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The Insurance Industry Has Long Considered a Virus to be Capable of Causing Property Damage

Updated: Oct 18, 2021

By:

Ted Colquett, COLQUETT LAW, LLC, Birmingham AL

Matt Glover, PRINCE GLOVER HAYES, Tuscaloosa AL


For reasons discussed below, the fact is the insurance industry has always considered a virus to be a contaminant and therefore capable of causing property damage notwithstanding its protestations otherwise in the age of COVID-19. And the proof lies in the history of the ISO CF 2006-OVBEF virus exclusion itself.


Insurance companies and defense law firms across the country tout statistics showing that more than 80 percent of the insurer’s motions to dismiss have been granted by Federal judges in COVID-19 business income/interruption coverage cases brought by businesses large and small, restaurants, health care providers, and even Major League Baseball.


Still, as the colloquialism goes, it ain’t over till the fat lady sings, and insureds continue to file suits and amend complaints seeking coverage and policy benefits. And so, caution should be taken against assuming the current state of COVID-19 insurance coverage cases is irreversible, because it’s not.


The linchpin issue across the country is whether COVID-19 is or can be a causative agent of physical damage to or direct physical loss of covered property. In jurisdictions where precedent holds that physical damage to or direct physical loss of such property must include some physical impairment or alteration, the decision seems to be fairly easy. But in jurisdictions that hold the opposite or are silent on the point, the decision is anything but easy and definitely not a certainty.


For reasons discussed below, the fact is the insurance industry has always considered a virus to be a contaminant and therefore capable of causing property damage notwithstanding its protestations otherwise in the age of COVID-19. And the proof lies in the history of the ISO CF 2006-OVBEF virus exclusion itself.


I. THE ISO CF 2006-OVBEF VIRUS EXCLUSION


The Insurance Services Office (commonly known and referred to as ISO) drafted an endorsement in 2006 to address the exclusion of insured loss due to virus or bacteria. As background to the proposed endorsement, ISO stated, “Commercial Property policies currently contain a pollution exclusion that encompasses contamination (in fact, uses the term contaminant in addition to other terminology). Although the pollution exclusion addresses contamination broadly, viral and bacterial contamination are specific types that appear to warrant particular attention at this point in time (emphasis added to same).” [1]


At the “point in time” referenced by the ISO, the only disease outbreak widely alerted by the WHO was H5N1 Avian influenza. Multiple cases and deaths were reported in other countries, but there were no reported cases in the United States. The WHO observed, “Almost all cases of H5N1 infection in people have been associated with close contact with infected live or dead birds, or H5N1 contaminated environments. The virus does not infect humans easily and spread from person to person appears to be unusual (emphasis added to same)." [2]


In accord with the National Association of Insurance Commissioners (NAIC) “Product Filing Review Handbook,” ISO identified a need for the endorsement. Its “Introduction” to the amendment states:


“The current pollution exclusion in property policies encompasses contamination (in fact, uses the term contaminant in addition to other terminology) [emphasis added to same]. Although the pollution exclusion addresses contamination broadly, viral and bacterial contamination are specific types that appear to warrant particular attention at this point in time.


“An example of bacterial contamination of a product is the growth of listeria bacteria in milk. In this example, bacteria develop and multiply due in part to inherent qualities in the property itself. Some other examples of viral and bacterial contaminants are rotavirus, SARS, influenza (such as avian flu), legionella and anthrax. The universe of disease-causing organisms is always in evolution (emphasis added to same).


“Disease-causing agents may render a product impure (change its quality or substance) or enable the spread of disease by their presence on interior building surfaces or the surfaces of personal property. When disease-causing viral or bacterial contamination occurs, potential claims involve the cost of replacement of property (for example, the milk), cost of decontamination (for example, interior building surfaces), and business interruption (time element) losses (emphasis added to same).” [3]


ISO’s “Current Concerns” to the amendment state:


“Although building and personal property could arguably become contaminated (often temporarily) by such viruses and bacteria, the nature of the property itself would have a bearing on whether there is actual property damage. An allegation of property damage may be a point of disagreement in a particular case. In addition, pollution exclusions are at times narrowly applied by certain courts. In recent years, ISO has filed exclusions to address specific exposures relating to contaminating or harmful substances.


