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While some states are starting to re-open after COVID-19 related closures, many have started to consider extending closures into the summer while others are issuing strict regulations on how to re-open in stages. In response, some businesses and government entities (cities, counties, or police departments) have expressed intentions to ignore and/or refuse to enforce closure and social distancing regulations. For example, certain police departments and counties have announced that stay-at-home orders will not be enforced while other businesses are opening in violation of state orders. Such actions may result in insurance coverage issues which may jeopardize the protection under the policy.

Most insurance policies have exclusions for situations where insurance coverage will not apply. For example, a general liability policy covering property damage or bodily injury, may contain an exclusion for “willful or reckless violation of any statute.” A COVID-19 related scenario could be where the owner of a bar fails to abide by state orders (such as opening early  or allowing crowds over a certain number of people) and a customer alleges he or she developed COVID-19 from patronizing the bar, the tavern’s liability insurance may not cover any claim or lawsuit related to the customer’s subsequent injury or death. This puts the business owner at risk for paying the legal expenses, court fees, and incurring the responsibility for any settlement or judgment (such as medical expenses, funerary expenses, and grief/sorrow suffered by the family).

Resisting state or county stay-at-home orders may also lead to insurance coverage complications given the current state of knowledge about COVID-19’s transmission rate. Most insurance policies contain clauses excluding coverage for “Expected or Intended Injuries” from the standpoint of the insured. Given that COVID-19 has a demonstrably higher transmission rate than other seasonal illnesses, and State and Local stay-at-home orders routinely note the risk of transmission of the virus, a valid argument may exist that any transmission of COVID-19 while in violation of the stay-at-home order was “expected” by the insured. This argument is only strengthened by the repeated discussions of “herd immunity” as a way to control the spread of the virus. In fact, numerous states have cited the “Swedish Model” as a way to remain open while building “herd immunity.” Under this belief, transmission of COVID-19 would in fact be the desired result of defying such an order.

These “Expected or Intended Injury” exclusions are common in both General Liability and Workers’ Compensation policies. Employers in industries with a high work-related outbreak potential must be particularly aware of these exclusions to their Workers’ Compensation policy, as many states include COVID-19 as an “occupational disease” for purposes of workers’ compensation liability. For example, to prove causation in Illinois the “disease need not to have been foreseen or expected but after its contraction it must appear to have had its origin or aggravation in a risk connected with the employment and to have flowed from that source as a rational consequence.” 820 ILCS 310/1(d). Multiple outbreaks at a single jobsite where adequate social-distancing measures are not possible (i.e. meatpacking plants) lead credence to the argument that any one employee’s disease had its origin on the jobsite. Notably, the disease need not be “expected” to be compensable under state Workers’ Compensation statutes but may still be excluded from coverage under the “Expected or Intended Injury” exclusion. Accordingly, businesses must carefully consider the potential liability to both their employees and third parties when weighing whether to open against governmental orders.

Another consideration is how the refusal to enforce a state-wide safer-at-home order may affect insurance coverage for government entities, such as police departments, counties, or townships. Generally speaking, many states protect government entities from claims under the concept of tort immunity. This means that a government entity is not financially liable for injuries or property damage unless it is acting willfully or intentionally showing a conscious disregard for the safety of others or their property. It is foreseeable that there may be a waterfall of claims alleging that the local government was willfully disregarding a safety order and thus willfully disregarding public safety, opening it up to a litany of financial liabilities.

COVID-19 has certainly placed a financial strain on individuals, businesses, and localities alike and, to the extent outlined above, could create an avalanche of financial liability as well. In fact, plaintiffs’ lawyers have already released public statements of their intent to file suits against businesses and entities that are in violation of applicable stay-at-home orders.

It is important that you seek legal counsel to discuss what and how certain orders apply to you and how it may affect your insurance coverage and financial liability long-term. If you have any questions, please contact Johnson & Bell Attorneys, Glenn F. Fencl, Peter R. Ryndak, Daniel R. Ahasay, Martha E. Drouet, or the Johnson & Bell attorney with whom you regularly work.