First Circuit: No Coverage, No Duty to Investigate Alleged Loss Prior to Policy Period

Eric B. Hermanson and Austin D. Moody | White & Williams

On April 1, 2020, the First Circuit, applying Massachusetts law, issued a potentially useful decision addressing the Montrose “known loss” language in ISO Form CGL policies. In Clarendon National Insurance Company v. Philadelphia Indemnity Insurance Company,[1] the court applied this language to allow denial of defense for claims of recurring water infiltration that began before the insurer’s policy period, and it found an insurer had no duty to investigate whether the course of property damage might have been interrupted, or whether other property damage might have occurred during the policy period, so as to trigger coverage during a later policy.

In the underlying dispute, a condominium owner (Doherty) asserted negligence claims against her association’s property management company (Lundgren) stemming from alleged water infiltration into her condominium. The complaint said leaks developed in 2004 in the roof above Doherty’s unit, and repairs were not made in a timely or appropriate manner. The following year, the complaint said, a Lundgren employee notified Doherty that the threshold leading to her condominium’s deck was rotting. In February 2006, Doherty discovered a mushroom and water infiltration on the threshold and notified Lundgren. At that time, Lundgren asked its maintenance and repair contractor (CBD) to replace the rotting threshold. According to the complaint, CBD did not do this repair in a timely manner and left debris exposed in Doherty’s bedroom.

In March 2006, the complaint said, a mold testing company hired by Lundgren found hazardous mold in Doherty’s unit, caused by water intrusions and chronic dampness. Lundgren’s attempts at remediation were ineffectual. In September 2008, Doherty’s doctor ordered her to leave the condominium and not to return until the leaks were repaired and mold was eliminated.

In February 2009, Doherty filed suit. Lundgren tendered defense to two different insurers: Clarendon, which insured Lundgren from June 24, 2004, to June 24, 2005, and Philadelphia Indemnity (Philadelphia), which insured the company from September 1, 2007, to September 1, 2008. Clarendon agreed to defend under reservation of rights. Philadelphia declined to defend, based on the “known loss” provision in its CGL insuring agreement:

b. This insurance applies to “bodily injury” and “property damage” only if:

. . . .

(3) Prior to the policy period, no insured listed . . . and no “employee” authorized by you to give or receive notice of an “occurrence” or claim, knew that the “bodily injury” or “property damage” had occurred, in whole or in part. If such a listed insured or authorized “employee” knew, prior to the policy period, that the “bodily injury” or “property damage” occurred, then any continuation, change or resumption of such “bodily injury” or “property damage” during or after the policy period will be deemed to have been known prior to the policy period.

After the underlying case settled, Lundgren assigned its rights to Clarendon, which sued Philadelphia. Clarendon argued that Doherty’s complaint could be read to suggest that leaks prior to Philadelphia’s policy period had been repaired. It argued that new leaks might have arisen during the period of Philadelphia’s policy. At a minimum, Clarendon argued, Philadelphia had an obligation to investigate the underlying allegations before denying defense.

The District of Massachusetts rejected Clarendon’s arguments. Clarendon appealed, and the First Circuit affirmed. It found the underlying complaint unambiguously alleged damage resulting from continuing leaks that began prior to the Philadelphia policy’s inception, and it found nothing in the complaint was “reasonably susceptible” to an interpretation in which the original leaks were resolved prior to Philadelphia’s policy inception.

Finally, and importantly, the First Circuit held that when an underlying complaint does not contain allegations that would implicate coverage, the insurer has no duty to investigate further. An insurer cannot ignore known facts extrinsic to the complaint, but it has no duty to go looking for such facts.

The First Circuit’s decision provides helpful guidance for insurers faced with allegations of property damage prior to policy inception, and clarifies – importantly – that an insurer in this situation has no independent duty to investigate for damage during the policy period.

[1] No. 19-1212, 2020 U.S. App. LEXIS 10257 (1st Cir. Apr. 1, 2020).

Your CGL Policy May Cover More Than You Think – Damages “because of’ Property Damage or Bodily Injury for Construction Projects

Stella Szantova Giordano | Saxe Doernberger & Vita

Construction projects are susceptible to injuries and property damage – which is why the stakeholders involved rely heavily on commercial general liability (“CGL”) insurance policies when such losses occur. While many insureds are familiar with pursuing insurance coverage for bodily injury and property damage, a CGL policy can also cover certain consequential damages if they can be characterized as damages “because of” property damage or bodily injury.

