May 14, 2020
Since March 19, 2020, Pennsylvania businesses and individuals have been under substantial restrictions imposed by Governor Tom Wolf in response to the COVID-19 pandemic. As these businesses now begin to see some relief from those restrictions, Pennsylvania Insurance Commissioner Jessica Altman has issued a warning: Ignoring the Governor’s Orders and the provisions of the multi-tiered plan for relaxing some of those restrictions could result in a loss of liability insurance coverage.
In other words, although the temptation to resume some semblance of “normal” business and life after nine weeks of limitations may be great, the consequences of “jumping the gun” could be significant.
On March 19, 2020, Governor Wolf issued an Order closing all Pennsylvania businesses that were not deemed “life-sustaining.” Since that time, most businesses in Pennsylvania have been prevented from conducting in-person operations, in the hope of slowing the spread of COVID-19. In addition, on April 1, 2020, the Governor issued an Order directing individuals in the Commonwealth to stay at home. Several weeks after imposing these restrictions, the Governor’s Office and the Pennsylvania Department of Health concluded that these remedial measures had helped to curtail the spread of COVID-19 and to reduce the burden on healthcare facilities in Pennsylvania. Accordingly, the Governor recently issued guidance for relaxing these restrictions in phases, so as to begin a “gradual and strategic return to work.”
On May 8, 2020, certain businesses in 24 Pennsylvania counties were permitted to reopen for limited operations in accordance with the terms of the Governor’s phased reopening plan. Pursuant to the Governor’s May 7, 2020 Order, some businesses that were previously shuttered unless they were deemed “life-sustaining” are now permitted to begin in-person operations in these counties. However, these businesses must still comply with the safety measures established by the CDC and the Pennsylvania Department of Health. In addition, businesses in these counties that had previously offered carry-out, delivery, and/or drive-through beverage services are permitted to continue to do so, provided that social distancing measures were maintained. However, if businesses in these counties were able to conduct business operations remotely through individual teleworking, the Governor’s Order indicated that such remote operations should continue. Furthermore, certain businesses—such as gyms, spas, hair salons, nail salons, and indoor recreation and entertainment facilities—are to remain closed even in this “yellow phase” of the Governor’s phased reopening plan.
In addition to relaxing the restrictions on businesses in these 24 counties, the Governor’s May 7 Order lifted the “stay-at-home” directive for individuals in these 24 counties. However, gatherings of more than 25 people are still prohibited. On May 15, 2020, 13 additional counties will receive some limited relief from the business closure and “stay at home” orders.
Both before and after the gradual reopening of these 37 counties began, some businesses and individuals in these counties—and in the 30 counties that remain under the more stringent restrictions of the “red phase” of the Governor’s plan—have elected to disregard the closure orders. In a May 11, 2020 press release, the Pennsylvania Insurance Commissioner sought to advise those businesses and individuals that their actions might jeopardize their liability insurance coverage. According to Commissioner Altman, “many insurance policies contain provisions that exclude coverage for businesses or individuals engaging in illegal acts or conduct. These exclusions may apply to property coverage, liability coverage, advertising injury coverage, and a host of other essential coverages.” The press release quoted Commissioner Altman as follows:
“Businesses and residents rely on insurance coverage to protect them from liability, pay for covered losses, and compensate those who may be injured or harmed,” said Altman. “It is the duty of every business and resident in Pennsylvania to ensure that they and the public at large are provided with the maximum level of protection afforded by insurance. Any actions that could potentially create coverage gaps are the antitheses of the civil duty required of all residents during these times of emergency.”
Although the press release did not expressly say so, the implication of Commissioner Altman’s statement and the reference to “non-compliant businesses” is clear: Conduct that violates the Governor’s Orders could trigger one or more exclusions in a business’s or individual’s insurance policy, thus eliminating the liability coverage contained in the policy.
As with any insurance coverage issue, the accuracy of the Insurance Commissioner’s statements about the implications of violating the Governor’s Orders depends entirely on the terms of the individual insurance policy. For example, a commonly-used commercial general liability insurance form—the CG 0001 (04/13), issued by ISO—does not contain an express exclusion for illegal or criminal activity that would apply to the “Bodily Injury and Property Damage Liability” coverage. This form does, however, contain a “Criminal Acts” exclusion that applies to the form’s coverage for “Personal and Advertising Injury Liability.” The various commercial property cause of loss forms issued by ISO—such as the CP 1010, the CP 1020, and the CP 1030—also do not expressly exclude coverage for property damage caused by “criminal activity.” Some homeowners’ insurance forms—such as one version of the HO 0003 that was issued by AAIS—do contain an exclusion for “bodily injury” or “property damage” that is “the result of a criminal act of an ‘insured.’” Other policy forms may exclude coverage for the “intentional and criminal acts” of the insured within the “Expected or Intended Injury” exclusion. However, several of ISO’s versions of the HO 0003 do not contain the express reference to “criminal acts” that is included in some other forms. Thus, a review of some commonly-used insurance forms suggests that not all—and perhaps not even “many”—insurance policies will necessarily contain the exclusion for “illegal acts or conduct” referenced by the Insurance Commissioner. Notably, however, there are other provisions of these insurance policies that may be implicated by violations of the Governor’s Orders; these include the “occurrence” requirement, the “expected or intended injury” exclusion (even in the absence of the “criminal acts” language), and the terms of any endorsements or amendments to the policy.
There is no question that Pennsylvania’s citizens and businesses are looking forward to a relaxation of the COVID-19 restrictions imposed by the Governor and a “reopening” of the Commonwealth’s economy. However, individuals and businesses would be wise to review their insurance coverage when they weigh the risks and benefits of reopening for business sooner than the Governor’s Orders allow.
Disclaimer: This post does not offer specific legal advice, nor does it create an attorney-client relationship. You should not reach any legal conclusions based on the information contained in this post without first seeking the advice of counsel.
About the Author:
Bryan M. Shay is a Principal in the Firm’s Philadelphia and New Jersey offices, and a member of the Firm's Insurance Law Department. With a practice focused on insurance coverage and bad faith litigation, Mr. Shay advises and represents national clients in a variety of complex coverage and bad faith disputes Learn More.