This March marks the unofficial one-year anniversary of the ongoing COVID-19 pandemic, which has caused widespread financial ruin to businesses across the United States. In their hour of greatest need, thousands of these companies turned to their commercial property insurers—only to receive across-the-board coverage denials. Some policyholders filed coverage lawsuits, but by taking advantage of pleading deficiencies, insurers managed to score some early wins, which they used to support their false narrative that property policies do not cover business income losses due to the presence of the virus.
As months passed, more seasoned attorneys joined the mix and began filing better-pleaded complaints, which reversed the trend: courts began denying insurers’ motions to dismiss and granting summary judgment in favor of policyholders. Contrary to insurers’ claims, the wars over insurance coverage for COVID-19 claims haven’t ended—they’ve only just begun. In 2021, policyholders will continue to see more victories in this hotly contested area of insurance law.
Commercial Property Policies Cover Business Income Loss Caused by “Physical Loss or Damage” to the Insured Premises.
Commercial property insurance policies typically provide coverage for “all risks” of “physical loss or damage” to the insured property. Critically for policyholders, commercial property policies also cover loss of business income. However, business income provisions typically require that “physical loss or damage” must cause the loss of business income. COVID-19 coverage disputes thus often present the threshold issue of whether the virus causes “physical loss or damage” to insured property.
Early COVID-19 Policyholders Failed to Properly Plead “Physical Loss or Damage” to Their Properties and Their Insurers Claimed Premature Victory.
When the pandemic began in earnest a year ago, many businesses felt the squeeze as government closure orders cut off their revenues. When these companies (many of them restaurants, hair salons, fitness centers, and other retail businesses) filed claims, their insurers told them they had no coverage. Plaintiffs’ law firms saw this as an opportunity to sign up COVID-19 policyholders and rushed to courthouses across the country to file lawsuits, often without regard to policy language.
In the early going, many policyholders failed to adequately plead “physical loss or damage” to their properties by neglecting to allege that the virus infected or contaminated their property. In these cases, insurers typically responded by moving to dismiss policyholders’ complaints on the ground that they failed to state a claim for which relief could be granted, under Federal Rule of Civil Procedure 12 or a state-court analogue. Specifically, these motions argued that the policyholders failed to plausibly plead “physical loss or damage” to their properties because they did not allege that the virus infected or contaminated their premises.
Predictable results followed, and insurers racked up a string of early wins. In the first reported COVID-19 coverage decision, Gavrilides Management Co. et al. v. Michigan Ins. Co., a Michigan state court granted the insurer’s motion for summary judgment. However, the policyholder (a restaurant) did not allege that its insured property had suffered “physical loss or damage” due to the presence of the virus. To make matters worse, the policyholder specifically stated that “at no time” did the virus enter either of its restaurant locations. As explained above, business income coverage provisions require “physical loss or damage” to cause the suspension of the policyholder’s operations. In this high-profile case, the policyholder in Gavrilides thus pled itself out of coverage.
Many other policyholders’ early pleadings suffered from similar defects, resulting in similar outcomes. As the losses mounted, insurers began to claim victory, putting out a false narrative that courts across the country had reached a “consensus” that commercial property policies do not cover COVID-19 losses. The insurance industry also began publishing think pieces pushing a similar story. The purpose of this narrative was clear: to discourage businesses from filing claims with their insurers. After all, insurers win 100% of the coverage lawsuits that policyholders do not file. Fortunately, more experienced attorneys with better-pled complaints were waiting in the wings to mount a comeback in the second half of 2020.
Better-Pled Policyholder Complaints Defeat Insurers’ Motions to Dismiss.
As the pandemic continued to rage, more sophisticated policyholders began to enter the fray. These subsequent litigants corrected the shortcomings of their predecessors by filing better-pleaded claims, including specific allegationsthat thevirus contaminated and/or infected their properties. These better-pled complaints led to a corresponding rise in favorable outcomes, and policyholders began defeating insurers’ motions to dismiss. In addition to defeating insurer motions to dismiss, some policyholders also began to win summary judgment for COVID-19 claims outright.
Courts Interpret “Physical Loss” to Provide Coverage When Policyholders Can No Longer Use Their Property for Its Intended Purpose.
In addition to defeating insurer motions to dismiss, policyholders also began winning on the meritsregarding the meaning of “physical loss or damage” in commercial property policies. Since the pandemic began, insurers have predictably taken the position that “physical loss or damage” only covers physical damage, meaning the policy language requires some form of tangible alteration of insured property. But the insurers’ reading of the policy language fails to give separate meaning to “physical loss,” impermissibly rendering the term meaningless.
Several decisions have now debunked this insurer argument, holding that the insurers’ decision to include both terms in the coverage provision indicates that “physical loss” must mean something different than “physical damage”—and property policies cover business income losses when insured property can no longer be used for its intended purpose. While many courts have held that this policy language isambiguous (as it has more than one reasonable interpretationand therefore must be construed in policyholders’ favor), others have held that the policyholders’ view is the only reasonable interpretation. These decisions follow the longstanding rule that courts must interpret insurance policies in a way that gives all provisions meaning and renders none meaningless. Policyholders thus won several key victories in the second half of 2020, and this trend has continued into the early months of 2021.
Stay Tuned for More Policyholder-Friendly Decisions in 2021
In the early stages of COVID-19 coverage litigation, insurers capitalized on the pleading mistakes of unsophisticated businesses and inexperienced lawyers to score a series of easy wins and claim victory. However, as more sophisticated businesses with more experienced attorneys joined the fold and began filing better-pled complaints, the trend reversed: policyholders began defeating insurer motions to dismiss and winning summary judgment outright. Contrary to the insurers’ narrative, many courts are now correctly interpreting “physical loss or damage” in policyholders’ favor. Stay tuned as these cases progress to the appellate level in 2021. The COVID-19 coverage wars aren’t over—they’ve only just begun.
It may have taken 10 years and more than a million workers to build the 120-mile-long Suez Canal,1 but as the world recently learned it only takes 1 ship to block it. After nearly a week with the forced shut down of this critical artery to maritime commerce, hundreds of ships intending to traverse the Suez Canal lay waiting with cargo, some incurring considerable late fees for undelivered cargo.2 Still others abandoned this traditional short cut and made the long journey around the tip of Africa, adding weeks to their original journeys and incurring up to $26,000 a day in added fuel costs.3 The effect of this crisis is broad and deep, choking off the supply of fundamental items like microchips and oil and disrupting any company subscribing to the “just-in-time” inventory model.4 In assessing the potential fall out to supply chains and product cycles due to delayed cargo deliveries, companies should check to see if they have insurance coverage for losses due to the Suez Canal blockage. They might.
Marine Cargo Insurance Could Cover Cargo-Related Losses Due to the Suez Canal Blockage
One of the first places a company should look for insurance coverage for cargo-related losses due to the Suez Canal blockage is its Marine Cargo Insurance policies. The modern version of these policies dates back to the 1700s when Lloyd’s of London insured the shipping of myriad commercial ventures against losses.5 Today, there are various sub-lines of marine cargo insurance applicable to different types of perils, including so-called P&I insurance which covers third party liability for property damage and bodily injury. More generally, policies come in two flavors: limited peril policies following the traditional Lloyd’s model that cover losses due to the “seas, fires, assailing thieves, jettison, barratry, and other like perils, losses and misfortunes” and the increasingly common “all-risk” policies that, as their name suggests, cover “all fortuitous, physical damage or loss due to any external cause.”6 These policies call to mind two coverages that could apply to the Suez Canal blockage.
First, such policies could have endorsements extending coverage for lost sales resulting from goods that were damaged due to shipping delays. One common endorsement covers “loss in sales caused by a delay in the arrival of the goods insured . . . provided the delay is a direct result of a Free of Particular Average peril.” In marine insurance speak, this means that coverage will extend to loss of sales caused by the partial loss of/damage to cargo caused by a peril covered by the policy. One such peril applicable to the Suez Canal blockage is “stranding,” i.e. when an insured ship runs aground. Coverage of this type could apply in the Suez Canal blockage context to perishable cargo or to cargo that was damaged due to the freeing of the ship.
Second, some policies have a “financial loss clause,” which covers losses due to shipping delay without the cargo itself having been damaged. Typically, these clauses require that the ship operator be responsible in some way for the delay and that the delay be due to one of the enumerated perils covered by the policy. Depending on how the facts develop as to why the Ever Given became stranded in the Suez Canal, such as if the crew had been negligent in operating the ship, such “financial loss clauses” may prove an avenue for coverage.
