Property Insurance May Mitigate Ebola-Related Losses
Insurance Law360November 3, 2014
By Jennifer L. Gibbs
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With cases of Ebola now in the U.S., concerns have been raised as to the safety of public places visited by a person infected with the virus. Despite assurances from health officials that it is nearly impossible to contract Ebola by touching an infected surface such as a door or a handlebar,[1] some business impacts are likely inevitable.
For example, the Ohio bridal shop where Texas nurse Amber Vinson visited remains closed weeks after Vinson’s visit, despite the fact that the shop was extensively cleaned and decontaminated. The bridal shop’s closure is due, in part, to the fact that employees refuse to return to work and customers are concerned that the wedding gown inventory is potentially contaminated. The shop’s owner said their insurance company doesn’t know how to respond to a situation with which it has had no experience, and he doesn’t know if his business will ever again be what it was “in a world where fear is often more persuasive than fact.”[2]
The Texas hospital where both Vinson and Pham were employed has already reported significant financial losses related to the Ebola outbreak.[3] Similarly, although the apartments occupied by both affected Texas nurses have been extensively cleaned and sanitized, the apartment complex owners may no longer be able to rent those apartments due to the stigma of Ebola.
Whether and to what extent first-party property insurance might provide coverage for losses associated with an Ebola outbreak will depend on the specific language of insurance policies currently in place, and whether these businesses can procure coverage for losses resulting from Ebola.
Physical Loss or Damage?
The threshold inquiry for a business affected by Ebola is whether the virus, or the suspicion of its presence, qualifies as physical loss or damage.
A property insurance policy typically provides coverage for “direct physical loss or damage to covered property at the insured premises caused by or resulting from a covered cause of loss.” Although this threshold inquiry is easily satisfied in losses such as fire or water, in instances where the insured's premises has been impacted due to the outbreak of a virus or suspected virus such as Ebola, yet the insured property is unchanged otherwise, a coverage dispute regarding whether a property policy is triggered is likely to arise.
There is no uniform rule as to when a property has sustained “physical loss or damage.” Some courts have found that mere loss of use without physical alteration of the property is not “physical loss or damage.”[4] Other courts have found that the loss of use or inhabitability of insured property, under certain circumstances, can constitute “physical loss or damage.”[5]
Prior to the current Ebola outbreak, the mere fact that an individual affected by a communicable disease has been present in the property would not likely render a property uninhabitable or otherwise unusable. However, given the current hysteria surrounding Ebola, it is not difficult to imagine a scenario where a building would be found uninhabitable in the event of an Ebola outbreak.
Given that there is no bright-line rule as to when a property has sustained “physical loss or damage,” and depending on the jurisdiction and the specific policy language at issue, insureds may make claims to their property insurance carriers relating to the Ebola virus.
Business Interruption and Civil Authority Considerations
Business interruption coverage is intended to protect against economic losses, specifically the loss of business earnings an insured sustains due to a suspension of its operations. Typical business interruption coverage provides for the loss of business income an insured sustains due to the necessary suspension of its operations during the period of restoration caused by “direct physical loss of or damage to property caused by or resulting from a covered cause of loss.” Accordingly, a business affected by Ebola must fulfill the physical loss or damage requirement to trigger business interruption coverage.[6] Insureds seeking to recover for contingent business interruption, triggered when a dependent property of the insured sustains physical loss or damage, face the same hurdle.
Civil authority coverage applies when a business is shutdown due to an order of civil authority. Civil authority coverage is often called on during natural disasters, such as hurricanes and wild fires, and was also implicated when parts of Manhattan were closed immediately after 9/11. To establish coverage under a typical civil authority provision, the insured must establish a loss of business income caused by an action of civil authority prohibiting access to the described premises of the insured caused by direct physical loss or damage to property other than the described premises by a covered cause of loss.[7] Again, this type of coverage requires “direct physical loss or damage” for coverage to be triggered.
Exclusions
Even if an insured business owner could meet the threshold issue of proving that the presence of the Ebola virus is physical loss or damage, policy exclusions may apply to preclude coverage.
For example, the “Exclusion for Loss Due to Virus or Bacteria,” a common exclusion found in commercial property and liability policies, specifically excludes “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” This exclusion would likely apply to preclude coverage for Ebola-related losses.
Additionally, some policies specifically exclude contamination. Depending on how that term is defined by the policy and/or interpreted by a court, it could apply to preclude coverage for an Ebola claim.
An insurer might also attempt to rely on a pollution exclusion to preclude coverage. Pollutant is typically defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”[8] Accordingly, whether the pollution exclusion would apply to an Ebola virus claim is uncertain and the specific policy wording will be important.
Pandemic Disease Business Interruption Insurance
Certain coverages provided by the standard insurance market currently offer hospitals business income coverage for business interruption due to communicable disease. But it is unlikely that businesses such as the apartment complex and bridal shop would have purchased such coverage, nor was such coverage likely available to these business owners.