Imagine the following scenario: An employee falls from scaffolding at the project site. OSHA shuts down the site for investigation of safety issues, and no trades are allowed to return to work for a month. Because of this, the project schedule falls behind, and the owner and the GC suffer extensive delay damages. The question is: can these (and similar) consequential damages be covered as “because of” damages under a CGL policy.

How does “because of” coverage work?

The key language to access the “because of” damages coverage is in the insuring agreement of every CGL policy written on the post-1973 ISO coverage form CG 00 01. Section I.A(1) reads:

(a) We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.2

Because the highlighted phrase can be interpreted very broadly, many courts have concluded that a CGL policy covers certain damages flowing from a bodily injury and property damage if the following is true: 1) there is a bodily injury or property damage for which the CGL policy provides coverage; 2) the sought damages were incurred “because of” such bodily injury or property damage; and 3) the connection between the bodily injury or property damage and the “because of” damages sought is not too attenuated.3

As for the third element, any degree of “but for” causation can be construed to provide coverage, since “because of” damages can (and very often are) far broader than property damage or bodily injury itself. Exactly how closely related the losses for which coverage is sought must be related to the underlying bodily injury or property damage will vary from case to case, but a good rule of thumb is the closer related to the underlying bodily injury or property damage, the better.

What types of damages can be covered?

Theoretically, any damages which can be described as damages “because of” bodily injury or property damage could be covered. However, case law on this type of coverage is limited so a creative argument, matching your particular circumstances, may be needed. Courts found “because of” coverage for these types of damages stemming from underlying property damage: 1) delay costs (California, Illinois, Michigan, Texas, Washington and Wisconsin); 2) liquidated damages (Texas and Pennsylvania); and 3) diminution of value (Missouri and Texas).

Delay Costs. If construction is halted and delayed “because of” property damage, associated costs can be very expensive. Examples of covered losses include: a 131-day delay in completion of a California residential project because of water intrusion property damage4; and delay costs associated with re-engineering and rip-and-tear damages stemming from a subcontractor’s failure to construct concrete piles to their required strength in Washington.5

Liquidated Damages. Because liquidated damages are considered to be contract-based, obtaining coverage for them under the “because of” theory can be more difficult. The key distinction is whether the damages are a result of the insured’s negligence (in which case they are covered), or whether the damages arise from a contractual obligation (in which case they are not). A federal court applying Texas law allowed coverage for liquidated damages of $5,400 per day resulting from damage to an oil pipeline.6 A court in Pennsylvania found that liquidated damages “because of” a subcontractor accidentally cutting structural parts of a bridge were covered.7 Finally, a Tennessee court explained that if the insurers wanted to protect themselves from coverage for liquidated damages as “because of” damages, they could specifically endorse their policies to exclude liquidated damages.8

Diminution of Value. In and of itself, diminution in value is a purely economic loss not considered property damage. However, if it stems from underlying property damage, “because of” coverage is available. One court, applying Missouri law, allowed “because of” coverage to a supermarket for diminution in value to its building because of improperly installed and cracking terrazzo floor.9 Another court in Texas allowed coverage for diminution in value caused by water leakage from developer-made lakes to individual homes.10

NOTE: Many states also allow coverage for ensuing damage arising out of defective construction. While some cases characterize this as “because of” coverage, seeking defective construction coverage usually involves a different analysis which is beyond the scope of this article.11

Damages “because of” bodily inury may be more limited

Very few cases address coverage for consequential damages “because of” bodily injury on a construction project, but the argument should be the same as with damages flowing from property damage. One notable New York case allowed “because of” damages coverage for a project owner whose employees slipped and fell on water which came from an improperly installed (and leaking) roof.12 In addition, cases from non-construction settings can be used as guidance when seeking damages “because of” bodily injury. For example, a Maryland case allowed compensatory damages (including purchase of a cell phone head set) to individuals injured by cell phones emitting dangerous levels of radiation.13 In any case, the argument that damages “because of” bodily injury (such as the delay costs in the hypothetical scenario mentioned earlier) should be covered by a CGL policy is often worth making.


If you find yourself faced with consequential damages on a construction project caused by property damage or bodily injury, you should consider whether the “because of” argument could get you additional recovery under a CGL policy. Coverage counsel can help you evaluate whether damages such as delay in completion, repair costs, liquidated damages or diminution in value could be covered.