Contractual Indemnity Provisions Might Apply to Cargo-Related Losses Due to the Suez Canal Blockage
In addition to a company’s own insurance, it is possible that various agreements with suppliers or shippers might provide indemnity opportunities to recoup losses due to the Suez Canal blockage. And depending on the nature of those agreements, the property insurance issued to the shipper of the cargo or the liability insurance issued to the owners of the ship blocking the Suez Canal, the latter of which is estimated to be over $3.1 billion,7 may also provide coverage.
Companies should check their policies and contractual agreements as soon as possible. Many policies contain requirements that loss be identified and claimed within a certain period, often a matter of days. Companies would do well to confer with insurance counsel to make sure they understand whether they should submit an insurance claim for their losses.
One of the Federal Government’s main responses to the economic devastation wrought by the COVID-19 pandemic, the Paycheck Protection Program (“PPP Program” or the “Program”), has provided billions of dollars to companies in need in the form of forgivable loans (“PPP Loans”). However, the Program’s swift passage in the early days of the pandemic produced issues in implementation, with the Small Business Association (“SBA”) and various other government entities issuing contradictory guidance on PPP Program eligibility. This uncertainty has been magnified by the SBA’s stated intention to audit all PPP loans above $2 million, leaving many companies worried that they will be forced to repay their PPP Loans—or worse. To help guard against this, the insurance industry has developed a new product: PPP Loan Insurance. But with millions of dollars at stake, potential policyholders should evaluate PPP Loan Insurance Policies before they bind.
Understand the Coverage Offered by PPP Loan Insurance Policies
PPP Loan Insurance is a relatively niche product that has yet to receive standardized language across the insurance industry. Thus far, most policies focus on insuring repayment of the PPP Loan due to the SBA’s determination that the policyholder was ineligible for the PPP Loan due to errors or misstatements in the initial certifications made by a policyholder. These “necessity” and “size” certifications refer back to the policyholder’s initial PPP Loan application which contained questions regarding the purpose of the loan, the monthly payroll for the company, and the number of “jobs” at the company.
PPP Loan Insurance Policies are typically “claims made and reported” policies, with the policy term set at 6 years to reflect the 6-year window afforded the SBA to review and challenge the issuance of a PPP Loan.
Pay Close Attention to Certain Exclusions in PPP Loan Insurance Policies
As is true with all types of coverage, there are a number of potential exclusions that could impact how useful a PPP Loan Insurance policy will be for a policyholder’s particular situation. The following are two of the most common.
First, many PPP Loan Insurance Policies have exclusions for fraud and/or intentional misconduct. While not in-and-of itself concerning, there are meaningful variations on the language for this exclusion and a policyholder should ensure it has the most advantageous version for its policy. For example, any fraud exclusion should include a qualifier that the allegations have been “finally adjudicated” or “finally determined by a trier of fact.” This avoids the situation where mere allegations of fraud defeat coverage, instead requiring that the allegations be proven true in a court of competent jurisdiction before coverage is excluded under the policy. Given the potential that the SBA or another related government entity could assert fraud when seeking PPP Program loan repayment, this is an especially important distinction.
Second, some PPP Loan Insurance Policies have exclusions for claims alleging violations of the False Claims Act (“FCA”). Generally, the FCA attaches liability to any individual or organization that knowingly presents or conspires to present a false or fraudulent claim for payment to the government or uses a false record or statement that is material to such claim. Such an exclusion is especially problematic in the PPP Loan Insurance context because the FCA appears to be one of the most likely avenues for the federal government to pursue a PPP Program loan borrower. And it’s not just the Federal Government who could cause trouble for a policyholder; the FCA permits third parties, so-called qui tam realtors, to bring claims and receive a substantial bounty should those claims succeed. This, along with the potential for treble damages, greatly expands the scope of potential liability. Policyholders should attempt to remove FCA exclusions from PPP Loan Insurance Policies.
Be Aware of Potential Coverage Gaps and Problematic Conditions in PPP Loan Insurance Policies
Despite their seemingly straightforward purpose, PPP Loan Insurance Policies can harbor a number of coverage gaps and problematic conditions. Below are three such areas a policyholder should scrutinize when considering a PPP Loan Insurance policy.
First, although PPP Loan Insurance Policies cover PPP Loan repayment, they typically do not cover repayment for all reasons. As outlined above, coverage is typically afforded for repayment arising from an SBA determination that a policyholder was not eligible for the PPP Loan at the time it submitted its PPP Loan application. But the SBA can require repayment for other reasons, such as if it determines that the policyholder has not used the PPP Loan as required by the rules of the Program, e.g. a sufficient percentage of the PPP Loan was used for payroll. Policyholders should consider whether they want to add coverage for potential allegations that they have misused PPP Loans.
Second, the limits of liability for PPP Loan Insurance Policies are usually set according to the principal amount of the PPP Loan. This mirrors the stated purpose of the insurance to provide coverage for repayment of the PPP loan. However, in practice this may not be enough. Policyholders should be aware that the SBA has stated it will charge interest on the PPP Loan at 1% per annum if repayment is ultimately sought. Furthermore, there could also be additional penalties and other costs depending on what the SBA or other related government entity imposes in addition to repayment. Policyholders should consider insisting any limit of liability takes these potential costs into account. Otherwise, even if repayment of the PPP Loan is covered by the policy, it could still result in hundreds of thousands of dollars of additional cost to the policyholder.
Third, like many types of policies, PPP Loan Insurance Policies often contain a provision requiring policyholders obtain the consent of the insurer before settling claims. However, this provision could create significant conflict given the limited scope of PPP Loan Insurance Policies. As these policies exist to safeguard against the cost of repayment of the PPP Loan, their utility is greatly reduced if an insurer can force a policyholder to fight the SBA (or other government entity) on whether repayment is proper. Such a fight could incur significant legal costs, potentially eroding policy limits and embroiling the policyholder in litigation for months or years. Policyholders should insist that any settlement provision involving insurer consent contain language that consent “not be unreasonably withheld” to ensure the policyholder’s interests are protected. With the continued evolution of the PPP Program, including newly approved funding for additional PPP Loans, PPP Loan Insurance has the capability to address a critical vulnerability for companies still struggling through the COVID-19 pandemic. However, understanding PPP Loan Insurance and its permutations is essential. Experienced coverage counsel are best able to assist a policyholder in evaluating the risks and benefits of PPP Loan Insurance Policies.
The District Court of Clark County, Nevada, recently handed down a decision with potentially game-changing effects for policyholders seeking coverage for COVID-19 losses.
Like many other companies, the policyholder there seeks insurance coverage under a commercial property policy for its business interruption losses due to the ongoing pandemic. What sets apart the JGB Vegas Retail Lessee LLC v. Starr Surplus Lines Insurance Co. decision is the court’s disregard of a pollution exclusion that specifically includes the word “virus.”
Even though the insurer listed “virus” as an excluded irritant or contaminant, the court held that the pollution exclusion did not apply, as the intent behind the exclusion was to remove coverage for “traditional environmental and industrial pollution and contamination.”
The decision has major potential consequences for policyholders whose policies have exclusions where insurers managed to similarly slip the word “virus” into places where policyholders wouldn’t otherwise expect to find it.
The presence of coronavirus constitutes a risk of physical loss or damage to covered property.
Commercial policies cover all risks of physical loss or damage to covered property, including business interruption losses and losses caused by closures due to civil or military authority orders. Insurance carriers contend that the presence of coronavirus may not constitute a risk of physical loss or damage to covered property.
However, several courts across the country have held that the presence of the virus itself constitutes a risk of physical loss or damage to covered property sufficient to trigger coverage under commercial property policies.
The policy in JGB Vegas Retail has a pollution and contamination exclusion that specifically lists “virus” as an excluded irritant or contaminant.
A different issue sets apart the Nevada decision: the court’s interpretation of a “pollution and contamination exclusion.”
Many commercial property policies contain exclusions that bar coverage for “the actual or threatened release, discharge, dispersal, migration, or seepage of ‘pollutants’ at an Insured Location.” The policy at issue in JGB Vegas Retail defines “pollutants or contaminants” as:
any solid, liquid, gaseous, or thermal irritant or CONTAMINANT including, but not limited to, smoke, vapor, soot, fumes, acids, alkalis, chemicals, virus, waste (waste includes materials to be recycled, reconditioned, or reclaimed) or hazardous substances.
In COVID-19 cases, insurance carriers often contend that coronavirus is an excluded pollutant, because it is as an irritant or contaminant.
What makes JGB Vegas Retail different is the fact that the pollution exclusion specifically lists “virus” as an excluded pollutant. This is a common insurer tactic: slipping in words where one would not otherwise expect to find them, then ambushing policyholders when they make coverage claims.
When interpreting insurance policies, the plain meaning often controls, so in the insurer’s view, the fact that the pollution exclusion includes the magic word “virus” should end the debate — no coverage for coronavirus-related losses.
