COVID-19 – What insurance coverage may a business have?

The Insurance Services Office, Inc, (“ISO”) is a worldwide insurance services organization which has about 1,200 participating insurance companies.  ISO provides advisory insurance policy language that many participating companies use to issue policies. 

Commercial Property coverage is available for interruptions in business caused by a covered peril – for example, normally caused by fire.   The coverage form requires that, in order for coverage to apply, that there be a direct physical loss of property caused by a covered peril.  Can a direct physical loss be caused by COVID-19?  ISO also produced an advisory exclusion, the Commercial Property Bacteria and Virus exclusion.  First, the exclusion is available but there is no mandatory use.  In addition, it does not address whether or not the existence of COVID-19 on a piece of property is “property damage” only for the period of time it exists.  For example, if the life of COVID-19 on a piece of laminate is 3 days, does the “property damage” occur only for those 3 days?  Or, if the laminate is wiped with a disinfectant cloth every 2 hours, can “property damage” occur during those 2 hours – or does the disinfectant last for some time to limit the 2 hour opportunity window? One question to be answer is: who investigates to prove COVID-19 was actually on a piece of property – the business owner, state government, federal government, or an outside professional agent?

It follows the old argument from asbestos, when does “injury” occur?  Some courts will rule that COVID-19 causes “property damage” in order to find coverage for a policyholder.  That may become common with COVID-19 given the economic situation that results from the existence of the disease.  Was business interruption coverage intended to apply? Probably not, but the existence of a disease like COVID-19 was not considered when business interruption coverage was developed.  I would look to “direct physical loss of or to property” as the coverage trigger.  That is, if COVID-19 was found on a piece of property and either evaporated or was removed, was there “direct physical loss” to the property since it could once again be used as intended. 

Another possible avenue for coverage is whether the business interruption was caused by the decision of a civil authority that prohibits access to the insured property.  The coverage for this type of loss may not be subject to a virus exclusion.  In addition, the civil authority extension of coverage is not subject to a requirement that there be direct physical damage to the property. 

I am sure suits will be brought looking for business interruption coverage.  It will be up to the courts to decide if and when “property damage” may result from the existence of COVID-19 and whether or not the business interruption was caused by the action of civil authority .

ISO also produced an advisory Commercial General Liability (“CGL”) Fungi and Bacteria exclusion.  This was developed three years before the property exclusion.  Again, it is available but not required to be attached to a commercial liability policy.  Interesting that the Commercial Property exclusion makes reference to “virus” but the CGL exclusion does not.  The CGL exclusion only makes reference to “fungi” as defined and bacteria.   Based on a little research, since bacteria are living organisms and virus are not, there could be a dispute on whether the CGL exclusion, if used, would exclude bodily injury or property damage resulting from COVID-19. 

Just something to think about!



A Protective Safeguards Endorsement has existed for Commercial Property for years.  Is now the time to have one for Commercial General Liability (“CGL”)? 

The protective safeguards endorsement for Commercial Property sets forth the requirements the insured is to maintain in order for insurance to cover a loss.  For example, an automatic sprinkler system, an automatic fire alarm, or a protective system as described in the Declarations of the endorsement may be required.  While some commercial general liability exclusions have exceptions, to my knowledge, there is no standard advisory endorsement which allows a company to tailor the application of an exclusion to an individual insured or for a class of insureds.

Take the current COVID-19 disease as an example.  Right now there is no CGL exclusion for injury arising out of COVID-19 at an insured’s premises or resulting from an insured’s operations.  If a new exclusion were to be developed (and may be developed rather quickly by some insurers), should that type of exclusion apply if an insured undertook sufficient safeguards to control the possible spread of the disease at its premises or through its operations?  Defining “sufficient” might be an issue, but here are some possibilities of protective safeguards that could be used in order to provide coverage:

  • Wipe down with a disinfectant wipe hard surfaces with which a customer may have contact with at an insured premises – for example, a counter at a drycleaners, or a credit card reader at the supermarket.  When should the wipe down occur, after every use or every half hour or hour?
  • Require employees who have contact with customers to wear disposable gloves?  Safe food handling already requires this.  Why not for others – for example, cashiers, bank tellers, delivery personnel, plumbers, electricians within a home, etc.?  Tight fitting gloves are available.
  • Disinfect delivery vehicles once or twice a day?
  • Require all employees to wash hands (for the CDC recommended 20 seconds) every hour.
  • Once an employee begins sneezing, require a temperature check (handheld devices are becoming readily available) to determine possible influenza. 
  • Require notifying HR of any visits to doctors, medical clinics, influenza by an employee or of family members of an employee.
  • Have hand sanitizers and disinfectant wipes available throughout a workplace for use by employees and others.
  • Posted notices throughout the insured’s premises of the safeguards and/or notices to customers on deliveries/or initial work off the insured premises.

And, I am sure there are others that could be listed – possibly depending on the type of operations or the business of the insured.  A broadly worded endorsement allowing tailoring for an insured, a type of business, or a target market could be developed based on underwriting and claims specifications.

