Because of COVID-19, business owners need to take a look at their policies.

Small-businesses face many questions about insurance coverage for the costly damages incurred by the COVID-19 pandemic. What unexpected exclusions are now becoming apparent? Should litigation be expected? And how can businesses retool their policies to reflect the increased risk in the months and years ahead?

The risk of legal action is very real. “There will, no doubt, be more lawsuits alleging liability against businesses where customers, vendors or employees contract COVID-19,” says C. Thomas Kruse, partner in the Houston office of Baker McKenzie, a large international law firm. These risks are expected to remain high as the effects of the pandemic continue to be felt.

In this article, attorneys and insurance consultants address the most important concerns in the areas of Commercial General Liability (CGL), Workers’ Compensation and Employment Practices Liability Insurance (EPLI). A sidebar on Page 46 covers business interruption insurance.


A business may be sued by customers or vendors who contract COVID-19 while visiting the business’ facility, including flower shops.
“The next step in lawsuits will likely be third parties on the premises who contract COVID-19, especially if the business has not followed all guidelines for protecting against the disease from the Centers for Disease Control and Prevention (CDC) or state and local authorities,” says Kruse. Such guidelines can include mandated wearing of masks, maintaining social distancing, and provision of hand sanitizer and related protective gear. “Indeed, such lawsuits are already starting to pop up around the country,” Kruse assures.

Suppose you are sued and lose: Will the damages be covered by your Commercial General Liability (CGL) policy? Such insurance is intended to cover bodily injury and property damage caused to third parties on an insured’s premises.

“Provided the particular policy does not exclude coverage for virus exposure, it is conceivable that a CGL policy could provide bodily injury coverage for liability arising from the infection of a customer or vendor,” says Robert M. Travisano, a litigation attorney in the Newark, N.J. and New York City offices of Epstein Becker Green, a national law firm specializing in health-care and workforce issues.

If the word “conceivable” sets off alarm bells in your mind, you are not alone. For more than one reason, uncertainty surrounds this topic. One problem is that in many policies, coverage for a virus is either carved out or requires a specific endorsement. Another problem is that legal liability is required to trigger coverage: The infection must have arisen from some breach of care on the part of the insured business. And what constitutes such negligent conduct is still unsettled.

“There are numerous lawsuits boiling up as to what actions or inactions could possibly lead to legal liability due to the coronavirus,” says Tony Sardis, president of the management consulting firm Withum. He points to these four possible scenarios:

Remaining open following an order by a civil authority to close.

Failure to adhere to required health and prevention guidelines.

Allowing an employee who is known to be infected with the virus to continue working.

Not screening customers or refusing service to customers with the virus.

Whatever the nature of the negligent conduct, it must be the actual cause of the injury to the third party for insurance to kick in. And that brings up yet another problem: The difficulty of proving causation.

“It may be extremely difficult to prove the virus was contracted at any one site or location and that it arose out of the insured’s operations,” says Sardis. “The infected individual would need to prove that he or she went to that business during the five to 14 days prior to contracting the virus (based on today’s knowledge of the infection transmission), and then prove it was something the business should have known about and should have taken some preventive measures.” Contract tracing or other means of establishing the spot of infection may be extremely difficult.

Businesses can defend themselves from such lawsuits if they can show that they did provide a reasonable care to third parties

“These businesses will claim that if they comply with the applicable guidelines, such as the CDC protocols, they exercised ordinary care and should be immune from suit,” says Kruse.

As the above remarks suggest, much of the law is currently unsettled. “Given the unique predicament we now find ourselves in, there isn’t a whole lot of law surrounding the nature of the duty of care to a customer or vendor for coronavirus exposure,” says Travisano. “We can expect that CDC guidelines will fill in the blanks for such duties until the law becomes more defined, as lawsuits work their way through the pipeline.”


Workers’ Compensation insurance reimburses employees for medical costs and lost wages stemming from employment- related injury or illness. Will such insurance cover personnel who contracted COVID-19 infection at the workplace? The answer is yes, at one level of analysis.