The pollution exclusion does not apply because coronavirus is not a traditional environmental or industrial pollutant, despite the presence of the word “virus.”
In the JGB Vegas Retail decision, the court explored the intent behind the pollution exclusion and held that it did not apply. Other courts have held that similarly worded pollution exclusions apply only to instances of traditional environmental and industrial pollution and contamination.
Because the enumerated examples of irritants and contaminants often include only nonliving, inorganic matter, living, organic matter such as bacteria and viruses does not constitute excluded pollutants.
In addition, the court held that because the terms “irritant” and “contaminant” are virtually boundless, interpreting pollution exclusions as broadly as insurers suggest would render the coverage provided by virtually all policies meaningless, for “there is no substance or chemical in existence that would not irritate or damage some person or property.”
The court in JGB Vegas Retail reached the proper conclusion because of the lopsided and unfair nature of how insurance policies are drafted. Far from being negotiated in an evenhanded fashion, insurance policies are contracts of adhesion that are unilaterally drafted by the insurers and offered on a “take it or leave it” basis.
The JGB Vegas Retail decision has tremendous impacts for policyholders with pollution and virus exclusions.
The court’s decision to disregard the word “virus” in the pollution exclusion and refuse to reward the insurer’s chicanery has several impacts, some of which reach far beyond pollution policies.
First, JGB Vegas Retail joins a growing body of law holding that pollution exclusions do not apply to nontraditional irritants or contaminants such as viruses and bacteria.
Second, while the case involves a commercial property policy, many commercial general liability policies have similar or identical pollution exclusions, so the decision also has positive effects for policyholders with other types of liability policies.
Third and finally, JGB Vegas Retail stands as precedent for other courts to upend similar exclusions where insurers managed to slide the word “virus” in places where policyholders would not expect to find it.
 See, e.g., Blue Springs Dental Care, LLC v. Owners Ins. Co., No. 20-cv-00383, 2020 WL 5637963 (W.D. Mo. Sept. 21, 2020); Optical Servs. USA/JCI v. Franklin Mut. Ins. Co., No. BER-L-3681-20, 2020 WL 5806576 (N.J. Super. L. Aug. 13, 2020); Studio 417, Inc. v. Cincinnati Ins. Co., No. 20-cv-03127, 2020 WL 4692385, at *2 (W.D. Mo. Aug. 12, 2020).
 JGB Vegas Retail, No. A-20-816628-B, at 4.
 Id. at 5.
 See, e.g., Keggi v. Northbrook Prop. & Cas. Ins. Co., 13 P.3d 785, 789-90 (Ariz. Ct. App. 2000) (holding that a pollution exclusion did not apply to injuries suffered from drinking bacteria-contaminated water and noting that the exclusion “appears to describe events, places, and activities normally associated with traditional environmental pollution claims”); Century Sur. Co. v. Casino W., Inc., 329 P.3d 614, 616-18 (Nev. 2014) (holding that a pollution exclusion did not apply to injuries caused by carbon monoxide and noting the “significant amount of authority” interpreting the exclusion as only applying to traditional environmental pollution); Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377, 388 (N.Y. 2003) (holding that a pollution exclusion did not apply to injuries from the inhalation of paint or solvent fumes and noting the “environmental implications” of the exclusion).
 Keggi, 13 P.3d at 789-90.
 Id. at 789; see also Casino W., 329 P.3d at 617 (“Taken at face value, the policy’s definition of a pollutant is broad enough that it could be read to include items such as soap, shampoo, rubbing alcohol, and bleach insofar as these items are capable of reasonably being classified as contaminants or irritants… Such results would be absurd and contrary to any reasonable policyholder’s expectations.”). Pollution exclusions (like all policy exclusions) are interpreted narrowly and against the insurer. Id. at 616. By contrast, coverage provisions are interpreted broadly, so environmental policies (which often cover “pollutants,” including “irritants” and “contaminants,” defined using similar or identical language) should cover losses caused by viruses that cause “direct physical loss or damage” to covered property. See Jemb Realty Corp. v. Greenwich Ins. Co., No. 1:20-cv-08537, ¶ 47 (S.D.N.Y. originally filed Oct. 13, 2020).
 See, e.g., McFarland v. Liberty Ins. Corp., 434 P.3d 215, 219 (Idaho 2019) (“Because insurance policies are adhesion contracts not typically subject to negotiation between the parties, ‘all ambiguities in an insurance policy are to be resolved against the insurer…”).
 Powell v. Liberty Mut. Fire Ins. Co., 252 P.3d 668, 672 (Nev. 2011) (“Because the insurer is the one to draft the policy, an ambiguity in that policy will be interpreted against the insurer.”).
It is not too often that the sport of golf and insurance intersect in an outrageous fashion. In Old White Charities Inc. v. Bankers Insurance, a charity hosted a golf tournament and sponsored a hole-in-one competition. If a golfer hit a hole-in-one, each spectator in attendance would receive $100 in cash; if a second golfer hit a hole-in-one, each fan would receive $500. To guard against the possibility that golfers would hit holes-in-one, the charity hired a broker to place an insurance policy covering the competition.
The broker reviewed and filled out the application, then
sent it to the charity to sign. The application included a warranty
requiring a minimum distance of 150 yards for the hole-in-one competition.
The broker did not strike out the minimum-distance requirement, but instead
attached an addendum stating: The pins (as always in a PGA tour event) will be
set in a new location each morning of the Greenbrier Classic by the PGA. The
insured has no idea nor will have any influence as to where the pins will be
The broker’s representative testified that he attached the addendum to negate or override the minimum-distance requirement. During the competition, two golfers hit holes-in-one from 137 yards out. The charity filed a claim for coverage under its policy, but the insurer denied coverage on the basis that the golfers hit the holes-in-one from a distance shorter than the minimum required.
The Coverage Case
The insurer then filed a declaratory action against the charity, seeking a declaration that its policy did not cover the two holes-in-one because they came from less than 150 yards. The U.S. District Court for the Southern District of West Virginia ruled in the insurer’s favor, holding that the policy did not cover the two holes-in-one because they came from a distance of less than 150 yards.
The Broker Negligence Case
The charity then filed a claim against the broker for negligently failing to procure insurance covering the hole-in-one competition. Because one of the charity’s representatives read and signed the application (including the 150-yard minimum-distance requirement), the district court held that the broker did not owe a duty to “secure an insurance policy outside the bounds of the application language.”
In an unpublished opinion (issued without oral argument), the Fourth Circuit affirmed the district court’s summary judgment in favor of the broker.
The Fourth Circuit’s holding should give policyholders pause for several reasons. The decision resolved a disputed, genuine issue of material fact in favor of the broker, on a motion for summary judgement. When ruling on a motion for summary judgment, a court must not “weigh the evidence and determine the truth of the matter,” nor make credibility determinations.
Instead, the court is only authorized to determine whether there are genuine issues of material fact in dispute. If there are, the jury should decide them – not the court. A court improperly weighs the evidence by failing to credit evidence that contradicts some of its key factual conclusions.
Under West Virginia law, a broker has a duty to obtain the
coverage requested by its client or inform the client of its inability to do
so. The broker negligence case thus presented the question of what coverage
the charity requested from the broker. In its briefing in the negligence case,
the broker claimed that the charity agreed to the 150-yard minimum
However, in sworn pleadings and discovery in the earlier
coverage case, the broker’s representatives said the exact opposite, stating
that the charity did not agree to a minimum distance for the competition.
In its briefing in the negligence case, the broker also
claimed that the charity never asked it to obtain a policy without a minimum
yardage requirement. However, in the coverage case, the broker
representative who filled out the application testified that he spoke with one
of the insurer’s representatives and told him about the charity’s “inability to
state a yardage requirement because of the PGA rules that related to that.”
The broker’s claims in the negligence case thus belied its sworn testimony in
the coverage case.
In addition, the charity’s leader testified that he met with
the broker’s representatives well before the application was completed and
explained that the charity could not agree to a minimum distance, because the
PGA Tour controlled where the holes would be placed each day of the
The testimony of the broker’s representatives also confirmed
that this meeting took place. The charity’s coverage needs were also
spelled out in the addendum, which stated that the charity could not agree to a
minimum distance because it did not control where the pins were placed on each
day of the tournament – the PGA Tour did.
The district court’s decision thus seized on one fact (that
one charity representative read and signed the application) while ignoring
several others (the prior meeting between the charity’s leader and the broker;
the broker’s own statements in its pleadings, sworn testimony and discovery
responses in the coverage case; and the language of the addendum itself, which
the broker prepared). The decision thus decided a contested, genuine issue of
material fact in favor of the broker while failing to credit contradictory
In addition, the Fourth Circuit found that “the addendum did not contradict or otherwise negate the distance warranty.” In the coverage case, the broker’s representatives testified that they drafted the addendum and attached it to the application to negate the minimum distance warranty. The Fourth Circuit’s decision thus reveals the error of the broker’s approach, but penalizes the charity for the broker’s mistakes.