The first question many would ask is: How do I audit for these to make sure the safeguards exist or are used?  It may not be as simple as that for Commercial Property.  However, a signed statement from an insured or an initial audit by the insured’s agent with both signing a statement that the safeguards exist.  Applications setting out insured specifics are signed (or should be signed) by an insured today.

This type of protective safeguard endorsement would allow coverage for the CGL insured who undertakes a healthy environment at the insured premises as well as through their operations.  It would also prevent subsidization of losses for insureds who undertake no safety practices by those which do. 

Is it time for a protective safeguards endorsement for Commercial General Liability?  How about for workers compensation and employers’ liability as well?



In 2009, the country addressed H1N1, the Swine Flu.  The President’s Council of Advisors in Science and Technology then predicted 30% to 50% of the population could be compromised by the H1N1 virus.  That would have been approximately 90,000,000 to 150,000,000 individuals.  That would have been many more than currently projected to be affected by the COVID-19, the Coronavirus Disease – or is it?

Widespread transmission of COVID-19 could translate into large numbers of people needing medical care at the same time.  Schools, childcare centers, and workplaces may experience more absenteeism.  Public events may have less participants or even be cancelled.

While we all know that workers will fall ill and be out sick for one or more days each year, what can happen to your business if 10%, 20%, 25% or more are out sick or quarantined for two weeks or more at the same time?  Businesses normally plan for and function with routine sick days and vacations.  However, the possibility of one quarter, one third, or more of the staff out at any one time does not normally come about.  Given the late start on developing a Coronavirus vaccine, and that it will most likely not be available until late 2020 or possibly early 2021, perhaps it is the time to create a plan to address business continuity issues arising from COVID-19 (or pull out the old one used to plan for the Swine Flu). 

The possibility of several employees catching the Coronavirus at the same time is a reality.  An individual can have the Coronavirus for two to fourteen days before symptoms appear.  Coughing and sneezing during those days can easily spread the flu throughout the department/company.  What if your business has contact with customers – can employees wash hands/use hand sanitizer after each contact?  Does the business even have hand sanitizer?  The Coronavirus could be caught by employees in one or several departments and could have serious impact on a business’ operations.  This year is one in which significant, immediate, business continuity planning may be needed to address what happens if a significant number or company employees contact the Coronavirus at the same time.

Here are some of the business elements that might be reviewed by businesses facing the Coronavirus:

Chain of Command

The chain of command is any company is extremely important.   What happens if there is a break in the chain?  Who will make decisions?  Do individuals move up the chain?  In a small company, for example, a small agency, who can make decisions on behalf of insurers which the agency represents?  In a small insurer, who has the authority to make underwriting or claim decisions should the senior member(s) be out with the Coronavirus or be subject to a fourteen day quarantine?  In any business, who has the authority to sign an important contract that needs immediate signature(s)?


Will authority be delegated should there be a break in the chain of command?  For example, if the underwriting manager is out will the assistant manager have that manager’s authority to approve binding policies which have traditionally required the manager’s approval?  Will authority levels move down if both the underwriting manager and assistant manager are out ill?

If only two people have authority to sign checks and both are out – has the authority been transferred to others?


Let’s assume the business has a call-in center for customer quotes and questions and has four staff.  The assume three of those staff are quarantined for fourteen days at the same time.  What plans have been made to replace staff in those call-in center positions?

What will happen in a pharmacy should the pharmacist(s) become ill?  Is there a replacement ready to step in?  If not, will prescriptions be referred to another pharmacy?

If you have a service department with a manager, supervisor, and five workers, what happens if the manager and three workers all become ill or are quarantined at the same time?  If you can’t provide the service needed by your customers, will they move to a different service center?

Is your business ready to transfer staff immediately to fill positions?  Are those staff trained to meet the requirements of those positions?

Have you addressed any liability you may have to customers who allegedly obtain the COVID-19 disease from one of your employees because you don’t have a procedure in place to require washing of hands, you don’t have hand sanitizers available, or you allow infected workers to interact with customers?

Temporary Assignments

Temporary workforces exist for many businesses.  Are temporary workers available for your business?  Is your work/service so distinct that temporary workers from an outside agency are not appropriate?  Can you move other employees to fill the needs of those out with the Coronavirus and then obtain temporary workers to fill the positions of those moved?

As you can see, numerous questions can be raised on what can happen if a significant number of a company’s employees catch the COVID-19 disease or are quarantined to determine if they have the disease and are out of the office at the same time.  It may not be too late to sit down and make plans to ensure business continues in that event.


Does an Excess Policy Really “Follow Form”?

The term “Follow Form” has been used for years. I have found it primarily used by brokerage firms with large clients – who would like higher limits than the primary insurer will issue.  The term is used to describe how an excess/umbrella policy (to be referred to as an “excess policy” here) applies over an underlying policy (or several underlying policies which may include other layers of insurance). 

It is generally thought to mean that one or more excess policies would follow the “terms” of the underlying policy.  Many believe reference to the “terms” means using the same insuring agreement, exclusions, and conditions as the underlying policy.  The only difference could be the deductible or self-insured retention and the limits for the excess policy.  However, how often do the “terms” follow the underlying policy?  In this writer’s experience, not often.