Inadvertent Construction Defects Are an ‘Occurrence’ Under the CGL Insurance Policy

Clifford J. Shapiro | National Law Review

Whether property damage caused by defective construction work constitutes an accidental “occurrence” under the standard form Commercial General Liability (CGL) insurance policy is now highly dependent on which state’s law applies. Determining which state’s law applies to a particular construction defect claim is therefore critical and often outcome determinative. 

The current status of each’s state’s law can be found in the Barnes & Thornburg Construction Law Practice Group’s 50 state survey of the “occurrence” issue.

This article discusses some of the correct and the incorrect ways that courts are currently addressing this issue. In particular, it focuses on the failed state of the law in Illinois, a state that continues to use an incorrect and outdated analysis to determine whether construction defects constitute an “occurrence” under the CGL insurance policy. 

A majority of jurisdictions find that defective or faulty workmanship can constitute an “occurrence” under the modern day CGL insurance policy. Generally, these jurisdictions find that defective construction work that occurs unintentionally is a fortuitous “accident,” and therefore an “occurrence” within the meaning of the coverage grant in the CGL policy. Other jurisdictions find that unintentional defective work can constitute an accidental “occurrence” if the defective work causes property damage to something other than the defective work itself. In all of these jurisdictions, a policyholder can potentially trigger coverage for a construction defect claim, assuming other terms and exclusions in the policy do not apply to bar coverage.

A minority of jurisdictions still hold that construction defect claims do not, and cannot, give rise to an accidental “occurrence” within the meaning of the CGL insurance policy, and therefore refuse to provide any coverage at all for construction defect claims. This is the situation in Illinois, and frankly the law in Illinois needs to be corrected. 

Understanding ‘Occurrence’ Under the CGL Policy

The modern day CGL insurance policy contains two key parts: the coverage grant and the policy exclusions. The coverage grant broadly provides insurance coverage up to the policy limits for amounts the policyholder becomes legally obligated to pay because of “property damage” caused by an accidental “occurrence.” The CGL policy then narrows and defines the actual scope of insurance coverage for a particular claim through the many policy exclusions.

The correct legal analysis recognizes that there is an accidental “occurrence” under the CGL policy coverage grant when a claim alleges that a general contractor or subcontractor caused property damage by accidentally (not intentionally) performing faulty construction work. Whether or not coverage exists for the claim is then determined by examining the various construction-specific policy exclusions that may apply to the particular situation. 

The correct legal analysis then examines the kind of property damage at issue only as required by the analysis of the policy exclusions, and not to determine in the first instance if the claim involves an accidental “occurrence.” This is a very important difference. A threshold finding of no “occurrence” is an absolute bar to coverage, which means there is no possibility of coverage and therefore no duty to defend the policyholder against the claim. 

On the other hand, a finding that the claim involves an accidental “occurrence” then requires analysis of the claim under the policy exclusions. This often leads to a finding that there is at least potential coverage for part of the claim, and the insurance company is therefore required to provide its policyholder with a defense at the carrier’s cost. As a result, the applicable law regarding the “occurrence” issue can, and often does, dramatically affect the policyholder’s financial posture for a construction defect claim.

The Important ‘Your Work’ Exclusion

A policyholder is more likely to have coverage in jurisdictions that recognize construction defects can be an “occurrence” and properly examine the applicable policy exclusions. For example, in the completed operations context, the “your work” exclusion generally applies to bar coverage for the cost to repair or replace property damage caused by the work of the policyholder, but it also has a specific “subcontractor exception” that does not bar coverage for property damage arising out of the work of the policyholder’s subcontractors. Thus, in a jurisdiction that recognizes that construction defects can be an accidental “occurrence,” a general contractor generally will have coverage for property damage caused by the work of its subcontractors. 

While a subcontractor does not have the benefit of the subcontractor exception in the “your work” exclusion, a subcontractor can still have coverage under the correct analysis of the CGL policy if its work causes property damage to other work (i.e., property damage outside of the subcontractor’s own scope of work). The reason for this is not that the claim alleges an accidental “occurrence” because there is damage to other work. Rather, the correct conclusion is based on the “your work” exclusion, which generally excludes coverage for the cost to repair or replace the policyholder’s own defective work, but does not exclude the cost to repair or replace damage to other work.

Illinois Courts Get It Wrong

The legal framework used by the Illinois courts is fundamentally flawed. In fact, it fails to apply the terms of the CGL insurance policy as intended by the insurance companies themselves. 