Finally, the decision fails to account for the practical realities of the insurance-placement process. The charity’s representative who signed the application was not an attorney or insurance broker. This is the exact reason why organizations hire brokers: for their expertise in placing the coverage they need. The Fourth Circuit’s decision thus blames the client for its broker’s errors.
Putting aside the merits of the decision, there are several
key takeaways that policyholders can take from this decision to prepare for the
future. One takeaway is not to rely on your broker to place the correct
coverage. If a broker makes a mistake in placing the coverage, that mistake may
be imputed to the policyholder, even if the policyholder was relying on the
A second, obvious takeaway is to read your policy applications carefully. Statements made in policy applications have become one of the insurance industry’s favorite ways to deny coverage. But it goes beyond that: the Old White decision illustrates that a policyholder cannot rely on its broker’s expertise, because if the broker makes a mistake, the courts may hold the policyholder responsible for that error.
Consider hiring a coverage attorney to review all your proposed insurance policies and applications. If the insurer slips unfavorable language into your policy application, you may find yourself without coverage and without recourse against your broker, even if you explained in your application what coverage you needed and that you could not agree to certain conditions. When it comes to placing insurance, you’re on your own.
 Old White Charities, Inc. v. Bankers Ins. LLC , No. 18-1914 (4th Cir. Jan. 21, 2020).  Pl.’s Mem. in Supp. of Mot. for Partial Summ. J. on Liab., Old White Charities, Inc. v. Bankers Ins., LLC, No. 5:17-cv-01375, at 6 (S.D. W. Va. Feb. 26, 2018), ECF No. 44 (“Q. And did — we’re going to get into some of the application, but did you complete the application? A. I did. Q. And it was your application, and then you sent it to Old White Charities to execute; is that right? A. Correct.”).  Id. at 6.  Id. at 6-7.  Id. at 7 (“I did not make a change, but I attached a narrative that made it clear that that would not be a part of the consideration.”).  The two golfers were Justin Thomas and George McNeil. Br. of Appellee, Old White Charities, Inc. v. Bankers Ins., LLC, No. 18-1914, at 9 n.10 (4th Cir. Mar. 6, 2019), ECF No. 49.
 Pl.’s Mem. in Supp. of Mot. for Partial Summ. J. on Liab., Old White Charities, Inc. v. Bankers Ins., LLC, No. 5:17-cv-01375, at 11-12 (S.D. W. Va. Feb. 26, 2018), ECF No. 44.  Id.  Mem. Op. & Order, Talbot 2002 Underwriting Capital Ltd. v. Old White Charities, Inc., No. 5:15-cv-12542, at 9 (S.D. W. Va. Jan. 6, 2017), ECF No. 246.  Compl., Old White Charities, Inc. v. Bankers Ins., LLC, No. 5:17-cv-01375 (S.D. W. Va. Feb. 24, 2017), ECF No. 1.  Mem. Op. & Order, Old White Charities, Inc. v. Bankers Ins., LLC, No. 5:17-cv-01375, at 12-13 (S.D. W. Va. June 27, 2018), ECF No. 165.  Op., Old White Charities, Inc. v. Bankers Ins., LLC, No. 18-1914, at 4 (4th Cir. Jan. 21, 2020), ECF No. 56.  Mem. Op. & Order, Old White Charities, Inc. v. Bankers Ins., LLC, No. 5:17-cv-01375, at 6-7 (S.D. W. Va. June 27, 2018), ECF No. 165 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)).  Fed. R. Civ. P. 56(a) (“The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”).  The broker requested a jury trial. Compl., Old White Charities, Inc. v. Bankers Ins., LLC, No. 5:17-cv-01375 (S.D. W. Va. Feb. 24, 2017), ECF No. 1.  Variety Stores, Inc. v. Wal-Mart Stores, Inc. , 888 F.3d 651, 659 (4th Cir. 2018).  Wilson Works, Inc. v. Great Am. Ins. Grp. , No. 1:11-CV-85, 2012 WL 12960778, at *2 (N.D. W. Va. June 28, 2012).  Bankers Ins., LLC’s Resp. to Old White Charities, Inc.’s Mot. for Partial Summ. J. on Liab., Old White Charities, Inc. v. Bankers Ins., LLC, No. 5:17-cv-01375, at 7 (S.D. W. Va. Mar. 12, 2018), ECF No. 50 (“Old White’s negligence claims fail because the undisputed evidence shows that Old White agreed to the 150-yard minimum.”).  Def. Bankers Ins. LLC’s Answer & Cross-cls., Talbot 2002 Underwriting Capital Ltd. v. Old White Charities, Inc., No. 5:15-cv-12542, p. 14 ¶ 16 (S.D. W. Va. Nov. 17, 2015), ECF No. 120-2 (“[N]either Bankers nor Old White agreed to the alleged minimum distance requirements […]”).  Br. of Appellee, Old White Charities, Inc. v. Bankers Ins., LLC, No. 18-1914, at 22 (S.D. W. Va. Mar. 6, 2019), ECF No. 49 (“Old White never requested Bankers to obtain a policy without a minimum yardage requirement.”).  Dep. of Gene Hayes, No. 5:17-cv-01375, at 79:20–25 (S.D. W. Va. Feb. 26, 2018), ECF No. 43-6 (Q. Did you advise Mike Connatser at All Risks that the narrative was intended to override the distance requirement? A. We talked about the inability for us to state a yardage requirement because of the PGA rules that related to that.”).  Pl.’s Mem. in Supp. of Mot. for Partial Summ. J. on Liability, Old White Charities, Inc. v. Bankers Ins., LLC, No. 5:17-cv-01375, at 5 (S.D. W. Va. Feb. 26, 2018), ECF No. 44 (“I’ve said repeatedly in the PGA, the PGA controls every bit of that. That’s why I said right off the get-go, we can’t stipulate yardage because we don’t know the yardage.”).
 Id. at 4.  Id. at 6-7.  Op., Old White Charities, Inc. v. Bankers Ins., LLC, No. 18-1914, at 5 (4th Cir. Jan. 21, 2020), ECF No. 56.  Def. Bankers Ins. LLC’s Answer & Cross-cls., Talbot 2002 Underwriting Capital Ltd. v. Old White Charities, Inc., No. 5:15-cv-12542, p. 14 ¶ 16 (S.D. W. Va. Nov. 17, 2015), ECF No. 43 (“Neither Bankers nor Old White agreed to the alleged minimum distance requirements […]”).  Reply Br. of Appellant, Old White Charities, Inc. v. Bankers Ins., LLC, No. 18-1914, at 5 (4th Cir. Mar. 20, 2019).
A recent Law360 guest article by Adam Fleischer argued that confusion has seeped into a string of recent decisions holding that commercial general liability, or CGL, policies cover the defense of opioid-related lawsuits.
There are now five decisions, including two appellate decisions, holding that the allegations in the opioid complaints — including the public nuisance claims — are “because of” bodily injury, and therefore potentially covered under standard consumer general liability policy language, triggering the duty to defend.
Conversely, no decision that remains good law holds that insurers need not defend opioid complaints. There is no confusion. The courts have not blurred the distinction between negligence-based claims for public nuisance and those for direct bodily injury: They have addressed this issue squarely and repeatedly found that this distinction makes no difference concerning the duty to defend.
Insurers are correct that the public nuisance claims in the opioid complaints are a frontal attack on foundational tort principles of causation, but that does not mean the claims are not covered. Insurers should be shoulder-to-shoulder with their policyholders fighting these claims, which threaten to transform our legal system into an extortion racket.
Instead, the insurance industry has abandoned opioid defendant policyholders in their time of greatest need. Some insurers have gone so far as to line up against their policyholders and parrot the plaintiffs’ attacks as a basis to deny coverage. Courts are having none of it and are uniformly enforcing the duty to defend.
This article will: (1) review standard-issue CGL coverage for damages “because of” bodily injury; (2) explain why opioid-related lawsuits seek damages “because of” bodily injury; and (3) debunk the myth that opioid suits must assert individual bodily injuries in order to be covered.
CGL policies cover claims for damages “because of” bodily injury.
Standard CGL policies require insurers to pay “those sums that the insured becomes legally obligated to pay as damages because of bodily injury.” “Bodily injury” is defined to mean “bodily injury, sickness, or disease sustained by a person, including death resulting from any of these at any time.”