“Examples are the mold exclusion in property and liability policies and the liability exclusion addressing silica dust. Such exclusions enable elaboration of the specific exposure and thereby can reduce the likelihood of claim disputes and litigation.


“While property policies have not been a source of recovery for losses involving contamination by disease-causing agents, the specter of pandemic or hitherto unorthodox transmission of infectious material raises the concern that insurers employing such policies may face claims in which there are efforts to expand coverage and to create sources of recovery for such losses, contrary to policy intent (emphasis added to same).” [4]


II. VIRAL CONTAMINATION IS PROPERTY DAMAGE


ISO’s amendment concedes that viral contamination is property damage, and it considered no other alternative and used no other descriptive language. The amendment does use the word “arguably” in an attempt to qualify what appears otherwise to be a definitive conclusion with respect to the issue. But common and widely accepted rules of construction mandate that ambiguity in any insurance policy be resolved in favor of the insured. [5]


At the time the virus exclusion was drafted in 2006, it made illustrative reference to the following: rotavirus, SARS, influenza (citing avian flu in particular), legionella, and anthrax. Of these references, all are spread through physical contamination.[6] In consequence, ISO itself demonstrates that CF 2006-OVBEF is directed to the exclusion of physical property damage caused by contamination of the same.


CF 2006-OVBEF is clearly the result and culmination of the insurance industry’s intention to rid itself of any coverage liability for contamination causing damage to property. Hence, insurers recognized that if real property is contaminated, or a threat of contamination exists, and the same is quarantined or otherwise rendered in accessible either voluntarily or by government order, coverage liability would exist in a wide range of commercial property policies for losses including business interruption, the cost of remediation, and other benefits owed to the insured.


Therefore, any assertion that COVID-19 is not and cannot be a causative agent of property damage is patently wrong if the ISO and the drafting history of CF 2006-OVBEF is to be believed. Any policy form addressing a bacterial or viral exclusion, including but not limited to the CF 2006-OVBEF amendment, by its own wording must concede that a viral agent can cause property damage demonstrated by the repetitive usage of and reference to the word contamination.


The ISO, in its introduction to CF 2006-OVBEF and expression of current concerns, fully accepted that a virus can cause contamination of building and personal property.


III. WAGNER SHOE V. OWNERS INSURANCE COMPANY

In our case of Wagner Shoes v. Owners Insurance Company, pending in the Northern District of Alabama (7:20-cv-00465-LSC), we alleged that COVID-19 was a causative agent of physical damage to or direct physical loss of property sufficient to trigger coverage under a businessowners policy issued by Owners Insurance Company. Owners’ initial motion to dismiss was denied, and the case has proceeded to discovery on the question of coverage and has now been briefed for summary judgment.


In our case, not only did our coverage expert opine that COVID-19 was a causative agent of property damage or direct physical loss, Owners’ own expert agreed based on the drafting history of CF 2006-OVBEF that COVID-19 was capable of being a causative agent of property damage.


IV. CONCLUSION


What we recommend sounds completely counterintuitive to prosecution of COVID-19 cases; yet, rather than shy away from it in COVID-19 business interruption and income cases, the policyholder should embrace the virus exclusion in those cases in which it does not appear in the policy as demonstrative proof that the industry's drafting arm wrote the same on the premise that a virus is and can be a causative agent of property damage.

The insurance industry is getting away with a sleight of hand by, on the one hand, successfully dismissing cases in which the exclusion appears, and on the other, distancing itself from the exclusion in cases in which it does not appear.

We are not addressing any contamination or pollution exclusion that may apply in an individual policy and the language of the same. But weaponizing CF 2006-OVBEF helped our case defeat Owners' motion to dismiss and enabled us to discover facts both before and after our claim was made that have kept us in the game.


Conclusion: We write to point out the fact that notwithstanding its protestations otherwise, the insurance industry’s drafting arm has clearly indicated and stated the damage it believes can be caused by a virus: CF 2006-OVBEF and its treatment of the term “virus” make clear the same may trigger coverage for the cost of decontamination (for example, interior building surfaces), and business interruption (time element) losses.