Illinois decisions currently hold (incorrectly) that inadvertent construction defects cannot be an “occurrence” unless the defective work causes property damage to something other than the “project,” “building” or “structure.” Most, but not all, of these decisions address the coverage question in situations where the policy holder was a general contractor. The cases find that there can never be an “occurrence” – and that there is therefore no insurance coverage at all for the claim – if the alleged property damage was to any property within the general contractor’s scope of work. Because the general contractor’s scope of work usually includes construction of the entire building or project, this analysis finds that a CGL insurance policy provides no coverage at all to a general contractor for any claim that involves property damage to the building or project. This virtually eliminates insurance coverage for construction defect claims for general contractors. Under this analysis, there can only be insurance coverage if the claim includes property damage to something other than the project or building being constructed.

Among other things, this analysis fails to apply the “your work” exclusion as intended by the insurance contract. The correct legal analysis recognizes that there would be no reason to have an exclusion for property damage caused by the “work” of the policyholder if the “occurrence” requirement in the coverage grant did not allow any possible coverage for property damage caused by inadvertent construction defects in the first place. And there would certainly be no reason for the same exclusion to have an exception that specifically restores coverage for property damage caused by the policyholder’s subcontractors if there never could have been an accidental “occurrence” within the meaning of the policy’s coverage grant in the first place. In short, the Illinois analysis makes the “your work” exclusion essentially meaningless.

Unfortunately, the incorrect analysis is now very established in Illinois. For more than twenty years, Illinois appellate courts have repeatedly applied the incorrect analysis to deny insurance coverage for construction industry policyholders facing construction defect claims, and the Illinois Supreme Court has never decided the issue. Illinois appellate court cases continue to hold that there can never be an “occurrence” if the policyholder is a general contractor and the alleged damage was to any part of the project or building itself. As a result, Illinois decisions continue incorrectly to collapse what should be a second and separate analysis of coverage under the applicable policy exclusions (including the “your work” exclusion) into the initial threshold coverage determination of whether the claim involves an accidental “occurrence.” 

Illinois decisions also continue to disregard or fail to apply the well accepted requirement that an insurance policy must be read and interpreted as a whole. Instead of applying the “your work” exclusion as intended, Illinois decisions often simply state that the legal analysis does not need to even consider the “your work” exclusion. The decisions find that construction defect claims for property damage within the policyholder’s scope of work are simply not sufficiently “fortuitous” or “accidental” to constitute an “occurrence.” This reasoning is based on an outdated judicial gloss that is not found in the insurance policy itself. It is based on old reasoning used by certain courts and commentators before the CGL policy terms were materially changed, including in 1986. Those changes to the policy modified the exclusions (including the “your work” exclusion) to clarify that the CGL policy provides coverage for certain kinds of property damage caused by inadvertent faulty workmanship, and that the scope of that coverage is found in the policy exclusions. 

Illinois Coverage for Subcontractors: Correct Result, Wrong Analysis

Until recently, there was uncertainty whether the same incorrect “scope of work” analysis for the “occurrence” issue would be applied in Illinois to claims against subcontractors. Some federal decisions held that there could be an “occurrence” if the subcontractor’s defective work caused property damage to some other part of the project or building outside of its scope of work. But other decisions held that the subcontractor, like the general contractor, could not show the existence of any accidental “occurrence” if the claim involved property damage to any part of the entire project or building.

On March 29, 2019 the First District of the Illinois Appellate Court issued an opinion in Acuity Insurance Co. v. 950 W. Huron Condominium Association that directly answers the “occurrence” question for insured subcontractors. The decision finds that a subcontractor can have insurance coverage for an inadvertent construction defect claim under a CGL policy in Illinois if the claim involves property damage to a part of the project that is outside of the subcontractor’s scope of work. A 2017 Seventh Circuit decision in Westfield Ins. Co. v. National Decorating Service also finds that a general contractor can have coverage under its subcontractor’s insurance policy as an additional insured where the general contractor is being sued for defective work performed by its subcontractor that caused damage to property outside of the subcontractor’s scope of work.

Applying Illinois’ flawed analysis, Acuity and Westfield essentially arrive at the correct outcome for claims that involve resulting property damage caused by subcontractors – but for an absolutely wrong reason. Worse, the decisions do nothing to remedy current Illinois law that continues to deny coverage for general contractors even when the claim involves property damage that arises out of the work of subcontractors. Under that law, the general contractor who worked on the same project at issue in Acuity would not be able to obtain any insurance coverage for the loss under its own CGL policy even if the claim involved the exact same property damage caused by the same subcontractor. This is absurd, as the subcontractor exception in the “your work” exclusion should apply in this circumstance to allow coverage for the general contractor under these circumstances.