CGL policies provide that damages “because of” bodily injury include not simply damages claimed directly by an injured person but also damages “claimed by any … organization for care, loss of services, or death resulting at any time from the bodily injury.” These are standard-issue coverage provisions.
The plaintiffs in the opioid lawsuits are typically governmental entities alleging that opioid use has led to a “dramatic increase in opioid abuse, addiction, overdose, and death throughout the United States.” These entities seek damages for emergency medical treatment, detoxification, addiction treatment and recovery services related to opioid abuse by their citizens.
Although the plaintiff governments assert various causes of action (including negligence and public nuisance), their claims are “effectively claims to recoup the costs of medical expenses,” services, and treatment for opioid abuse and addiction.
As such, the opioid lawsuits constitute claims for damages “because of ‘bodily injury'” under the plain language of typical CGL policies, and trigger insurers’ obligations to defend policyholders against such claims.
Indeed, a string of recent decisions have consistently agreed that opioid lawsuits seek damage “because of” bodily injury, and have required insurers to defend policyholders against these claims.
These decisions have involved policyholders who are sued for allegedly improper distribution and dispensation of prescription opioids, but the reasoning applies as well to policyholders sued in their role as manufacturers.
In reaching their decisions, all these courts rejected the argument that opioid lawsuits do not seek damages “because of” bodily injury because the plaintiffs do not seek damages for their own bodily injury, but instead seek damages because of the bodily injuries of their citizens.
This, according to the courts, is a distinction without a difference given the relevant policy language. CGL policies require only a causal connection between the bodily injury and the policyholder’s complained-of conduct. Such causal connection is met where the governments seek damages as a result of costs and expenses incurred from providing treatment and services to citizens affected by opioid addiction.
This conclusion is further bolstered by the policy provision specifying that “damages because of ‘bodily injury’ include damages claimed by any person or organization for care, loss of services or death resulting at any time from the bodily injury.” An organization cannot sustain bodily injury; therefore, the express language of CGL policies refutes any notion that coverage is limited to claims by individuals seeking damages for their own bodily injuries.
Consider the following hypothetical: If a citizen suffered bodily injury due to his drug addiction and sued a policyholder for negligently distributing or dispensing opioids, even the insurers acknowledge that their policies would cover such a suit.
Now suppose that the injured citizen’s mother spent her own money to care for her son’s injuries. The mother’s suit is also covered, even though she seeks her own damages (the money she spent to care for her son), not damages on behalf of her son (such as his pain and suffering or lost wages).
Legally, the result is no different because the opioid plaintiffs are governments, instead of mothers. The insurers’ distinction thus makes no difference; CGL policies require insurers to defend against these opioid-related claims.
There is no requirement for claims to allege individual bodily injury to be covered.
Fleischer’s claim that the recent line of decisions “manufacture[s] insurance coverage where it was not intended” is based on a series of mischaracterizations and misperceptions.
First, Fleischer rewrites the language of CGL policies. Nothing in the language of CGL policies limits coverage to claims alleging bodily injury to specific individuals. Indeed, Fleischer’s conclusion is supported only by its repeated insistence that such policies cover damages for bodily injury rather than damages because of bodily injury.
While this mischaracterization may seem trivial, courts have recognized that policies covering damages because of bodily injury afford broader coverage than policies covering damages for bodily injury. And, consistent with this broad coverage, courts have properly concluded that the costs and expenses incurred by governmental entities as a result of sickness, disease, and death of their citizens are indeed because of “bodily injury.”
Second, in effort to attack the recent decisions finding coverage, the insurer article miscasts the nature of the claims and relief sought in the opioid lawsuits. For instance, Fleischer asserts that the opioid plaintiffs “specifically have pled that [they] do not seek damages for death, physical injury to a person, or emotional distress.”
But, as the Delaware Superior Court explained in Rite Aid Corp. v. ACE American Insurance Co., this artful pleading is an attempt to avoid application of the Ohio Product Liability Act which abrogates product liability claims.
Even if the opioid lawsuits do not seek compensatory damages directly for individuals’ death or physical injury, as abrogated by the act, the lawsuits undisputedly allege physical harm from opioid addition which constitutes “bodily injury,” and seek damages because of such bodily injury as required to trigger defense coverage.
In short, the plaintiffs’ attempts to disavow damages for death or physical injury, taken in proper context, do not support insurers’ attempts to deny defense coverage for the opioid lawsuits.
Similarly, Fleischer’s suggestion that the opioid lawsuits simply seek “economic losses paid by governments for the unreasonable interference with a public right” is misguided. The lawsuits seek costs and expenses associated with government programs and services, and these programs are directly aimed at providing emergency, health and other services to individuals suffering from opioid abuse and addiction.
In other words, the services and programs, and the costs to fund them, are because of bodily injury to citizens. Once again, this triggers defense coverage under the broad language of CGL policies.
In sum, there is no confusion here: CGL policies cover the defense of opioid-related lawsuits because the suits seek damages “because of” bodily injury, as the case law clearly and consistently establishes. The courts have not blurred the distinction; they’ve addressed it — correctly. Any insurer that tries to tell you otherwise is not telling you the truth.
 See, e.g., Cincinnati Ins. Co. v. H.D. Smith, L.L.C., 829 F.3d 771 (7th Cir. 2016); Giant Eagle, Inc. v. Am. Guar. & Liab. Ins. Co., No. 2:19-cv-00904, 2020 WL 6565272 (W.D. Pa. Nov. 9, 2020); Rite Aid Corp. v. ACE Am. Ins. Co., No. N19C-04-150, 2020 WL 5640817 (Del. Super. Ct. Sept. 23, 2020); Acuity v. Masters Pharm., Inc., No. C-190176, 2020 WL 3446652 (Ohio Ct. App. June 24, 2020); Cincinnati Ins. Co. v. Disc. Drug Mart, Inc., Case No. CV-19-913990 (Ohio Ct. Comm. Pls. Sept. 9, 2020).
 See, e.g., Giant Eagle, 2020 WL 6565272, at *4, *13.
 Id. at *5, *14.
 Id. In addition, some of the opioid plaintiffs are legal guardians asserting claims on behalf of children diagnosed at birth with opioid dependence, known as Neonatal Abstinence Syndrome (“NAS”). Id. at *5. The NAS plaintiffs allege that their children suffer from health conditions resulting from their in utero exposure to opioids and seek damages for ongoing care necessitated by the policyholders’ alleged wrongful conduct in distributing and dispensing opioids. Id. at *5.
 See, e.g., Acuity, 2020 WL 3446652, at *6 (citing In re Nat’l Prescription Opiate Litig., No. 1:17-md-2804, 2018 WL 6628898, at *9 (N.D. Ohio Dec. 19, 2018)); Disc. Drug Mart, No. CV-19-913990, at 15 (citing same).
 See, e.g., Giant Eagle, 2020 WL 6565272, at *14; Rite Aid, 2020 WL 5640817, at *15; Acuity, 2020 WL 3446652, at *6.
 H.D. Smith, 829 F.3d at 774.
 Id. (noting that policies covering suits seeking damages “because of” bodily injury provide broader coverage than policies covering suits “for” bodily injury). This is not to concede that the opioid claims do not seek damages “for” bodily injury, but that was not the language at issue in the five cases cited supra in note 1.
While government shutdown orders caused by the pandemic threaten to put many corporations out of business, insurance carriers have launched an outright war against businesses, arguing that no kind of insurance policy provides business income relief to policyholders. Most claims filed for Covid-19 losses have come under commercial property policies.
Although policyholders have filed hundreds of lawsuits seeking coverage for Covid-19 losses, one suit filed on Oct. 13 in the U.S. District Court for the Southern District of New York stands out from the rest. (SeeJemb Realty Corp. v. Greenwich Ins. Co.). Unlike most insureds, the New York policyholder seeks coverage under an environmental insurance policy, which covers business interruption caused by “pollutants.”
Environmental insurers are now claiming that coronavirus is not a “pollutant.” But in previous cases involving near-identical policy language and in representations made to regulatory agencies, insurers said the exact opposite—that viruses are “irritants” or “contaminants,” and thus are covered “pollutants.”
Business Interruption Caused by ‘Pollutants’
Environmental policies cover business-interruption losses caused by “pollutants.” Most environmental policies define “pollutants” as follows:
Any solid, liquid, gaseous or thermal pollutant, irritant, or contaminant, including but not limited to smoke, vapors, odors, soot, fumes, acids, alkalis, toxic chemicals, hazardous substances, and waste materials.
Environmental insurance carriers have denied coverage for Covid-19 losses, claiming that the virus is not a pollutant because it is not an irritant or contaminant.
There’s just one problem: For years, insurance companies have told courts and regulatory agencies around the country that viruses are “pollutants,” in order to avoid having to pay claims under different kinds of policies.