[1] The ISO provides policy forms to insurance companies and is universally accepted as the industry’s policy drafter. It is not, however, an insurance company. ISO develops and publishes policy language that many insurance companies use as the basis for their products. Consequently, although ISO drafts and files forms for approval with state regulators across the country, each insurance company delivering a policy contract in a state, or submitting a coverage restriction within the policy, must still file the same with a regulator or adhere to a specific approval process.

[2] The WHO declared a pandemic related to the H1N1 Influenza A, commonly known as “swine flu” in 2009. In early October of that year, the CDC announced that swine flu was widespread across the country. Scientists developed a vaccine to protect humans from H1N1 after the 2009 outbreak. Since then, protection against H1N1 has become part of the regular seasonal flu shot.

[3] Common definitions: “contamination” is the action or state of making or being made impure by polluting or poisoning; “contaminant” is something that contaminates a substance such as water or food; “viral or bacterial contamination “is “biological contamination” which, in turn, is bacterial, fungal, or viral; and a “substance” is a particular kind of matter with uniform properties. [4] It is equally important to examine SARS 2003 (SARS-CoV) prior to development of the exclusion in respect to “property damage” and contamination.

Severe acute respiratory syndrome (SARS) was a viral respiratory illness caused by a coronavirus, SARS-CoV, first reported in Asia in February 2003. Over the next few months, the illness spread to more than two dozen countries in North America, South America, Europe, and Asia before the outbreak was contained. By July 2003, a total of 8,098 probable SARS cases were reported to the World Health Organization (WHO) from 29 countries, including only 29 specific cases from the United States. No deaths were reported in the United States, and there have been no known cases of SARS reported since 2004.

Comparing SARS to COVID-19 (SARS-CoV-2), BioSpace, a comprehensive life science industry news and information source, stated, “With SARS, most human-to-human infections occurred in health care settings that lacked robust infection control procedures. When infection control practices were implemented, the outbreak ended. Since then, the only occurrences have occurred through laboratory accidents. They have not spread throughout the community.”

In May 2003, during the SARS outbreak, the Department of Epidemiology in the School of Public Health at the University of California Los Angeles (UCLA), made reference to, “The leading theory for the Amoy Gardens outbreak (Amoy Gardens was a housing estate and center of the outbreak) in Hong Kong focused on sewage backups into apartment toilets, where the virus may have become aerosolized,” resulting in fecal rather than community spread.” (The CDC has not confirmed any report of COVID-19 spreading from feces to a person: “This risk is low based on data from previous outbreaks of diseases caused by related coronaviruses, such as severe acute respiratory syndrome [SARS].”)

With respect to transmission or spreading of SARS, The New England Journal of Medicine stated, “SARS has been transmitted primarily, but not exclusively, in health care and hospital settings, generally five or more days after the onset of disease and from patients who were severely ill. These observations correlate with the finding that the peak viral load is reached around the 10th day of illness. There has been no reported instance of transmission before the onset of symptoms of disease. Transmission to casual and social contacts is uncommon, but transmission has occurred occasionally after close contact with a patient with SARS in the workplace, on an airplane, or in a taxi.”

[5] The same rule applies equally to the word “arguably” which by its own definition describes something that can be asserted or shown to be a certain way. In other words, ambiguity. In the case of a tie – even an arguable tie – between insured and insurer on a coverage decision, the tie goes to the insured.

[6] Rotaviruses, the most common cause of diarrheal disease, are transmitted by the fecal-oral route, via contact with contaminated hands, surfaces, and objects. SARS, as we have noted, is transmittable by contact with contaminated feces (see paragraphs six and seven herein). Avian influenza is spread by and through contaminated environments (see paragraph 10 herein). Anthrax is caused by spore-forming bacterium mainly affecting animals. And legionella is a naturally occurring bacterium found in freshwater environments that can become a health concern when it grows and spreads in building water systems. (Remediation of a legionella outbreak usually results in a building closure, causing substantial business interruption. A 2009 outbreak at Miami’s EPIC Hotel, for instance, reportedly caused daily income losses of about $200,000.00.)

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