Similarly, while the insured subcontractor in the Acuity case should have insurance coverage for part of the cost to repair the property damage, it is not because the existence of property damage outside of the subcontractor’s scope of work somehow created an “occurrence.” Instead, the “occurrence” requirement in the policy was satisfied by the accidental and inadvertent nature of subcontractor’s defective work, and the scope of coverage for the claim should have been determined by the applicable policy exclusions. Here, the subcontractor’s defective work itself should be excluded from coverage under the “your work” exclusion in the subcontractor’s CGL policy. But that exclusion does not apply to the resulting property damage to the other non-defective parts of the work, including the damage that the subcontractor caused to other parts of the project. It is for this reason, and not because the claim somehow fails to allege an accidental “occurrence,” that the subcontractor has coverage for the resulting damage it caused to other parts of the project.

Will Illinois Law Ever Be Corrected? 

The Acuity case presented a rare opportunity for the Illinois Supreme Court to reconsider and correct Illinois law, but unfortunately the court recently refused to accept the opportunity to decide the case on appeal. Illinois therefore continues to have an incorrect analysis in its case law for determining whether construction defect claims are covered by the CGL insurance policy. The Illinois Supreme Court needs to consider this issue and publish a decision that finally addresses and corrects the law in Illinois, or the Illinois legislature needs to take up and pass corrective legislation. 

Construction Insurance in a Time of COVID-19

Ronald G. Robey | Smith Currie & Hancock

Introduction. The proverb “may you live in interesting times,” certainly applies today; however, we wish the times were not so interesting. Most contractors are looking to their insurance for possible assistance with the delays, disruptions, and claims arising from the effect of the COVID-19 pandemic on current construction projects. This article provides a summary limited to builder’s risk and to general liability coverages as they relate to the pandemic, and a general warning that insurers appear to be adding endorsements to renewals and extensions of builder’s risk and first-party property policies that would retroactively exclude all claims arising from the pandemic.

The Warning. March 31 of every year is a common time for renewal of builder’s risk (including master policies), first–party property, and inland marine policies. It appears that some underwriters are attempting to add an endorsement as part of the renewal process. The potential endorsement is as follows:

“[W]ill not pay for any loss, damage, expense or costs caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease. Any contamination of property caused by virus, bacteria, gasses or fumes is not physical injury to property. This exclusion also applies to any loss arising directly or indirectly out of fear or threat (whether actual or perceived) of any virus, bacterium or other microorganism.

The addition of that endorsement as a retroactive exclusion would potentially bar all claims arising from COVID-19.

Builder’s Risk. Whether a preferred “all risk” policy, or a much less desirable “named peril,” or a “designated peril,” policy, the common coverage trigger is there must be a “direct physical loss” to covered property. Most builder’s risk policies contain a delay in completion endorsement (sometimes referred to as a delay in startup or “DSU” endorsement”). The delay in completion is of particular interest to contractors during the COVID-19 pandemic because it potentially provides coverage for losses, including “soft costs” associated with delay. Nearly every delay in completion endorsement has a sublimit for the loss and a deductible usually defined as a number of days.

The delay in completion coverage must be triggered by a covered cause of loss – meaning there must be direct physical loss or damage to the property insured. The question for these times is whether contamination by the COVID-19 virus of the covered property constitutes direct physical loss or damage.

One test case has already been filed in New Orleans by a restaurant seeking a declaratory judgment that its closure and costs of cleaning are a covered cause of loss under its first–party property policy. See Cajun Conti LLC et al. v. Certain Underwriters at Lloyd’s, London et al., No. 2020-02558, complaint filed (La. Dist. Ct., Orleans Parish Mar. 16, 2020).

An analysis of cases involving similar issues shows the potential for coverage. See, e.g., Gregory Packaging, Inc. v. Travelers Property Casualty Co., No. 2:12-cv-04418, 2014 WL 6675934, at *6 (D.N.J. Nov. 25, 2014), the court held that the release of ammonia, which rendered a facility uninhabitable, was physical loss because, under New Jersey law, property can sustain physical loss without experiencing structural alteration. The court reached the same result applying Georgia law, holding that a fortuitous event rendered the property unsatisfactory and in need of repair. Id. at *7, and Essex v. BloomSouth Flooring Corp., 562 F.3d 399, 406 (1st Cir. 2009), under Massachusetts law, an unpleasant odor rendering property unusable constituted physical injury to the property.

