Note: The information in this article is for general informational purposes and is not intended to constitute legal advice.
The widespread and dramatic impacts of the COVID-19 pandemic raise many legal issues. Regarding insurance, COVID-19 raises coverage issues that are likely to end up in the courts for years to come. An important question for lawyers, both in-house and in private practice, is how those cases should be drafted, interpreted and adjudicated.
The General Approach to Insurance Contract Interpretation
Insurance litigation in New York is largely a matter of construction of the particular insurance contract according to the principles of contract law[i]. Usually, the courts apply the literary approach and interpret the insurance contract provisions according to their plain meaning[ii]. Hence when advising, we look at the terms of the agreement, paying in particular attention whether the plaintiffs have proven the loss and contemplated the terms of the insurance contract[iii]. Sometimes expert witnesses are called in to give advice.
As an essential element of tort law, a finding of causation is often at the crux of the matter. When there are multiple possible causes ofthe damage, complications may arise.
Given the deficiency in recent cases involving epidemics, we will look at the case of New World Habourview Hotel Company Limited and Others v. Ace Insurance Limited and Others (2003)[iv], which concerned insurance contract interpretation during the outbreak of the severe acute respiratory syndrome (SARS) outbreak in Hong Kong. In that case[v], the plaintiffs claimed under the policies in respect of business interruption the loss suffered as a result of the outbreak, while the defendant argued on the scope of the coverage. Initially, it was argued by the parties that where there is an ambiguity in an insurance policy, the same should be construed against the insurer, because typically a policy is in the insurer’s standard form and it is the insurer who is relying on the ambiguity to limit or avoid liability under the policy[vi]. This contra proferentem rule was accepted by the judge in situations of ambiguity, and the court considered that the meaning of “notifiable” in clause 14.5 of the relevant contract was plain, and found there was no ambiguity[vii]. The case then went on appeal, and the crux of the issue was related to the scope of the coverage, and the losses covered[viii]. And the highest court in Hong Kong dismissed the appeal and made its decision by scrutinizing the original words used in the contract[ix].
Litigation That Has Involved Epidemics
Similarly, in an older California case that involved the Spanish flu, Citrus Soap Co. v. Peet Bros. Mfg. Co (1920),[x] the Court of Appeals considered the contractual clause, and whether the pandemics justified interruptions of the promised delivery of the goods. In that case concerning which considered the goods in question were 12 large drums of soap, and there was provision in the contract which made the contract subject to suspension in case of number of conditions[xi]. The plaintiff was late in delivering the soap, as the Spanish influenza had interrupted its soap production for nine days[xii]. The Court of Appeals, while affirming the trial court’s decision, held that the clause was what is known today as force majeure, and hence, the plaintiff could rely on the provision to justify its delay due to the interruptions caused by the pandemic[xiii]. In the Florida case of The Travelers Property Casualty Company of America and others v. Anda, Inc. and Watson Pharmaceutical, Inc.,(2016) which concerned the state’s opioid epidemic[xiv], the Court of Appeals held that the exclusions in the insurance policies applied to exclude any possible coverage.
Other Issues Involving Insurance Law
Whether or not pandemics are in a class by themselves when it comes to insurance, or whether they fall into the category of natural disasters like floods, hurricanes and wildfires, are — in the absence of a clear precedent from New York — a matter of contract construction. Since the details depend on the individual case and the specific insurance provider, it is very hard for a plaintiff or defendant to predict with absolute certainty the outcome of a pandemic case.
A search online[xv] reveals that while some insurance companies will cover diagnostic testing for coronavirus, some will by default not provide any coverage. Assuming that the insurance policy defines epidemics and pandemics as a covered event, which should be wide enough to include the coronavirus, other factors may also affect the claimant’s chances of coverage. These factors include the hospitalization time of the patient(s) as well as the government policies and measures implemented by federal, state and local authorities. For those who have recently purchased insurance, there is a policy waiting period, and it is possible that there may be minimal or no coverage if the disease is contracted before the end of the waiting period.
Given that is previous cases ruled by the United States and Hong Kong courts typically construe any ambiguity against the party drafting it and the lack of a relevant and applicable precedent in New York on this matter, special care is needed when reviewing both new and old contracts to make sure exclusions or exceptions from coverage are clearly stated, and to take immediate actions if amendments have to be made.
Thus, businesses — including law firms — should stop and evaluate whether they have purchased sufficient insurance beyond what is mandatory under New York state law. In order to reduce confusion and gain greater clarity regarding what is covered, business owners should examine their policies on a case by case basis with their attorneys and other insurance advisers.
Amelia Lo is a lawyer practicing in Hong Kong. She is vice chair of three committees of the Hong Kong Federation of Women Lawyers, and a four-year member of the organizing committee of the Law Society’s Cross Straits Four Regions Youth Lawyers Forum.
[i] Universal Am. Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675, 680, 16 N.Y.S.3d 21, 37 N.E.3d 78 .
[ii] Vigilant Ins. Co. v. Bear Stearns Cos., Inc., 10 N.Y.3d 170, 177, 855 N.Y.S.2d 45, 884 N.E.2d 1044 .
[iii] Couch on Insurance 3d, § 245:25.Couch on Insurance 3d, § 245:26.
[iv]  HKCFA 65,  HKCFI 327.
[ix]  HKCFA 65.
[x] 50 Cal. App. 246.
[xiv] 658 Fed. Appx. 955.