Insurers Have Told Courts and Regulators That Viruses Are ‘Irritants’ or ‘Contaminants’ and Thus ‘Pollutants’
Other kinds of policies—such as general liability and commercial property policies—often have exclusions for pollution. They bar coverage for damage caused by “pollutants,” including “irritants” and “contaminants.”
For years, under general liability and commercial property policies, insurers have denied claims for losses caused by viruses, arguing that viruses are “irritants” or “contaminants” and are thus excluded as “pollutants.”
Insurers have had some success these with these arguments. Several courts have even held that pollution exclusions bar coverage for losses caused by viruses, because harmful microbes are “contaminants,” and thus excluded “pollutants.”
For example, the U.S. Court of Appeals for the Sixth Circuit in U.S. Fire Ins. Co. v. City of Warren (2003) applied a pollution exclusion to bar coverage for a sewage backup containing viruses and bacteria.
Insurers have also told state insurance regulators that viruses are “contaminants.” Specifically, in order to get approval to add virus exclusions to commercial property policies, insurers told state regulators that microbes such as rotavirus, SARS, influenza, and avian flu were examples of viral “contaminants,” meaning that they were already excluded by pollution exclusions. Thus, they argued, adding virus exclusions would not shrink coverage without a corresponding reduction of premiums. [ISO Circular (July 6, 2006)].
For insurers, the question of whether viruses are “pollutants” is Schrödinger’s Cat: When a policy excludes “pollutants,” viruses are pollutants; when an environmental policy specifically covers “pollutants,” they are not. Either way, the outcome remains the same, in the insurers’ view: There is no coverage.
In reality, insureds may recover under both environmental and commercial property policies because the law construes coverage provisions differently than exclusions: Environmental coverage provisions for “pollutants” are interpreted broadly and in favor of coverage, whereas commercial property exclusions for “pollutants” are construed narrowly and against the insurer.
Fortunately for policyholders, legal doctrines like judicial estoppel and regulatory estoppel prevent insurers from taking inconsistent positions. These doctrines prevent litigants from “playing fast and loose” with the court system by switching legal positions to suit their own ends. (See Sunbeam Corp. v. Liberty Mut. Ins. Co. (Pa. 2001)).
Environmental Policyholders Should Push for Coverage
While environmental policies may be less common than commercial property policies, policyholders have had success in coverage lawsuits for similar losses.
For example, in one 2015 lawsuit filed in federal court in Minnesota, an insurer denied coverage under an environmental policy after an outbreak of avian influenza contaminated the policyholder’s farms, claiming that the bird flu was not a “contaminant.” (SeeRembrandt Enters. Inc. v. Ill. Union Ins. Co.).
After discovery, the insurer withdrew this claim and admitted that bird flu was a “contaminant” and covered “pollution condition.” The case later settled.
By spending years insisting that viruses are “pollutants,” insurers have painted themselves into a corner. With respect to environmental policies, policyholders can hold insurance carriers to their word and obtain coverage for Covid-19 losses. See also A Surge in Pro-Policyholder Covid-19 Decisions
In the first few months of the Covid-19 pandemic, a massive number of Covid-19 insurance lawsuits were filed by personal injury lawyers with minimal experience in insurance recovery litigation.
They filed suit, asserting claims on behalf of nail salons, tattoo parlors and small family-owned restaurants, many times without even alleging the presence of coronavirus . The initial results were expected – insurers filed motions to dismiss in response to policyholders’ complaints, resulting in one court dismissal after another. Understandably, policyholders took notice, particularly larger, more sophisticated companies, often times opting to defer litigation until the dust had settled. In the meantime the insurance industry continued its strategy of full claim denials, without exception, regardless of facts or policy language at issue.
Recent Pro-Policyholder Covid-19 Court Decisions
Recently, as the second wave of the coronavirus continues to infect tens of millions of more people and continues to impact most of the world’s business, additional insurance lawsuits were filed, this time by sophisticated companies with the help of experienced insurance coverage litigators, involving actual or suspected Covid-19 test positive cases on site and insurance policies without virus exclusions.
Better Pleading – Better Results
The major issue in these cases is whether policyholders had adequately alleged in their complaints that they knew or suspected employees, vendors or guests were infected with the virus at the time they were on site, such that that these policyholders satisfied the pleading requirement that the virus had caused a risk of “physical loss or damage” to their property, i.e., the virus was present, and that it either caused damage to the insured premises or prevented use of insured property for its intended purposes.
These recent business income Covid-19 lawsuits have resulted in a surge in the number of pro-policyholder Covid-19 court decisions, rejecting insurers’ motions to dismiss and properly allowing policyholders to proceed to discovery and ultimately to trial. This time, it is the insurance companies that have taken notice, now realizing they’re looking at even more Covid-19 business income claims being filed, more litigation, and more risk of having to pay these claims.
The Surge in Pro-Policyholder Decisions
Just in the past two months, nearly a dozen courts around the country have denied insurance companies’ motions to dismiss, finding that policyholder-plaintiffs have adequately alleged the virus had caused “physical loss or damage,” and in one case involving a virus exclusion, a federal district judge ruled that the exclusion was ambiguous.
1. The Presence of Coronavirus Damages Property
For example, the federal district court in St. Louis, Blue Springs Dental Care, LLC v. Owner’s Insurance Co., Case No. 20-CV-00383-SRB (W.D.MO Sept. 21, 2020), in noting that, like most property policies, the term “physical loss” is not defined in the policy, adopted a “plain and ordinary meaning” of that term – physical means “having material existence; perceptive especially through the senses and subject to the laws of nature,” and “loss” means “the act of losing possession” and “deprivation.” Applying these common sense definitions to Covid-19, the court concluded that because the insured had satisfied its pleading obligations by alleging that,
the presence of Covid-19 on and around the insured property deprived Plaintiffs of the use of their property and also damaged it
The Court logically concluded that “it is likely customers, employees, and/or other visitors to the insured properties over the recent months were infected with the coronavirus,” causing plaintiffs to suspend their business operations.
2. Dismissal is Improper, Even if the Presence of Coronavirus is not explicitly Plead.
In New Jersey, a state court judge further advanced policyholders’ claims by denying an insurance company’s motion to dismiss on the issue of “physical loss or damage” even though the policyholders did not allege that any single person was infected with the virus while on site, concluding that the policyholders “should be afforded the opportunity to develop their case and provide the event of the Covid-19 closure may be a covered event under the Coverage C, Loss of Income, when occupancy of the described premises is prohibited by civil authorities.” Optical Services USA/JCI v. Franklin Mutual Ins. Co., No. BER-L-3681-20 (N.J. Super. Ct., Law Div., Bergen Cty. Sept. 17, 2020).
3. Virus Exclusions are Ambiguous and Construed in Favor of Coverage.
In a truly ground breaking decision and one certainly sending shock waves through the insurance industry, a federal judge in Florida denied an insurance company’s motion to dismiss in a claim involving a policy with an express virus exclusion which barred any claim for “loss or damage caused directly or indirectly by the presence, growth, proliferation, spread, or any activity of fungi, wet rot, dry rot, bacteria or virus.” Urogynecology Specialist of Florida LLC v. Sentinel Ins. Co., Case No. 6:20-cv-1174-Orl-22EJK (M.D. Fla. Sept. 24, 2020). Here, the court concluded that the case should proceed forward because none of the cases cited by the insurer, mostly involving pollution, “dealt with the unique circumstances of the effect of Covid-19 has had on our society – a distinction this Court considers significant.”
Strategies to Capitalize on Recent Pro-Policyholder Covid-19 Court Decisions
These recent cases are just the front edge of a continuing surge in the number of pro-policyholder Covid-19 court decisions around the country. As a result, policyholders can and should pursue their Covid-19 claims. As we predicted at the start of the pandemic, Insurance Companies Will Pay For Covid-19 Losses.
As more courts follow suit, the pressure on insurers to settle claims will increase significantly, but litigation is likely a necessary first step towards this outcome. Insurers will not settle unless they face the prospect of adverse court decisions and the resulting risk of a jury trial. Policyholders that opt to sit on the sidelines risk having their claims compromised by bad lawyering and bad fact claims pursued by unsophisticated, poorly represented businesses.
