VIRTUAL UNIVERSITY
IS THE INSURANCE POLICY AFFECTED IF THE BUSINESS OPENS AGAINST A GOVERNOR’S ORDERS: THE FACTS ABOUT SUPPOSED “ILLEGAL ACTS” EXCLUSIONS States have gone to war against some municipalities over COVID-19. Executive orders currently in place in many states still bar certain businesses considered “non-essential” from opening; but some municipalities have told their respective governors they are opening the community regardless. Governors finding themselves in these situations have undertaken various tactics to prevent these municipalities from carrying through with their reopening plans. North Carolina’s governor told a county that all state funding would be cut if they opened, the county capitulated. Other governors, seemingly out of options, have undertaken a unique and indirect tactic – misrepresenting insurance coverage. Although this sounds like an odd tactic, the goal is to scare the business owners into remaining closed. If the governors can successfully dissuade the business owners, it doesn’t matter what the city or county does, businesses won’t open solely out of fear. Governors and their representatives are publicly stating that if a business opens in violation of the executive order, doing so places its insurance coverage in jeopardy because of the “illegal,” “criminal” and/or “dishonest” acts exclusions. The problem is, there is enough untruth in these statements to make them lies. Let’s review the truth or half-truths of these claims on a coverage-by-coverage basis. Note, the following analysis is of unendorsed policy language, endorsements can alter application of this policy language analysis. Commercial General Liability (ISO’s CG 00 01 04 13)
Coverage A – Bodily Injury and Property Damage Liability. Simply, there is NO illegal or criminal acts exclusion applicable to Coverage Part A. One state knowingly took indecent liberties with the “Expected or Intended Injury” exclusion in its attempt to assert that coverage would be denied. The expected or intended injury exclusion does not act to deny claims resulting from opening against a governor’s orders. This exclusion applies to the actions of an insured that one would EXPECT or INTEND to cause injury such as punching someone in the nose or setting a trap. A reasonable person intends and would expect that someone would be injured by such acts. There does not appear to be an applicable exclusion in Coverage Part A. So, a slip-and-fall incident is covered, a products liability claim is covered, basically anything covered under Coverage A in “normal” times is covered if/when the business opens – even against a governor’s orders. Coverage B – Personal and Advertising Injury Liability. There is a “Criminal Acts” exclusion appliable to personal and advertising injury coverage. Within Coverage B the specific exclusion reads: 2. Exclusions: This insurance does not apply to: d. Criminal Acts “Personal and advertising injury” arising out of a criminal act committed by or at the direction of the insured. “Personal and advertising injury” is a
defined term. Basically, this exclusion applies to activities and actions such as libel, slander, defamation of character, violating a right of privacy, wrongful eviction, false arrest and other such actions. If any of the acts listed in the definition is done in violation of a law, there is no coverage. If the store owner calls the governor a nasty name, that would be excluded; but only if doing so is considered a criminal act. Thus, this exclusion is a non-issue. Coverage C - Medical Payments. In short, there are no exclusions for “illegal,” “criminal” or “dishonest” acts in Coverage C. Where the insured had coverage before the orders, they still have coverage. Commercial Property Within ISO’s CP 00 10 10 12 - Building & Personal Property Coverage Form there is one reference to “illegal.” The policy excludes coverage for “contraband, or property in the course of illegal transportation or trade.” Although this is intended to exclude coverage for products that are illegal to import, export or sell, the wording may present problems if the insured opens against government orders. Two key questions arise: • Is operating in defiance of an executive order a criminal act (making it illegal); and • If it is a criminal act, does ignoring an executive order mean the operation is “in the course of” illegal…trade? Illegal or Criminal Act An illegal act is one that is forbidden by law. In the absence of this pandemic, wisconsin wisconsin INDEPENDENT AGENT INDEPENDENT AGENT
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