August 28, 2009 

Written By Attorneys: Michael A. Hamilton and John F. Mullen

This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

As school starts and the flu season looms, media reports warn of a second, larger, wave of swine flu. School officials everywhere are preparing for the worst and dealing with concerned parents, fearful of flu outbreaks at their schools. Parents, educators and public health officials are concerned because swine flu thus far has targeted young, otherwise healthy people.

Swine flu issues have reached the courts. The family of New York City's first swine flu victim gave notice that they intend to file a $40 million dollar lawsuit against New York City and its health and education departments. The family of the assistant principal claims the City was negligent in failing to quickly report the outbreak and failing to warn the deceased that he had been exposed to the virus. Expect more claims as the pandemic grows.

The insurance industry needs to immediately come to grips with current and anticipated claims related to this pandemic, whether they are first-party claims brought under life, health and property policies or third-party claims for the defense and indemnification of lawsuits brought against insureds.

The industry will most likely see claims made in several main sectors. As illustrated by the New York lawsuit, schools and childcare providers could be faced with potential liability for failing to promptly notify families of an outbreak or by failing to quarantine from school a child or faculty member infected with swine flu (or one whose family member has it). Hospitals and health care providers could face liability for the failure to undertake reasonable precautions to prevent the spread of swine flu to unaffected patients. The hotel and airline industries could face significant liability from allegations that they negligently contributed to the spread of the swine flu virus by allowing workers to come in contact with infected customers or, conversely, improperly denying an individual the right to travel because he or she was infected with the flu.

Unfortunately, any or all of these or similar theories could be asserted against virtually any company, entity or employer.

In these scenarios, potential liability will likely center on the standard of care owed to the particular claimant. This will test business entities' response planning should a swine flu pandemic affect a particular organization. Once the swine flu strikes, the organization's response to assist the victims or reduce the likelihood of further spread of the disease will be scrutinized. Businesses' actions taken to restore the organization to its original status including continuing care and extended services and supplies must also be monitored.

There are a host of potential insurance coverage issues stemming from swine flu claims, too numerous to mention in full. Several issues, however, immediately stand out. As commercial general liability policies typically have a per occurrence coverage limit as well as an aggregate limit, the determination of whether swine flu contamination constitutes single or multiple occurrences will be highly significant to the assessment of the insurer's coverage obligations. Insurers may also assert that swine flu claims fall within the policy's comprehensive pollution exclusion. Furthermore, certain swine flu claims may also fall within a policy exclusion for damages claimed arising from the loss of use, withdrawal, recall, repair, etc. of the insured's product, if the product is withdrawn or recalled from the market. Such an exclusion may apply to liability claims arising from the recall of products believed to be contaminated with the swine flu virus.

In the event that real property is contaminated, or a threat of contamination exists, policyholders may attempt to assert first-party property insurance claims. Whether the property has suffered a "direct physical loss" as required under most policies will likely be an issue under such claims. Furthermore, as with third-party policies, pollution or contamination exclusions may be applicable. Civil authority coverage (or exclusions) may be implicated if the business suffers loss of income caused by order of a civil authority prohibiting access to the insured's property.

A large-scale swine flu outbreak will likely lead to a significant number of claims under other types of first-party policies, including workers compensation insurance. For workers compensation claims, the key issue is whether the illnesses would be considered work-related. There must be a clear nexus between the worker acquiring the disease and his or her employment. The insurance industry could also see other first-party claims submitted under event cancellation insurance policies and travel insurance policies.

If the dire predictions in the media are true, this Fall and Winter the insurance industry will face a substantial increase in the liability and coverage issues arising from swine flu claims. Nelson, Levine, de Luca & Horst will continue to monitor these developments on a daily basis for its clients.