 Other recent pro-policyholder Covid-19 court decisions include: Studio 417, Inc. v. Cincinnati Ins. Co., No. 6:20-cv-03127 (W.D. Mo. Aug. 12, 2020); Somco, LLC v. Lightning Rod Mut. Ins. Co., No. CV-20-931763 (Ohio Cir. Ct. Aug. 12, 2020); K.C. Hopps, Ltd. v. Cincinnati Ins. Co., No. 4:20-cv-00437 (W.D. Mo. Aug. 13, 2020); Ridley Park Fitness LLC v. Phila. Ins. Cos., No. 200501093 (Pa. Cty. Ct. Aug. 31, 2020); SSF II, Inc. v. Cincinnati Ins. Co., No. 20CV002644 (Ohio Cty. Ct. Sept. 8, 2020); Francois Inc. v. Cincinnati Ins. Co., No. 20CV201416 (Ohio Cty. Ct. Sept. 29, 2020); and Best Rest Motel Inc. v. Sequoia Ins. Co., No. 37-2020-00015679 (Cal. Cty. Ct. Sept. 30, 2020); North State Deli LLC v. Cincinnati Ins. Co., No. 20-CVS-02569 (N. Carolina General Ct. Justice, Durham Cty.).
Recently in American Family Mutual Insurance Co., SI, v. Investment Co., an insurer filed an action seeking a declaration that it does not have to defend its insured against an underlying class action brought under Illinois’s Biometric Information Privacy Act.
This lawsuit joins a growing trend of similar actions brought by insurers seeking to escape from their contractual obligations and abandon their insureds in their hour of greatest need.
In some cases, the insurer agrees to defend under a reservation of rights, meaning that the insurer will provide a temporary defense, while actively working behind the scenes to shirk or eliminate its coverage duties. In others, the insurer denies coverage outright, then files a declaratory judgment action, forcing its insured to fight a war on two fronts: the defense against the BIPA class action and the coverage action against its insurer.
The purpose of these lawsuits is clear: Put the insureds on the defensive, force them to incur attorney fees and intimidate them into dropping valid claims for BIPA coverage.
This article will (1) provide a brief summary of BIPA, as well as the kinds of underlying BIPA claims for which insureds are seeking personal and advertising injury coverage under liability policies; (2) explain how liability policies provide personal and advertising injury coverage for many BIPA claims; (3) refute the insurers’ arguments for denying coverage; and (4) provide recommendations for insureds facing these insurer lawsuits.
BIPA governs the collection, use, and dissemination of biometric data and imposes severe punishments for violations.
The Biometric Information Privacy Act is an Illinois statute regulating the collection, use and disclosure of biometric data, including fingerprints, retina and iris scans, voiceprints, and scans of hand and face geometry. As a general proposition, BIPA prohibits private entities from disclosing a person’s biometric information without first obtaining his or her consent.
Recently, there have been a series of BIPA class actions filed by employees alleging that their employers recorded their fingerprints as a method of keeping track of their time (i.e., when they clocked in or out of their shifts) before disclosing their biometric data to third parties, in violation of BIPA.
For each negligent BIPA violation, claimants seek the greater of $1,000 or actual damages; for each intentional or reckless violation, claimants seek the greater of $5,000 or actual damages. These potential damages can add up quickly. Class actions brought under BIPA can present tremendous potential liability and attract aggressive plaintiff attorneys.
Fortunately for corporate policyholders, most liability policies provide personal and advertising injury coverage for the existential threats presented by these kinds of claims.
General liability policies cover allegations of personal and advertising injury, including publication of material that violates a person’s right of privacy.
Many general liability insurance policies provide coverage for claims alleging personal and advertising injury, defined to include “oral or written publication, in any manner, of material that violates a person’s right of privacy.” This is a standard-issue coverage provision. These policies require the insurer to both defend provide defense counsel or reimburse defense invoices and indemnify the insured (pay for any resulting settlements or judgments).
As discussed in more detail in the next section, the West Bend Mutual Insurance Company v. Krishna Schaumburg Tan Inc. case decided earlier this year held that this standard-form personal and advertising injury provision covers BIPA claims alleging disclosure of biometric data to one or more third parties. Nonetheless, insurers facing claims for coverage for BIPA claims have resorted to a variety of tactics to try and wriggle out of their coverage obligations.
Consider coverage issues for BIPA claims under general liability policies.
Despite the holding in Krishna, insurance carriers continue to repeat coverage arguments already decided in favor of policyholders. In addition, some insurers have gone back to the drawing board and come up with additional reasons for denying coverage.
For example, in McEssy, the insurer asserted four main grounds for denying coverage: (1) the BIPA class action does not allege personal and advertising injury; (2) an exclusion for distribution of material in violation of statutes bars coverage; (3) an exclusion for employment-related practices precludes coverage; and (4) an exclusion for access or disclosure of confidential or personal information applies to prevent recovery.
In Krishna, the insurer tried making the first two arguments, but lost. This section explains why the insurers’ first two arguments for denying coverage failed and why the McEssy insurer’s new arguments should fail as well.
BIPA class actions allege personal and advertising injury because disclosure of biometric data to a single third party constitutes publication.
The insurer in McEssy claims that the underlying BIPA class action does not allege personal and advertising injury because there is no alleged “publication of material that violates a person’s right of privacy,” as the underlying BIPA class action only alleges that the insured provided fingerprint data to a single third-party vendor. The insurer in Krishna made this same argument — but lost.
In Krishna, the insurer tried to argue that there was no personal and advertising injury because publication requires communication of information to the public at large, not simply a single third party. The court rejected this argument, noting that both common understanding and dictionary definitions of the term “publication” include both “the broad sharing of information to multiple recipients” and “a more limited sharing of information with a single third party.”
Krishna thus correctly decided this issue in policyholders’ favor: Disclosure of biometric data to a single third party constitutes “publication of material that violates a person’s right of privacy” sufficient to trigger personal and advertising injury coverage under a general liability policy.
The exclusion for distribution of material in violation of statutes does not apply because BIPA regulates biometric data, not methods of communication.
The McEssy insurer asserts another ground for noncoverage that the court in Krishna also rejected, claiming that an exclusion for distribution of material in violation of statutes bars coverage. This exclusion bars coverage for personal and advertising injury arising directly or indirectly out of any action or omission that violates or is alleged to violate:
The Telephone Consumer Protection Act, including any amendment of or addition to such law; or
The CAN-SPAM Act of 2003, including any amendment of or addition to such law; or
Any statute, ordinance or regulation, other than the TCPA or CAN-SPAM Act of 2003, that prohibits or limits the sending, transmitting, communicating or distribution of material or information.
Krishna also resolved this argument in policyholders’ favor. Specifically, the court held that this exclusion only applies to statutes that govern certain methods of communication, such as emails, faxes and phone calls.
By contrast, BIPA “says nothing about methods of communication.” Instead, BIPA regulates the collection, use, disclosure, retention and destruction of biometric data — certain types of information. This exclusion does not apply to BIPA class actions claiming disclosure of biometric data, and the insurer in McEssy knows it.
The employment-related practices exclusion does not apply because the BIPA claims in McEssy do not arise out of hiring, firing or job performance.
The insurer in McEssy also raises two new arguments not at issue in Krishna. First, the insurer claims that an employment-related practices exclusion bars coverage for the underlying BIPA class action, because the insured’s alleged fingerprint scanning to track its employees’ time arises out of an employment-related practice. The employment-related practices exclusion bars coverage for personal and advertising injury to a person arising out of any:
Refusal to employ that person;
Termination of that person’s employment; or
Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed that that person.
This exclusion does not apply because the underlying BIPA claims in McEssy do not arise out of the insured’s hiring, firing, or job performance-related decisions. Policy exclusions are construed narrowly against the insurer and in favor of coverage. The insurer also has the burden of showing that a claim falls within a provision that limits or excludes coverage.
Here, Illinois courts have held that whether the employment-related practices exclusion applies depends on the facts specific to each case, although the rationale remains consistent. In order for the exclusion to apply, the complained-of employment-related practice must arise out of the employee’s hiring, firing or job performance.
In McEssy, the BIPA claimants allege that the insured required them to use their fingerprints to clock in and out of their shifts, as a method for keeping track of their time. This administrative system has nothing to do with the employees’ hiring, firing or job performance, so this exclusion should not apply.
The exclusion for access or disclosure of confidential or personal information does not apply because biometric data is not health information.
Finally, the insurer in McEssy raises a second, new coverage defense, arguing that an exclusion for access or disclosure of confidential or personal information applies to bar coverage. This exclusion applies to personal and advertising injury arising out of any access to or disclosure of any person’s or organization’s confidential or personal information, including patents, trade secrets, processing methods, customer lists, financial information, credit card information, health information or any other kind of nonpublic information.
This exclusion should not apply because biometric data is different from the listed examples of nonpublic information. Under the exclusion’s plain meaning, biometric data is not similar to virtually all of the listed examples of confidential or personal information.
Most of the examples are data that a person creates or generates, such as patents, trade secrets, processing methods, or customer lists; or financial information or credit card information. The statute specifically states that “biometrics are unlike other unique identifiers that are used to access finances or other sensitive information.”
