The COVID-19 crisis has caused insurance companies to once again examine their appetite and approach to providing coverage for Communicable Diseases. 

These diseases, of which Coronavirus is the most virulent in modern times, are very common in many forms. Insurance companies have to carefully assess how they want to offer coverage, if they do at all for these common issues. The severity of this pandemic has clearly illustrated the stakes of doing this incorrectly.

The World Health Organization states that “communicable, or infectious diseases, are caused by microorganisms such as bacteria, viruses, parasites and fungi that can be spread, directly or indirectly, from one person to another.” There are a wide range of infectious and communicable diseases, including:

• Influenza
• Measles
• Meningitis
• Ebola
• MRSA
• Hepatitis
• Tuberculosis
• HIV
• And many others

This short list of communicable diseases illustrates the complicated scope of this issue. If an insured like an assisted living facility or university wants coverage against all viruses, it is prudent to look at everything that could fall under the definition of a virus and pollutant, and also potentially define the terms outbreak, epidemic, pandemic, etc. for clarity. These questions and many others have become a new conversation for agents across the country, but one that is important to have.

In the past, many carriers have been reluctant to cover viruses like the flu because of their prevalence and perceived low-risk nature. The argument is that because flu season happens every year and most people fully recover relatively quickly, carriers couldn’t possibly provide coverage for every incidence of a virus outbreak for businesses. But many policies don’t define coverage (and exclusions) as clearly as needed for a time like this, when the threat of virus infection is much more serious and the impact of business interruption feels insurmountable for so many.

Not only are environmental insurance companies re-evaluating what they are willing to cover, they are looking at how current policies are written and moving forward, when these policies would be triggered if an outbreak occurs. Additionally, the discussion of which viruses would be covered is also an important factor in this conversation. And most importantly, clearly stating if a virus falls under the definition of a pollutant.

Evaluating Coverage for Communicable Diseases in Environmental Policies: Questions to Ask

Does the policy define “Virus” as a “Pollutant”?
Fundamentally, environmental policies cover losses related to pollution conditions, and those pollution conditions involve defined pollutants. The most basic pollutant definitions include:

“Any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapors, soot, fumes, acids, alkalis, chemicals, and waste…”

For a policy to affirmatively offer coverage for viruses, the definition would need to include the term, or a functionally similar synonym. Some policies do this, including the term “virus” in the definition, usually in conjunction with other broad language.

Other policies put the word “virus” in a sub-part of the definition of pollutant. This might be a definition for “Microbial Substances” or “Indoor Contaminants”. Virus might be found in that definition, and then the parent term is inserted into the Pollutant definition. It is important to review these carefully and follow the chain of language all of the way to the source.

Many policies, however, do not specifically list “virus” as a pollutant, but do contain otherwise suggestive language that could include viruses. For example, the definition might include the phrase “including, but not limited to” language while discussing types of pollutants. This “silent” status means there is the chance a pollution condition including a virus might be covered, it is certainly no guarantee. In the absence of any other exclusionary language, the actual virus would have to meet some other part of the definition of “Pollutant” for there to be a potential for coverage.

Finally, some policies provide defined coverage for viruses as part of a sublimited coverage enhancement, often for disinfection costs. While this does affirmatively provide coverage for viruses, it is often at a more limited level than other pollutants, in many cases only providing for the cost of disinfecting the area without providing Bodily Injury, Property Damage, or related Business Income coverage. In addition, the sublimits on these coverages are often quite low.

Understanding where virus is defined, and what coverages are attributable to that definition are crucial.

Pollution condition or event
Another factor to be considered is how the policy requires a pollution event to occur. Many policies contain language that reads as follows:

“Discharge, dispersal, release, seepage, migration, or escape of pollutants…”

Clearly this language requires an action to occur. The pollutant must escape containment, or disperse, etc. to be covered. While dispersal may be easy to evidence in some situations, it might be prudent to look for “presence of” language similar to that used by some carriers for Mold and Legionella. This would remove the need to assign a particular movement to the virus.

The specifics of this will again be tied to where virus is defined in the policy. In some instances, it is part of “Microbial Substance”, and that specific defined term may be tied to a “presence of” trigger. You need to be very clear on this as you review policy forms.

Does the policy contain any exclusions related to “Viruses” or “Communicable Diseases”?
Many environmental policies specifically exclude coverage for viruses in the Exclusions section of the policy. The language can occasionally also be found as an exclusion within the pollution condition definition itself.

It is important to also review for exclusions related to communicable diseases, infection via bodily fluids, and other language that excludes anything transmitted from person to person. While possibly not using the word virus specifically, the exclusion would still apply to the transmission of a virus and effectively negate coverage.

Has a pollution condition occurred?
Assuming coverage exists for viruses based on the above criteria, you still need to have a pollution condition, or event, occur for coverage to be triggered. This is true for the Bodily Injury, Property Damage, Environmental Cleanup or Business Interruption coverages resident in many environmental forms. Without a Pollution Condition, there is generally no coverage triggered.

In the current Coronavirus outbreak, many losses have stemmed from the need for social distancing, and the closure of businesses by order or necessity. These losses stem from the threat of an exposure, not an actual exposure. Given this scenario, it is difficult to see how a pollution policy could actually be triggered in the majority of cases.

However, assuming there is a known case of transmission at a site, or the absolute presence of the virus is confirmed, it would be reasonable to notify the carrier that a pollution condition has occurred.

How is the claim presented?
As mentioned earlier, the final challenge when determining coverage stems from how the claim itself is presented. Policies respond to specific allegations, and the structure and phrasing of that claim has a direct and significant impact on the scope of coverage. This is of course why carriers don’t like to say things are covered or not covered in hypothetical scenarios. The only way to be sure is to see the actual allegations and details of the loss.

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Taking all of the above considerations into account, there are many areas where this coverage would be valuable not just in hindsight but for risks moving forward. As we have all learned over the past few months, this is an exposure every business has. Agents will be working with their clients to determine if coverage should be pursued using traditional Risk Management principals. Like so many industries, the insurance marketplace is shifting the way it operates, re-working how risks are underwritten relating to communicable diseases. Agents who adapt to these challenges will strengthen their client partnerships and continue to move their businesses forward in our changing world.

Sources

https://www.cdc.gov/nchs/fastats/infectious-disease.htm

https://www.who.int/about/structure/organigram/htm/en/

https://www.afro.who.int/health-topics/communicable-diseases