JONES DAY TALKS®: COVID-19 and Business Insurance
Jones Day Insurance Recovery Practice Leader Ty Childress discusses the insurance implications relating to COVID-19, including employee health and safety concerns, the importance of reviewing language, determining what constitutes a "physical loss," and what business operators must do now.
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Read the full transcript below:
Dave Dalton:
COVID-19, or the coronavirus, is raising hundreds of issues and concerns for business operators around the world. What about insurance coverage? What do companies need to know regarding claims and establishing physical losses? And what are the longterm implications moving forward? We have insurance recovery practice leader, Ty Childress, here to fill us in. I'm Dave Dalton. You're listening to JONES DAY TALKS®. Ty Childress is one of the industry's leading insurance recovery lawyers and is chair of Jones Day's insurance recovery practice.
Dave Dalton:
Ty has served as lead counsel for corporate policy holders in pursuing claims and litigation, and has been involved in complex insurance coverage claims relating to a variety of matters, including major product liability claims, mass tort claims, and catastrophic property losses. Ty, thanks for being here. Hey, Ty, tell us what some of the issues are that your clients are most concerned with right now. What kind of questions are you getting from them?
Ty Childress:
Well, first and foremost, companies are concerned about protecting the health of their employees and their families. And in the cases of hotels, property managers or others in the hospitality industry, they're concerned about the health of their guests or their tenants. On the insurance front specifically, we're getting a broad range of questions, everything from do they have coverage for cleaning their facilities in the event of a virus detection to addressing business interruption losses associated with supply chain disruptions they may be facing.
Dave Dalton:
Okay.
Ty Childress:
It may seem intuitive, but it always does bear repeating. The scope of coverage can really vary dramatically depending on the policy language. And there's really no substitute for reviewing the actual policies themselves. We see everything from express coverage for losses associated with infectious or communicable diseases to, on the other end of the spectrum, blanket exclusions for such losses. And then there's many policies offering something in the middle of those two extremes. And while the full extent of the coronavirus has impact is obviously still developing, business interruption losses, particularly in the hospitality industry are likely to be significant. Some policies require an actual physical loss to trigger that coverage. So we are anticipating that there will be likely emerging disputes regarding what constitutes a physical loss under that policy language.
Dave Dalton:
Okay. Let's talk more about that. You were kind enough to help prepare for this. You sent some notes over, this notion of physical loss and when that's occurred. Historically, are there examples of more or less creative instances where policies have provided coverage in this crisis without invoking the actual physical loss language? Does that happen?
Ty Childress:
Absolutely. There are a number of jurisdictions that have had to address this in other contexts, whether it was in after 9/11 or other kinds of disease contexts. And then number of courts have held that when a location is rendered uninhabitable or truly unfit for its intended use, that effectively qualifies as physical loss as that term is used in the policy. It doesn't need to be a fire or a storm or something where there's an actual physical incapacity. So when the property really is not being able to be used for its intended use, courts have said that can certainly be considered as qualifying for physical loss.
Dave Dalton:
Okay. Are there other ways or avenues to secure potential coverage for these types of losses beyond what you just mentioned?
Ty Childress:
Sure. If we're sticking with the focus on business interruption, many policies do provide for civil authority type of coverage, which in essence allows you to recover losses if a governmental authority issues some kind of an order, which impacts the ability for you to continue your operations. Quarantine type settings are one type of example where that coverage could be implicated. But again, you'll go back to the specific language, the specific civil authority coverage it might be in a particular company's policy.
Dave Dalton:
Let's go back to the big picture for a second. And this is a crisis that we've not seen in quite a while. Look in your crystal ball for a second. What do you predict for the insurance industry? What kind of lasting effects might there be? Or is it too early to say or tell?
Ty Childress:
Well, like everyone else, you listen to a lot of different stories from various experts, and I've heard stories from medical experts that are predicting that this virus could be around for a sustained period of time and well over a year. If that is true, in addition to the accumulated losses that could occur over such an extended time period, companies will likely be renewing policies during that time period, given those policies are on a one-year cycle. Obviously, you may be in renewal periods during the middle of this setting. In that setting, commercial policy holders should really review their policy renewals closely to see if their insurers are attempting to add new exclusions or restrict coverage for these types of risks. As you might imagine, if these exposures continue to grow, there'll be substantial incentives within the insurance industry to try to restrict potential coverage for these types of losses.
Dave Dalton:
Oh, absolutely. Absolutely. They will react and it might not always be in the best interest of the policyholder. That's for sure. All right. Let's wrap this up here with you, Ty. Give us a takeaway. What's the most important thing for clients to understand or know right now, do you think?
Ty Childress:
Look, obviously, everyone's immediate and primary focus should be on the health and safety of their employees, their tenants, their guests, and their loved ones. And with that, of course, in context, corporate policyholders who do face potential liability based on their operations or loss exposures, again, based on the types of operations they may be conducting, should really review their policies carefully now to see what coverage they may have to address such exposures. So that they're in a position to know as this develops, do they have insurance assets to match maybe some of their problems? They should also really consider engaging legal counsel now, so they can protect those communications regarding the interplay of their potential liability or loss exposures and how that might mix with their potential insurance assets.
Dave Dalton:
Well, good. Hey, Ty, thanks for your time today. I'm sure we'll talk again. This is a developing story, as they say in the news business, and we sure appreciate your input today.
Ty Childress:
Thank you, Dave. Appreciate it as well.
Dave Dalton:
All right. Thanks. Talk soon, Thy. You can find contact information for Ty Childress at jonesday.com. While you're there, check out our insights page where you'll find more podcasts, videos, whitepapers, commentaries, blogs, client alerts, and other important information. Subscribe to JONES DAY TALKS® at Apple Podcasts and wherever else podcasts can be found. As always, we thank you for listening. I'm Dave Dalton. We'll talk to you next time.
Speaker 3:
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