Sometimes a replacement for “follow form” is “follow the fortunes”.  “Follow form” and “follow the fortunes” are believed by some insurance personnel to be able to be used interchangeably.  Is that the case?  Unfortunately, neither term is defined in most, if not all, of the excess policies.  The terms are normally found only in correspondence between the broker or agent and the insured, or in the binder issued by the broker or agent. 

The primary or underlying policy may be issued prior to the effective date of the insurance or soon after.  In many cases the primary underlying policy will use policy language that is common standard language in the industry, for example, the advisory language developed by a service organization like the Insurance Services Office, (“ISO”) or the American Association of Insurance Services (“AAIS”).  Excess policies, however, may be issued long after the effective date of the primary underlying insurance because the excess insurer(s) waits to review the underlying policy provisions. So, the binder providing the excess limits generally states the limits to be provided and states the excess policy will “follow the terms of the underlying policy” of simply, will “follow form”.  Remember, the broker or agent issues the binder – not the excess carrier.

What if the excess policy has different terms?  Confusion can (and does) result, especially if the broker, in its binder, says that the excess coverage “follows form” but the excess policy has its own insuring agreement, exclusions and conditions. 

An insured needs to (also known as “should”) review the Excess Policy or Policies very carefully.  Numerous provisions of the Excess Policy may not “follow form”.   Instead, an Excess Policy insurer can choose, when it issues its excess layer of insurance, to have its policy contain a separate and distinct insuring agreement, as well as separate and distinct exclusions, conditions, other terms and amendments added by endorsement(s).  If the underlying primary policy is a claims-made policy it is not unusual for the excess layers to have different retroactive dates or retroactive date triggering language especially if changes are made to the underlying primary policy.

If the Excess insurer had chosen to exactly “follow form” to all of the terms and provisions of the Underlying Policy, it could have merely stated that in its policy.  That is, it could have followed the coverage of the underlying policies by stating that it relied solely on the provisions of the underlying policies, except that it would be excess and that no payments would be made under the Excess Policy until the applicable limits of the underlying policies were properly exhausted.  Many Excess Insurers expressly state in their Insuring Agreement that the Excess Policy follows the underlying policy, “[e]xcept as may be otherwise provided by the terms and conditions of this policy… .” (Emphasis Added). This means that the terms of the Excess Policy will apply, instead of the insuring agreements, warranties, terms, definitions, conditions and exclusions of the Underlying Insurance where the policies differ. 

What is the result if two or more excess layers are provided by two or more different insurers.  This can occur when the insured is a large entity and desires very high limits of insurance – for example, in excess of $50M.   Each excess policy could have its own provisions and not follow the coverage provided by the primary underlying insurance policy or any of the excess layer(s) beneath its limits. 

What happens if they differ in the event of a large loss – the insured normally heads to the courts!  The insured can bring an action against the excess carriers for not providing “follow form” or “follow the fortunes” coverage and can bring action against the broker or agent for misleading the insured if the language in the binder stated the excess layer(s) would “follow form” or “follow the fortunes”.  And what happens if there is a claim prior to the excess policy language being finalized?  The excess insurer needs to prove how it would have issued the policy based on past history of the language it would have used. 

An Excess Insurer which chooses to have its own insuring agreement, exclusions, conditions, definitions and amendatory endorsements to replace corresponding provisions in the Underlying Policies intends to make its own determination of coverage based on the facts of the case.  There is no requirement in the P&C insurance industry, to this writer’s knowledge, in law or in custom and practice that an Excess Policy provide identical coverage as the underlying policy.  To the extent that the insured’s insurance broker represented or implied that coverage would be the same, that should be explained to the insured early in the acquisition of insurance process.

Another example of how coverage can be different between the underlying primary policy and excess policies is the statement – within the Insuring Agreement – of what will be paid under the policy.  The underlying primary policy may pay “damages” for which the insured is held liable.  Yet, the excess policy may pay for “ultimate net loss” which can be interpreted to mean something different than “damages”.  The definition of “ultimate net loss” can exclude certain costs and expenses that would be paid as “damages” under the underlying primary policy.  As noted above there is no requirement that an excess insurer provide coverage on the same basis as the underlying primary policy.  The different Insuring Agreement language might be the only difference between the excess policy and the underlying primary policy – but the different language can result in a substantial difference in coverage and limits.

The old adage “buyer beware” certainly has meaning when a policy or policies providing excess limits of insurance apply.  The policyholder cannot and should not rely on informational notes from a broker or an agent.  As soon as the actual excess policy is obtained, usually a few months after the underlying primary policy is issued, the policy language should be compared.  That should be done with every excess policy obtained if more than one applies. That is, compare each excess policy to the other layer(s) as well as to the underlying primary policy. 

Most standard primary policies have the statement: “Read the entire policy carefully to determine rights, duties and what is and is not covered.” That is what the insured should do with each excess policy as well!