“If someone can show he or she was infected at the workplace, then Workers’ Compensation is probably his or her remedy,” says Bob Gregg, co-chair of the Employment Practice Law Group at Boardman Clark in Madison, Wis.

That word “if” suggests the sticking point. Just how would causation be proved?  “The hardest part is the employee showing that COVID-19 was actually contracted while at work and not, for example, during his or her commute or going to the grocery store,” says Emily P. Harbison, a partner in the Houston office of Baker McKenzie. Workers’ Compensation does not cover routine community-spread illnesses like a cold or the flu because such illnesses usually cannot be directly tied to the workplace.

Conceivably, employees can contract the disease at work even if it cannot be proved.  “Some states, such as California, are enacting legislation that provides a presumption that an employee was infected with COVID-19 at work and puts the burden on the employer to avoid Workers’ Compensation liability,” says Paul Evans, a partner at Baker McKenzie’s New York office. In some cases, state laws require that the employee be diagnosed within a certain number of days of performing work outside of the home.

In cases where a direct link can be found between the workplace and the COVID-19 infection, Workers’ Compensation insurance would be in effect. Employer negligence, if any, would not normally be a factor determining coverage.

“Generally speaking, Workers’ Compensation is a no-fault system,” says Harbison. “In other words, it doesn’t matter whether the illness was caused by the negligent acts of the employee or the employer; the employee would still be entitled to receive benefits as long as the illness occurred while performing the job.”

Intentional acts, on the other hand, may be a different matter. If the employer commits a gross act that deliberately puts people at risk, such as hiding important health information, Workers’ Compensation might not reimburse the employee.

“If it is determined that an illness is not covered by Workers’ Compensation, then the employee can pursue tort causes of action against the employer,” says Harbison. “There are two exceptions in Texas, for example, where a sick or injured employee can sue under common law negligence. The first is where an employee’s death is caused his or her employer’s gross negligence. The second is where the injury or illness is due to an intentional act. Other states have different exceptions.”


When bringing work-at-home employees back to the workplace, or when rehiring furloughed or fired employees, businesses need to avoid unintentional discrimination by any category protected by federal, state and local laws. These include age, race, gender, religion and national origin. The same discriminatory caution applies to decisions granting or withholding leave for reasons related to the COVID-19 pandemic.

Unintentional discrimination can occur for a variety of reasons. Suppose a well-intentioned employer decides that people who are at special risk of serious effects from a COVID-19 infection should be told to remain home rather than return to work. That group includes older employees. Those individuals may have a cause of action against the employer—either because they are not paid an amount equivalent to younger people as a result of their failure to be brought back to the workplace or because they lack the opportunities for advancement that can be enjoyed only by physical proximity to colleagues and supervisors.

The costs incurred by such discrimination may be covered by Employment Practices Liability Insurance (EPLI). Such insurance is intended to cover employers against lawsuits brought by employees under Title VII of the “Civil Rights Act of 1964” and other employment-related statutes.

“Most EPLI policies include coverage for discrimination based on certain prohibited categories such as age, race and gender,” says Harbison.

One caveat: Many insurance policies will not cover damages that are incurred by intentional acts that exhibit “wanton, willful, reckless or intentional disregard” for the law. That can present a problem in the case of lawsuits.

“Discrimination claims are usually based on intentional conduct,” notes Harbison. “And such claims may not be covered by insurance.”
Most EPLI policies exclude coverage for violations of the wage-and-hour provisions of the “Fair Labor Standards Act,” decisions by the National Labor Relations Board, the costs of complying with accommodations mandated by the “Americans with Disabilities Act,” and claims arising out of facts or circumstances that are known by the employer prior to the effective date of the policy. Also not covered by the typical EPLI policy are violations of the “Worker Adjustment and Retraining Notification Act” or similar state laws which require advance notices for mass closings.

EPLI policies also do not provide coverage for violations of the “Family and Medical Leave Act” or of the provisions of the Occupational Safety and Health Administration (OSHA). Employers should take particular note of the latter exclusion.

