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Outbreaks on cruises, in care homes could leave commercial insurers on the hook

As the U.S. COVID-19 death toll nears 100,000, allegations of negligence and improper care in places such as hotels, cruise ships and long-term care facilities may lead to a surge in claims against insurers' commercial and professional liability lines.

There have been more than 98,000 coronavirus-related fatalities recorded across the U.S. as of May 26, according to the Centers for Disease Control and Prevention. There had been approximately 35,000 deaths related to COVID-19 in long-term care facilities across 37 states, with nearly a third of that total in New York and New Jersey, according to the Kaiser Family Foundation.

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Insurance claims relating to places like nursing homes and long-term care facilities, where employees have special duties of care to residents, would likely fall under the professional liability line, said Chris Murray, president of Midwest Insurance Group, a Vermont-domiciled risk retention group. Meanwhile, litigation against a cruise ship or a hotel, for example, would most likely involve the commercial general liability line.

"The fear [among insurance companies] is there's going to be significant payouts on these claims and/or defense costs at least," Murray said, noting that although Midwest Insurance has not received any claims yet, they are often filed a year or two after an event, or just under the statute of limitations.

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Murray said nursing home misconduct cases will require a jury to determine whether a facility met the standard of care, which in this case might center around guidelines issued by the CDC. He noted, however, that professional liability policies have not historically contained exclusions for a virus or communicable diseases.

While Murray said Midwest Insurance is treating every policy renewal on a case-by-case basis, he is seeing roughly 75% of carriers "absolutely" excluding coronavirus from professional liability policies moving forward. Eventually, there could be exclusions for communicable diseases in general, he said, something that would leave facilities in an exposed position.

"We've actually thought about excluding it and then you can buy an endorsement and add it back," Murray said. Another option could be to offer coverage with an aggregate limit or a per-claim sub-limit.

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Although professional liability policies are more likely to be triggered for claims related to healthcare facilities, Tom Baker, a professor at the University of Pennsylvania Carey Law School, said there could also be some argument around whether general liability policies should apply.

"If they didn't do a good job of cleaning the facility, that would arguably be a general liability claim rather than a professional liability claim," Baker said, citing the example of a slip-and-fall claim, which would not come under professional services.

Attorneys may be particularly encouraged to go after the general liability portion of the policy in states such as Indiana where there are caps on damages for professional liability claims, Murray said.

Immunity in some states

Several states, including New Jersey, Arizona and Michigan, have issued executive orders granting immunity from civil and criminal liability to care providers, albeit with exceptions in certain cases, such as gross negligence.

Executive orders vary, but if the immunity is time-limited, Murray said this could leave a "grey area" because a lot of policies are written as claims-made. These cover claims reported during the policy period, regardless of when the action giving rise to the claim occurred.

New York, the state with the most recorded fatalities attributed to the coronavirus, has reported approximately 6,000 deaths of individuals who lived in nursing homes or assisted living facilities, according to the state's department of health website as of May 25. The state has gone a step farther than most by including a provision in its recently passed budget that will make it more difficult to sue nursing homes and other healthcare providers.

The provision provides healthcare facilities and professionals immunity from "any liability, civil or criminal," for acts or omissions occurring while providing care related to or affected by the COVID-19 outbreak, as long as the act or omission was done in "good faith." The immunity would not apply if the harm was caused by willful or intentional criminal misconduct, gross negligence or reckless misconduct, although a shortage in resources or staff would not be considered to be such misconduct.

Commercial liability

Commercial general liability insurance policies typically only cover injuries arising from an occurrence, which is generally defined as an accident, said Timothy Lytton, a Georgia State University law professor.

"If [a] cruise ship or [a] hotel was careless and they caused a foreseeable risk of harm or infection by failing to take reasonable precautions, such as social distancing, then they would be subject to liability for negligence," Lytton said.

In order to trigger liability insurance coverage, the defendant must have created a foreseeable risk of injury to the plaintiff. But if the defendant actually knew or should have known that there was a substantial probability that the specific injury would occur, the event may cease to be treated as an accident and fall outside the bounds of the policy, Lytton said.

However, Edward Susolik, senior trial attorney with California-based law firm Callahan & Blaine, said there are several case precedents where people and businesses were sued for transmitting diseases to other individuals and insurance coverage was triggered.

He said that as businesses begin to reopen, they will likely ensure protection by law under "assumption of the risk," requiring people to sign away their right to sue if they should catch coronavirus while engaged with the establishment, similar to how ski areas and skating rinks operate with regard to injuries.