No one creates or generates biometric data; instead, biometrics are “biologically unique to the individual.” Insurers may argue that biometric data is health information, but that argument should fail because the statute’s definition of “biometric identifiers” does not include information collected, used or stored for health care treatment, such as body weight, X-rays or MRIs.
By contrast, health information such as body weight, cholesterol readings or blood pressure measurements provide insight regarding a person’s health, but is common to many people and does not uniquely identify them. Simply put, fingerprints are not health information, and the exclusion should not apply.
Policyholders who find themselves slammed with insurer declaratory judgment actions are in a tight spot. At a time when they should be focused on the threat from the BIPA claims, when sued by insurance carriers, the policyholders must also retain counsel, incur attorney fees, and answer the insurers’ complaints.
Policyholders that find themselves in this situation need to quickly come up with a strategy to fight back against wrongful denials of coverage. One strategy is to answer the insurer’s complaint, and then quickly move for judgment on the pleadings, as the duty to defend is a question of law, ripe for early adjudication. These intimidation strategies will not work, as long as you are prepared to combat your insurance carriers’ misplaced aggression.
 Compl. for Declaratory J., Am. Family Mut. Ins. Co. v. McEssy Inv. Co., No. 1:20-cv-05591 (N.D. Ill. Sept. 21, 2020).
 See, e.g., Am. Compl. for Declaratory J., Am. Family Mut. Ins. Co. v. Amore Enters., Inc., No. 20 C 1659 (N.D. Ill. Sept. 17, 2020); W. Bend Mut. Ins. Co. v. Krishna Schaumburg Tan, Inc., 2020 IL App (1st) 191834 (Ill. App. Ct. Mar. 20, 2020).
 See, e.g., McEssy Compl., at ¶ 15 (accepting the tender of the defense while reserving rights, then filing a declaratory judgment action against the insured); Krishna, at *1 (same).
 See, e.g., Compl. for Declaratory J., Am. Guar. & Liab. Ins. Co. v. Toms King LLC, No. 2020CH04472, ¶¶ 42-45 (Ill. Cir. Ct. June 5, 2020).
 Class Action Compl., Currie v. McEssy Inv. Co., No. 20CH00000467, ¶¶ 12-13, 25 (Ill. Cir. Ct. July 10, 2020) (citing 740 Ill. Comp. Stat. 14/10 (2008)).
 Id. at ¶ 26 (citing 740 Ill. Comp. Stat. 14/15(b) (2008)).
 See, e.g., Amore Am. Compl., at ¶ 58; Currie Compl., at ¶¶ 33-35; Toms King Compl., at ¶ 18; Third Am. Class Action Compl., Lark v. McDonald’s USA, LLC, No. 17-L-559, ¶ 122 (Ill. Cir. Ct. Nov. 5, 2019).  740 Ill. Comp. Stat. 14/20 (2008).
 See, e.g., Insurance Services Office (“ISO”) Businessowners Coverage Form BP 00 03 01 06, Section II – Liability, § F. 14. e.
 For example, the definition of “personal injury” in the Businessowners Liability Coverage Form at issue in Krishna similarly included “injury, other than ‘bodily injury,’ arising out of one or more of the following offenses… oral or written publication of material that violates a person’s right of privacy.” Krishna, 2020 IL App (1st) 191834, at *1.
 See, e.g., Insurance Services Office (“ISO”) Businessowners Coverage Form BP 00 03 01 06, Section II – Liability, § A. 1. a. (“We will pay those sums that the insured becomes legally obligated to pay as damages because of… “personal and advertising injury to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages.”).
 Krishna, 2020 IL App (1st) 191834, at *9.
 McEssy Compl., at ¶ 18.
 Id. at ¶ 18(c).
 Krishna, 2020 IL App (1st) 191834, at *4-6.
 Id.  Id.
 McEssy Compl., at ¶ 18(e)).
 See, e.g., Insurance Services Office (“ISO”) Businessowners Coverage Form BP 00 03 01 06, Section II – Liability, § B. 1. s.
 Krishna, 2020 IL App (1st) 191834, at *7.
 McEssy Compl., at ¶ 18(e) n.1 (citing Krishna but nonetheless raising this defense “as a good faith challenge to existing law”). Under Rule 11 of the Federal Rules of Civil Procedure, every pleading must be signed by at least one attorney of record and by signing, the attorney represents that to the best of the person’s knowledge, the “claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law.” Fed. R. Civ. P. 11(b)(2).
 McEssy Compl., ¶ 18(f). The insurer did not raise this coverage defense in Krishna because the underlying BIPA claimants in that case were the insured’s customers, not its employees. Krishna, 2020 IL App (1st) 191834, at *2.
 See, e.g., Employment-Related Practices Exclusion, ISO Form No. BP 04 17 07 02.
 Am. All. Ins. Co. v. 1212 Rest. Grp., L.L.C., 794 N.E.2d 892, 897 (Ill. App. Ct. 2003) (“Provisions that limit or exclude coverage are to be construed liberally in favor of the insured and most strongly against the insurer.”).
 Id. (“The burden is on the insurer to show that a claim falls within a provision that limits or excludes coverage.”).
 See, e.g., Am. Econ. Ins. Co. v. Haley Mansion, Inc., No. 3–12–0368, 2013 WL 1760600, at *5 (Ill. App. Ct. Apr. 23, 2013) (holding that the employment-related practices exclusion did not apply to alleged defamatory remarks because they had no bearing on the former employee’s previous work performance); 1212 Rest. Grp., 794 N.E.2d at 897-901 (surveying cases analyzing the Employment-Related Practices Exclusion across several jurisdictions and determining that it did not apply).
 Currie Compl., at ¶¶ 33-34.
 McEssy Compl., at ¶ 18(g).
 Exclusion – Access or Disclosure of Confidential or Personal Information and Data-Related Liability – with Limited Bodily Injury Exception, ISO Form No. BP 15 04 05 14.
 740 Ill. Comp. Stat. 14/5(c) (2008).
 740 Ill. Comp. Stat. 14/10 (2008).
 See Cooper v. Westfield Ins. Co., No. 2:19-cv-00324, 2020 WL 5647015, at *8 (S.D. W.Va. Sept. 22, 2020) (applying the exclusion but to alleged disclosure of false information regarding a former employee’s health; i.e., that she had Hepatitis C).
Roughly three thousand years ago, King Solomon was asked for a maxim that was true in both good and bad times. He offered, “This, too, shall pass away.” Most businesses will readily admit that, because of the presence of COVID-19, they are in the midst of some dismal times. The presence of coronavirus has rendered business premises unsafe and unusable for their intended purposes. Governmental closure orders have forced many companies to shutter or drastically reduce their operations. In addition, COVID-19 has prevented access to business premises and disrupted the supply chain. Businesses are losing billions of dollars due to the pandemic. These are the exact kinds of risks that “all risks” insurance policies are designed to cover. Yes, this too shall pass, and if history is a barometer of things to come, insurance payments will be part of the solution, not part of the problem.
Insurance Carriers are Part of the Problem
From the start, insurance carriers recognized that their universally sold “all risks” commercial property insurance policies could provide business income protection for COVID-19 losses. They were rightly concerned that their many policy forms might cover coronavirus-related losses. Given the risk, insurance carriers reserved billions to pay for COVID-19 losses. But rather than pay, the insurers have circled their wagons, leaving policyholders wondering how they can secure coverage for COVID-19 losses.
Given how insurance carriers are adjusting COVID-19 losses, recovery for many policyholders may prove to be difficult. Some insurance carriers initially denied COVID-19 claims without investigation, only to be sued for bad faith. Now, most insurance carriers are holding off on rapid denials in the hopes that policyholders will unwittingly compromise their claims. This adjustment process is designed to entice policyholders to make admissions against coverage that can later be used to deny claims. Unfortunately, the tactics being employed to minimize coverage can be difficult to spot. As a result, the road to recovery will likely be littered with businesses that unwittingly fell prey to expertly devised insurance company tactics.
Corporate Policyholders Need a Road Map to Recovery
Although insurance carriers have a road map for denials of coverage, most policyholders do not have a corresponding road map to recovery. While no two policies are exactly the same, “all risks” policies are standard form. Many of the COVID-19 issues raised by insurance carriers today, such as whether “physical loss or damage” has occurred or whether Civil Authority provisions require a complete prohibition of access to the insured premises, have been addressed before, and most of the case law on these issues is positive for policyholders. But not all businesses will recover. Some have difficult policy language. Others will unwittingly support insurance carrier denials by improperly responding to questions and information requests. Still others will make strategic errors in presenting and pursuing their claims.
To prevent these kinds of errors, policyholders need to understand the issues and devise a plan for recovery. This article addresses the issues that corporate policyholders need to consider in developing their specific road maps to coverage.