In Oregon Shakespeare Festival Association v. Great American Insurance Company, 2016 WL 3267247, Civil Action No.: 1:15-cv-01932 (D. Or. June 7, 2016), the plaintiff association operated open air venues and alleged coverage due to smoke from wildfires in the area. The insurer defended on the basis there was no actual physical damage to the property itself. The district court found coverage stating: “In this case, wildfire smoke infiltrated the interior of the theater, making it uninhabitable and unusable for holding performances. Like the home infiltrated by methamphetamine odor, or the furnace contaminated by lead particles, or the facility filled with ammonia, the theater filled with smoke was unusable for its intended purpose. Even though the loss or damage was not structural or permanent, the property experienced a loss of “essential functionality.” Id. at *9.

Insureds should consider potential coverage under a builder’s risk policy, including a delay in completion if the COVID-19 virus has infected the insured property and caused a loss.

Commercial general liability. Commercial general liability (CGL) policies provide liability coverage from third parties for bodily injuries and property damage caused by an occurrence. An occurrence is historically defined as an accident. Accordingly, one of the threshold issues is whether any alleged bodily injury or property damage arising out of an insured’s failure to prevent or limit exposure to the COVID-19 virus is accidental. Like nearly all insurance coverage issues, state law applies and states vary on the interpretation of occurrence.

CGL polices commonly include “loss of use” of tangible property that is not physically damaged as property damage. This definition raises the possibility of claims alleging the loss of use of premises and other tangible property due to the alleged negligent failure to prevent or limit the transmission of the COVID-19 virus.

Since 2006, ISO has had available CP 01 40 07 06, “Exclusion for Loss Due to Virus or Bacteria.” However, the addition of this exclusion to policies has not been uniform or systemic. In addition, CGL policies generally contain pollution exclusions, which exclude coverage for claims arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants.

Pollutants are typically defined as including, in relevant part, any solid, liquid, gaseous or thermal contaminant. The pollution exclusion is usually litigated in the context of environmental pollution claims, not claims because of the exposure to viruses or diseases. There would be some dispute regarding whether the COVID-19 virus is spread or contracted through contact with surfaces. CGL polices also typically contain exclusions for fungi and bacteria as well as pathogen–based, communicable disease.

The cases on similar fact patterns are not as readily available for CGL policies for any prediction. However, and subject to the potential exclusions, insureds should consider potential coverage for loss of use for a third-party claim resulting from the COVID-19 virus.

CGL Coverage and Coronavirus: Is Causing Exposure an “Occurrence”?

Randy Maniloff and Margo Meta | White and Williams

There is only one thing that can be said for sure about the extent of consequences — human and economic — of the new coronavirus outbreak. Nobody knows. But, as things stand now, minor, and even moderate, have left the barn.

History shows that, in the wake of widespread injuries and financial losses, focus often turns to the possible role of insurance to mitigate the damages. The new coronavirus — COVID-19 — will be no exception. Indeed, lots of lawyers have already published articles discussing the issue. History also teaches that, when novel claims arise, not everyone sees eye-to-eye on if or how insurance policies apply.

As policyholder lawyer Kirk Pasich put it in The Wall Street Journal last week: “There is no guesswork here: There will be insurance-coverage disputes.” He added that “[t]here is so much money at stake and strong differences of opinions as to whether insurance applies.”

Most of the coronavirus-insurance chatter so far has focused on possible coverage under business interruption policies. That makes sense. A business that has suffered a financial downturn, on account of the impact of the virus, would certainly describe it as an “interruption.” But Business Interruption policies typically require that there be direct physical loss of or damage to the insured property. And most business losses will likely be the result of a general decline in economic activity and not physical loss or damage to a structure.

But expect to see disputes over satisfaction of this requirement if a business is disrupted because the virus was present on its premises, say, in the HVAC system. Some policyholder-counsel are already beating this drum.

Other potential business interruption issues being bantered-about involve coverage for the consequences of supply chain disruptions and if a business is closed on account of a government mandate.

Coverage questions are likely to arise under a variety of other policies, including event cancellation. The Wall Street Journal reported that the South By Southwest festival in Austin is uninsured for its cancellation as its policy does not cover a shut-down caused by a disease.

