, thus exposing shoppers to the virus. Another example might be a university that delayed switching to an online class format, thereby exposing its students to the disease. Yet another example might be a retirement community that failed to take adequate steps to prevent its residents from contracting the illness. The list goes on and on.
These third-party tort lawsuits will likely present a variety of challenging legal questions, including questions regarding duty and causation. Those questions will have to be litigated in the tort lawsuits. The lawsuits will be costly to defend, and in those circumstances where an insured has actual legal liability, the lawsuits could result in large monetary settlements or judgments. The question is who – the insured or the insurer – will ultimately bear the costs of defending and resolving such lawsuits.
The Commercial General Liability Policy and a Basic Framework for Analyzing Coverage
In many cases, the business will have an insurance policy that includes commercial general liability (CGL) coverage. The typical CGL policy form contains two main coverages, i.e., “Coverage A – Bodily Injury and Property Damage Liability” and “Coverage B – Personal and Advertising Injury Liability.” This article is focused on Coverage A. Coverage A provides in relevant part that the insurer will indemnify an “insured” against damages because of “bodily injury” or “property damage” that occurs “during the policy period,” that is caused by an “occurrence,” and that is not otherwise excluded. Coverage A further provides that the insurer will defend an insured against any suit seeking covered damages.
In assessing whether a CGL insurer has a duty to defend and potentially indemnify an insured against a suit related to the coronavirus outbreak, the fundamental approach should be the same as in any other case. In that regard, keep in mind that under California law, an insurer’s duty to defend is broader than its duty to indemnify. An insurer has a duty to defend an insured against a suit seeking damages that are potentially covered by the policy, but an insurer only has a duty to indemnify an insured against damages that are actually covered by the policy. Buss v. Superior Court, 16 Cal.4th 35, 46 (1997).
In order to trigger an insurer’s duty to defend, the insured need only show that the plaintiff is potentially seeking some damages against the insured that would be covered by the policy’s insuring clause. Once that occurs, the insurer has a duty to defend unless the insurer can conclusively prove that some exclusion eliminates any potential for coverage. Atlantic Heritage Ins. Co. v. J. Lamb, Inc., 100 Cal.App.4th 1017, 1038 (2002). “If any facts stated or fairly inferable in the complaint, or otherwise known or discovered by the insurer, suggest a claim potentially covered by the policy, the insurer’s duty to defend arises and is not extinguished until the insurer negates all facts suggesting potential coverage.” Scottsdale Ins. Co. v. MV Transp., 36 Cal.4th 643, 655 (2005).
Insuring Agreement Issues
In cases where the plaintiff alleges that the insured’s tortious conduct was a substantial factor in causing the plaintiff to contract the coronavirus, the insuring agreement’s requirement of “bodily injury” will obviously be satisfied. The standard CGL policy form defines “bodily injury” as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” Unquestionably, the coronavirus illness is “bodily injury” within the meaning of a CGL policy.[1]
The policy also requires that any bodily injury occur “during the policy period.” The determinative factor is not whether the insured’s negligent act takes place during the policy period, but rather, whether the plaintiff suffers actual bodily injury during the policy period. See Whittaker Corp. v. Allianz Underwriters, Inc., 11 Cal.App.4th 1236, 1241 (1992). In most cases, it will not be difficult to determine whether the plaintiff’s alleged coronavirus-related injury occurred during the time the insured’s CGL policy was in effect.
Keep in mind that the policy’s insuring agreement only covers bodily injury caused by an “occurrence.” The policy defines an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” California courts have held that an “accident” is “an unexpected, unforeseen or undesigned happening or consequence from either a known or unknown cause.” Hogan v. Midland National Ins. Co., 3 Cal.3d 553, 559 (1970). “An accident exists when any aspect in the causal series of events leading to the injury or damage was unintended by the insured and a matter of fortuity.” Merced Mutual Ins. Co. v. Mendez, 213 Cal.App.3d 41, 49 (1989). An “accident” may include an insured’s deliberate act when some additional, unexpected event occurs that produces the harm. Mendez, 213 Cal.App.3d at 50.
