All Perils Policies: Is COVID-19 An Insured Peril?

• Published date: 12 May 2020
• Author: Ms Karen Weslowski
• Subject Matter: Coronavirus (COVID-19), Litigation, Contracts and Force Majeure, Operational Impacts and Strategy
• Law Firm: Miller Thomson LLP

As the worldwide pandemic continues to rage on, losses faced by businesses increase without any certainty as to when they might end. Such expansive loss has raised many questions for insurers facing potential claims for coverage. One such question is whether "all peril" or "all-risk" policies extend to provide pandemic coverage?

Typically, business interruption insurance is part of a policy issued on either an "all perils" basis or a "named perils" basis. An all perils policy covers every fortuitous risk to an insured, subject to the conditions and exclusions contained in the policy. A named perils policy contains a list of specifically insured events, thereby excluding any peril not listed.

In short, COVID-19 will likely fall within coverage of an all perils policy, subject to conditions and exclusions contained in the policy. Many all perils policies contain exclusions for contagious diseases or viruses, which could exclude the COVID-19 pandemic.

All Perils Coverage

Generally all perils coverage contains wording similar to the following: "This policy insures against loss resulting directly from necessary interruption of business caused by physical loss or damage by a peril not otherwise excluded herein to insured property of the Insured, all subject to the terms and conditions of this policy."

Fortuity Requirement

All perils coverage does not encompass every conceivable type of loss. To be considered a covered peril pursuant to standard all perils policy language, the loss must be fortuitous.¹ A fortuitous loss is one that is not expected or intended by the insured, such as losses by theft,² fire and flood.

All perils policies have been held to cover environmental contamination where the policy did not include contamination as peril specifically excluded from the policy.³ In this situation, it remains open to the insurer to take the position that the other conditions of the policy, such as fortuity are not satisfied, but the starting point may be that contamination is a covered peril.

If a pandemic is considered fortuitous, it will likely be a covered peril. Prior to the first case of COVID-19 in Wuhan, China in late December 2019, there was no indication that a pandemic was expected. For policies incepting after COVID-19 became a known condition, there may be an argument about whether the pandemic can be considered fortuitous. This is particularly true for any policy that incepted after the World Health Organization declared a pandemic on January 30...