According to the Journal, on account of its losses, the future of the mega-gathering is up in the air. The Chief Executive of SXSW told the paper: “We’ve had to show our insurance policy to all kinds of people, and nobody ever said, ‘Hey, there’s a big hole here.’”


Another history lesson: Injuries and financial losses are often followed by an assessment of blame. This is the tort system. Enter the plaintiffs’ lawyers. Some in the business of seeking compensation, for those that have been harmed, may be thinking that someone must pay for all this chaos.

Of course nobody here can expect to be sued for causing the coronavirus. But the same may not be said for those who allegedly failed to prevent others from becoming infected. Consider schools that did not close and its students became infected, conferences that did not cancel, stores and restaurants that should have shut down, sporting events that should not have gone on. The list is long. Some businesses, and employees, may be forced for reasons of economic necessity — survival even — to put financial interests ahead of safety.

Consider the suit filed on March 9th by Ronald and Eva Weissberger, passengers on the Grand Princess cruise liner, which was docked off the coast of California for several days on account of passengers and crew infected by the coronavirus. In their California federal court complaint, the couple alleges that Princess Cruise Lines had actual knowledge that two passengers, who had previously disembarked, had symptoms of the coronavirus. In addition, 62 passengers now on board were allegedly exposed to them. Yet, despite all this, the suit alleges that the ship still sailed, on account of the cruise liner choosing “to place profits over the safety of its passengers.”

Needless to say, there will be proximate cause challenges to tying one’s infection to another’s conduct. After all, the exposure could have happened in umpteen locations. There will also be duty of care issues that look at whether the business satisfied its obligations to invitees or others on the premises.

Such suits would presumably be reserved for those seriously injured or who succumbed to the virus. [Think egg-shell plaintiff for those who died and had other underlying illnesses.] So far that is not most people. Although those with minor injuries may still want lost wages, which is because of bodily injury. So how prevalent these suits are remains to be seen. But ruling them out entirely would be premature.

And what about if one’s conduct, in conjunction with taking coronavirus measures or not, causes another business to shut down. [The CGL definition of “property damage” usually includes “loss of use” of property.]


Claims that seek to hold people responsible for causing others to contract coronavirus will put insurance in the spotlight. A business facing such a suit will turn to its commercial general liability policy. Despite the availability of defenses against these premises liability claims, the duty to defend does not consider the merits of the suit.

How might insurers respond to such suits?

Many CGL policies contain a Fungi or Bacteria exclusion. While it is often colloquially called the Mold exclusion, is it more than that. The endorsement typically also excludes coverage for “bodily injury” “which would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any bacteria on or within a building or structure,” et seq. But COVID-19 is a viral infection and not bacterial.

There is a liability policy exclusion for communicable diseases. In Koegler v. Liberty Mutual Insurance Company, 623 F. Supp. 2d 481 (S.D.N.Y. 2009), the court held that no liability coverage was owed to an individual, for claims that he transmitted the human papillomavirus and herpes virus to his girlfriend and her daughter. The court held that the communicable disease exclusion, which excluded coverage for bodily injuries arising out of the “transmission of a communicable disease, virus, or syndrome,” precluded coverage. But the Communicable Disease exclusion is not seen often in CGL policies.

The pollution exclusion? Policyholders will maintain that, even states that apply it broadly, won’t go that far.


While the possible role of exclusions come to mind, they are only reached if a claim first satisfies the relevant terms of the policy’s insuring agreement: “bodily injury” caused by an “occurrence,” usually defined these days as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

And that’s where the fight over the availability of general liability coverage, for insureds that allegedly caused others to contract coronavirus, is likely to take place: the gateway to the policy, its insuring agreement. Was the “bodily injury” caused by an “occurrence”/accident? [Coverage B — “personal and advertising injury” — does not require an “occurrence.” But only false detention or imprisonment — think wrongful quarantine — would seem relevant here.]

In general, whether there has been an accident, for purposes of securing insurance, is the oldest and most litigated of all coverage issues. The first “accident” coverage case that I know of goes back to 1835 — Howell v. Cincinnati Insurance Company (Ohio Sup. Ct.).

An interesting “accident” case from way, way back is Schneider v. The Provident Life Insurance Company (Wis. 1869). A man was killed when he fell under a slow moving train while attempting to board it. The push and pull in Schneider, over whether his death was caused by an “accident,” reads like the opinion was written last week. When an issue has been debated for nearly 200 years, and the arguments haven’t changed much, it would be fair to call it vexing.