Whether a plaintiff’s coronavirus-related injury was caused by an “accident” will necessarily depend on the facts of the specific case. In many situations, allegations or facts suggesting that the insured took insufficient steps to protect the plaintiff from contracting the virus likely will suggest an “accident.” That said, there may be situations where the allegations or facts demonstrate that the insured specifically knew about, but consciously ignored, the risk of injury, such that the plaintiff’s resulting contraction of the coronavirus was not an “accident.” See, e.g., Navigators Specialty Ins. Co. v. Moorefield Constr., Inc., 6 Cal.App.5th 1258, 1276 (2016).
Relevant Exclusions
In those cases where the plaintiff’s claims against the insured do fall within the scope of the basic insuring agreement, the issue will be whether some exclusion applies to defeat coverage.
Many CGL policies contain a “fungi or bacteria” exclusion endorsement. The standard endorsement bars coverage for bodily injury “arising out of … any actual, alleged or threatened ingestion of, inhalation of, contact with, exposure to, existence of, or presence of, any ‘fungi’ or bacteria on or within a building or structure, including its contents.” Assuming the standard endorsement has not been modified, the endorsement will not bar coverage for a lawsuit alleging that the plaintiff was injured due to the coronavirus. That is because the coronavirus is a “virus,” not a “fungi” or “bacteria.”
Some CGL policies contain a more broadly-worded “pathogenic organisms” exclusion endorsement. This endorsement usually provides that the policy does not apply to bodily injury “arising out of any ‘pathogenic organisms’,” and defines “pathogenic organisms” as “any bacteria, yeasts, mildew, virus, fungi, mold, or their spores, mycotoxins or other metabolic products.” As is evident, this endorsement specifically precludes coverage for bodily injury arising out of any “virus.” Thus, on its face, this endorsement would eliminate coverage for a lawsuit premised on the insured’s failure to prevent the plaintiff (or the plaintiff’s decedent) from contracting the coronavirus.
Last, some CGL policies contain a “communicable disease” exclusion endorsement. This endorsement typically states that there is no coverage for bodily injury “arising out of the actual or alleged transmission of a communicable disease.” Further, the endorsement usually states that the exclusion applies “even if the claims against any insured allege negligence or other wrongdoing in the: [a.] supervising, hiring, employing, training or monitoring of others that may be infected with and spread a communicable disease; [b.] testing for a communicable disease; [c.] failure to prevent the spread of the disease; or [d.] failure to report the disease to authorities.” Indisputably, the coronavirus is a “communicable disease.” Thus, if the policy contains a similarly-worded communicable disease exclusion, the insurer presumably will be relieved of any duty to defend a lawsuit alleging that the insured negligently caused the plaintiff (or the decedent) to contract the coronavirus. See Koegler v. Liberty Mut. Ins. Co., 623 F.Supp.2d 481, 484 (S.D.N.Y. 2009).
Looking Ahead
To summarize, some third parties who suffer injury arising from the coronavirus outbreak will undoubtedly file lawsuits against insured businesses that allegedly played a role in the chain of events leading to the injury. When such lawsuits are filed, counsel for both the insured and the insurer will need to carefully analyze the allegations and extrinsic facts, and of course, the applicable policy language, to determine whether the insured is entitled a defense and possibly indemnification from the insurer. Although we can expect that at some point California courts will weigh in on the issue of coverage for such lawsuits, reported appellate decisions on these issues may not be handed down for quite a while. In the meantime, we will closely monitor all developments in this emerging area.
[1] At least in this context, it is probably less likely that a plaintiff will seek damages from an insured because of “property damage” within the meaning of a standard CGL policy. A CGL policy typically defines “property damage” so as to include “physical injury to tangible property” or “loss of use of tangible property that is not physically injured.” The assumption here is that most cases will be premised on allegations that the insured’s negligence was a substantial factor in causing the plaintiff to suffer “bodily injury,” as opposed to “property damage.”