“Resulting from COVID-19, thousands of OSHA claims have already been filed across the United States, with employees alleging their working conditions are not safe due to a lack of precautions taken by their employers against the coronavirus,” says Sardis. These precautions typically include the establishment of hand-washing stations, provision of enough room to work and maintain social distancing, and the supply of sanitizers and protective gear.

While claims such as these are unlikely to trigger coverage under the standard EPLI policy, such coverage would likely be triggered to the extent an employee is discriminated against, harassed, terminated or otherwise retaliated against for refusal to go to work as a result of poor safety conditions.

These guidelines offer some insight into the usual EPLI coverage, which can vary widely among insurers. “I would advise all employers to document their reasoning behind their hiring and firing decisions,” says Sardis. “Employers should also consult with their EPLI carrier prior to any major staffing decisions, to ensure all proper steps are followed.”


The interpretations in this article are based on what is typically seen in standard policies. Many carriers enhance, reduce or even eliminate common coverages.

“Insurance policy terms and conditions vary greatly from carrier to carrier, and even standardized coverage often has the meaning of key terms changed by endorsement,” says Sardis. “There is no hard-and-fast rule as to whether any particular type of claim will be covered.”

Given the fluid nature of the risks posed by the COVID-19 pandemic, employers need to take a fresh look at their insurance coverage. Rather than consider the information in this article as legal advice, readers should utilize its ideas as a framework for discussions with qualified attorneys.

“Moving forward, business owners should consult with knowledgeable insurance professionals to understand what is and is not covered in their policies,” says Sardis. “Then they will have to decide whether to retain uncovered risks within their organizations, transfer those risks to other insurance products, or manage them by another method such as contractually.”


Will your business interruption insurance reimburse profits lost from the COVID-19 pandemic? Maybe not.

“The general principles of law would lead the average business owner to believe there is coverage,” says C. Thomas Kruse, of the Baker McKenzie law firm. “Yet, the insurance industry released statements early in March announcing the opposite position. Most notably, the American Property Casualty Insurance Association announced its members’ position that there was no business interruption coverage for COVID-19 losses.”

The pandemic has put a spotlight on the exclusions buried in commercial insurance policies.

“More than a decade ago, most U.S. insurers added exclusions to their commercial property policies to resolve this issue,” says Kruse. The policy section is often labeled “Exclusion for Loss Due to Virus or Bacteria.”  Some policies might not address the pandemic topic at all.

“For businesses whose policies may be silent on the whole issue, this is an opportunity to argue that the absence of the exclusion, despite its common presence in the market, evidences an agreement to cover an event caused by virus or bacteria,” says Kruse.
A second problem is the unseen nature of the damage incurred.

“In the context of COVID-19, many insurers are taking the position that they do not cover virus-related closures because there has been no ostensible damage to property,” says Robert M. Travisano, of the Epstein Becker Green law firm. “This very point is the subject of several pending lawsuits and is sure to be hotly debated over the next several months and years as the true economic impact of the pandemic unfolds.”

Indeed, litigation is starting to pile up. “Lawsuits have begun to be filed in states from California to Texas to Louisiana, probing the limits of denials of coverage,” says Kruse. One recent lawsuit asserted that a denial by preliminary letter was tantamount to breach of a policy that even included a pandemic provision. The insurer had relied on a lack of specific coverage for the COVID-19 strain. “More such lawsuits will follow,” Kruse assures.

So, what will the courts decide? “One key factor will be determining the true cause of losses suffered by insureds,” says Kruse. “Was it the contamination of the premises, rendering them unfit for business, or was it the government orders requiring shutdowns?”

When checking your own policy for coverage, peruse the fine print. The terms of each insurance policy differ, and a maze of exclusions and endorsements must be navigated to determine coverage.

Some insureds may wish to increase coverage. “Businesses can purchase insurance that responds specifically to a viral outbreak,” says Travisano. “Such coverage largely came on the scene following the SARS outbreak in 2002-2004. However, given COVID-19’s prevalence and virulence, it is now likely that insurers will attempt to limit their risk by offering virus and disease coverage that is markedly more expensive or excludes COVID-19 outright.”