There may be no better description of this confounding issue than how it was put by the Pennsylvania Supreme Court in Brenneman v. St. Paul Fire & Marine Insurance Company (1963). Nearly 60 years ago Justice Musmanno made this observation:

What is an accident? Everyone knows what an accident is until the word comes up in court. Then it becomes a mysterious phenomenon, and, in order to resolve the enigma, witnesses are summoned, experts testify, lawyers argue, treatises are consulted and even when a conclave of twelve world-knowledgeable individuals agree as to whether a certain set of facts made out an accident, the question may not yet be settled and it must be reheard in an appellate court.

So is “bodily injury,” on account of an insured’s failure to prevent exposure to coronavirus on its premises, caused by an accident?

At the outset, the standard for determining if bodily injury has been caused by an accident differs substantially between states. Even within states the standards are sometimes all over the board. Throw in that the cases can be wildly different factually. And there also seems to be an element of I-know-an-accident-when-I-see-one in the decisions. Did I mention that courts have been trying to figure out what’s an accident since Andrew Jackson was in the White House?

Liberty Mutual Insurance Company v. Estate of Bobzien, 377 F. Supp. 3d 723 (W.D. Ky. 2019) provides guidance on whether “bodily injury,” on account of an insured’s failure to prevent exposure to coronavirus, was caused by an accident?

Michael Bobzien sued his deceased father, Hugo Bobzien, for various injuries and conditions caused by exposure to second-hand smoke while Michael was a minor living in his father’s house. Hugo was insured under a series of homeowners’ insurance policies issued by Liberty Mutual. Each of the policies defined an occurrence as “an accident, including continuous and repeated exposure to substantially the same general harmful conditions, which results, during the policy period…in ‘bodily injury.’”

In the coverage case, the court concluded that Michael failed to allege an “accident” under the Liberty Mutual policies, as his complaint alleged that: (1) Hugo intentionally smoked in the presence of his children, and (2) Michael’s injuries and conditions were a direct, natural and foreseeable result of Michael’s exposure to second-hand smoke.

The court in the very recent decision of Campanella v. Northern Properties Group, LLC, No. 19-171 (D. Minn. Feb. 28, 2020) saw the accident issue differently. Matthew Campanella rented a residence from Northern Properties. Unfortunately it contained toxic levels of chicken feces. Campanella claimed he contracted histoplasmosis on account of Northern Properties carelessly and negligently failing to clean and maintain the residence. Histoplasmosis is a serious infection caused by a fungus in the environment, particularly in soil containing large amounts of bird or bat droppings.

Northern Properties sought coverage for Campanella’s suit under a CGL policy issued by Auto-Owners. At issue was whether the bodily injury was caused by an “occurrence,” defined as an accident.

As Auto-Owners saw it, no way, no how could Campanella’s injury have been caused by an accident: “[I]t is difficult to imagine any scenario in which the accumulation of chicken feces in a residential dwelling to a ‘toxic level’ due to a failure to clean the premises would be accidental.”

But the court disagreed: “Even if Northern Properties intentionally allowed a toxic build-up of chicken feces on the premises, Auto-Owners cannot point to any facts suggesting that any party foresaw Campanella contracting histoplasmosis. In fact, Auto-Owners admits that ‘most people who breathe in the [histoplasma fungi] spores don’t get sick.’ In other words, Campanella contracting histoplasmosis was unexpected and unforeseen—an ‘accident’ as both Minnesota and Wisconsin have defined it.”

Whether “bodily injury,” on account of an insured’s failure to prevent exposure to coronavirus, is caused by an accident, will generally turn on whether the insured foresaw the claimant’s injury. Given the vast warnings, about the need to take action to prevent exposure to coronavirus — not to mention if the insured had reason to know of a risk — some courts may answer this question in the affirmative and conclude that the bodily injury was not caused by an accident.


For sure there are legal and factual challenges to bringing suits against entities for failing to prevent exposure to coronavirus on their premises. And such hurdles may be what keeps the extent of efforts low.

But the duty to defend determination does not take the merits of a claim into consideration. In addition, while such “bodily injury” may not have been caused by an “occurrence,” that determination may not be possible at the complaint stage based on how the allegations are pleaded. Therefore, insurers may find themselves defending claims that their insureds failed to prevent others from contracting coronavirus.

These are strange times. And coronavirus coverage cases will be strange too. But despite their novelty, insurance coverage jurisprudence has long been in place to sort them out.