In an effort to provide for what many business owners may soon be seeking, on Oct. 15, 2014, a new type of coverage — Pandemic Disease Business Interruption Insurance — was introduced to the insurance marketplace.[9] Provided by the Ark Syndicate at Lloyd’s, it would provide coverage for loss of income arising directly out of shutdowns of health care facilities, as well as diminished revenues in the aftermath of quarantine. This new coverage, however, has not yet been tested, and it is unclear whether insureds other than hospitals and health care facilities could purchase the coverage and how much this specialty insurance might cost.
Stigma Claims
Another coverage issue worth considering is whether a business impacted by an Ebola outbreak could recover losses sustained due to the stigma associated with Ebola. An Arizona court that considered stigma losses in the liability context refused to find coverage on the ground that the stigma claims were “too unrelated to property to require indemnity.”[10] However, at least one commentator has suggested that because all-risk property insurance policies are intended to provide the broadest coverage available to the property owner, stigma damages involving real property may or perhaps should be covered under an all-risk property insurance policy.[11] In the situation such as the bridal shop or the apartment complexes mentioned above, the stigma associated with Ebola is likely to persist for quite some time.
Conclusion
The latest Ebola outbreak has illustrated coverage issues that exist under traditional property insurance coverage for property and business losses related to an Ebola outbreak. Staying informed of the latest developments and purchasing insurance products newly available in the market may lessen potential business losses should future Ebola outbreaks occur.
—By Jennifer L. Gibbs, Zelle Hofmann Voelbel & Mason LLP
Jennifer Gibbs is a senior associate in Zelle Hofmann Voelbel & Mason's Dallas office.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] See http://www.washingtonpost.com/news/morning-mix/wp/2014/10/24/how-difficult-is-it-to-catch-ebola-on-the-subway (last visited Oct. 24, 2014).
[2] See http://www.fox8.com/2014/10/20/bridal-shop-owner-explains-why-store-is-still-closed-after-vinsons-visit/ (last visited Oct. 24, 2014).
[3] See http://www.healthcarefinancenews.com/news/texas-health-presbyterian-takes-financial-hit-after-ebola-crisis (last visited Oct. 24, 2014).
[4] See, e.g., MRI Healthcare Center of Glendale Inc. v. State Farm, 115 Cal. Rptr 3d 27 (Ct. App. 2010) (holding that there must be some “distinct, demonstrable, physical alteration of the property” for coverage to apply); Great Northern Ins. Co. v. Benjamin Franklin Federal Sav. & Loan Ass'n, 793 F.Supp. 259 (D.Or.1990), aff'd, 953 F.2d 1387 (9th Cir.1992) (finding costs to remove asbestos and lost rental income were not covered under a property insurance policy because the insured building did not sustain the necessary “direct physical loss” where the building itself remained physically intact and undamaged, and the insured’s only loss was economic).
[5] See, e.g., Matzner v. Seaco Ins. Co., 9 Mass. L. Rptr. 41, 1998 WL 566658 (Aug. 12, 1998) (recognizing the split of authority as to whether the phrase “physical loss or damage” can include more than tangible damage to the structure of the insured property. Finding the term ambiguous, the court held that carbon monoxide contamination constitutes “direct physical loss of or damage to” property and therefore, was covered by the policy); TRAVCO Ins. Co. v. Ward, 715 F.Supp.2d 699 (E.D. Va. 2010) (finding that the insured had at least met its burden of “bringing itself within the policy” when a home had been allegedly rendered uninhabitable due to odors and corrosion caused by Chinese drywall).
[6] See Universal Image Productions v. Federal Insurance Co., 475 Fed. Appx. 569 (6th Cir. 2012) (holding that even under a more restrictive definition of the phrase “physical loss or damage,” Universal would still not be entitled to coverage because it failed to present any evidence that the building was uninhabitable or substantially unusable. The court also found that despite a handful of courts holding that pervasive odor may constitute “physical loss” there was no evidence that the odor permeated any property or that the odor persisted).
[7] See, e.g., Dickie Brennan & Co. v. Lexington Insurance, 636 F.3d 683 (5th Cir. 2011) (holding that the insured failed to demonstrate a causal link between damage to property in the Caribbean and a New Orleans evacuation order to recover business losses under the policy’s civil authority provision).
[8] See Westport Ins. Corp. v. VN Hotel Grp. LLC, 513 F. App’x 927, 931-32 (11th Cir. 2013) (concluding that the legionella bacteria did not qualify as a pollutant because it was: (1) not an irritant or contaminant and (2) not a “solid, liquid, gaseous or thermal” substance, and, therefore, liability coverage was afforded for claims brought by patrons who contracted Legionnaire’s disease while staying at the insured’s hotel).
[9] See http://www.wgains.com/launches-pandemic-response/ (last visited Oct. 23, 2014).
[10] Nucor Corp. v. Employers Insurance Co. of Wausau, 231 Ariz. 411, 416 (Ariz. Ct. App. 2012).
[11] Steven Plitt, All-Risk Coverage for Stigma Claims involving Real Property, 35 NO. 9 INS. LITIG. REP. 253 (June 5, 2013).
