COVID-19 Liability Shields: What Do They Mean for Liability Insurers?


Andrea Best and Kristi Garrett featured in Insurance Post magazine regarding developments in the US in relation to Covid Liability Immunity and their potential impact on businesses, liability insurers and the UK insurance market.

With the Coronavirus (COVID-19) pandemic approaching its half-year mark, businesses that have remained open, or are in the process of reopening, are grappling with the questions: what kind of liability exposure will I have by operating during a global health crisis? Can I afford to operate my business with the looming threat of potential COVID-related lawsuits if someone on/near my premises gets sick, or worse? Many insurance companies are facing a related question: how can I continue to adequately insure the risk of such businesses?

At the time of writing, UK regulators are taking insurers to the courts over their publicly criticized handling of COVID-related claims. The reinsurance renewal season also looms and COVID-19 could be a game-changer in conditions, or cause a sharp hardening of the market in some lines with exclusions being applied.

There is nothing as damaging as uncertainty to the insurance sector. Policyholders need certainty, and businesses cannot withstand further paralysis, so will need to be reassured that they will not be prone to disruptive claims from customers. With over 40% of the UK insurance sector involving U.S. business, approaches to providing liability immunity to businesses across the Atlantic are of particular interest to many in the City.

In the U.S., State governments are attempting to allay these concerns by issuing executive orders and passing new legislation to provide immunity from civil liability to businesses. Up until recently, the majority of immunity executive orders and legislation have been focused on health care providers and entities.

The Illinois Governor issued one of the earliest immunity Executive Orders (2020-19), which provided immunity from liability to certain health care facilities and health care professionals that were “rendering assistance” in support of the state’s COVID-19 response. Now, over half of U.S. states have some form of liability immunity for healthcare entities, either through new or existing legislation or executive orders. The scope and applicability of this immunity varies greatly from state to state, however.

On the federal level, certain types of businesses also enjoy federal immunity. The federal PREP Act, enacted in 2005, provides immunity from liability from the “administration” or “use” of “covered countermeasures” if the Secretary of the Department of Health and Human Services (HHS) issues a declaration during a declared public health emergency. The HHS Secretary declared COVID-19 such a public health emergency in February 2020. The list of “covered countermeasures” continues to grow, and covers a wide variety of equipment, including personal protective equipment.

What we saw early on as an attempt to protect persons providing “essential healthcare services” – e.g., first responders, healthcare providers, emergency equipment, or those providing certain services at the request of the State – is beginning to evolve into an attempt to provide much broader protection for businesses. More recently, states have introduced broader forms of liability immunity that expand beyond healthcare providers to businesses. The level of immunity granted varies from state to state, and most immunity provisions provide exceptions for gross negligence and willful and intentional misconduct.

For example, Oklahoma Governor Stitt recently signed S.B. 1946 into law, which provides immunity to businesses that comply with government regulations and guidance from civil actions brought by persons claiming injury or exposure to COVID-19. Utah and North Carolina are among other states that have followed suit with similar laws providing civil immunity liability for businesses, not just healthcare providers.

Similar developments are taking place in the federal government, where on July 27th Senate Republicans introduced the “SAFE TO WORK Act” that, if passed, would create a broader federal liability shield for “businesses, services, activities or accommodations,” and would provide jurisdiction to the federal courts for coronavirus exposure actions. Back in May, over 200 diverse trade associations, including the American Property and Casualty Insurance Association, signed a letter to Congress in support of temporary liability relief legislation. On the other side of the argument, the American Association for Justice, representing trial lawyers, has asked Congress to oppose granting liability immunity to nursing homes, citing that legal liability serves as a safeguard for residents.

Implications for Insurers

This new wave of legislation is intended to encourage businesses to reopen without the fear of an onslaught of COVID-related lawsuits. However, we query whether these shields will really prevent the litigation they are intended to curtail, or whether they will only increase the amount of litigation needed to determine whether a particular action or inaction is protected by a state or federal liability shield.

This is especially true when there is so much uncertainty about how and when these laws should be applied. Some immunity executive orders were only in effect for a certain period of time; some are conditional on meeting specific requirements; and some only provide an affirmative defense. As a result, applicability and scope of liability immunity must be evaluated on a case-by-case basis.

Insurance companies writing U.S. risks should be prepared to be dragged into debates that may extend beyond typical coverage litigation. In determining whether to pay a liability claim from a business being sued for a COVID-related injury, an insurer may have to consider more than the four corners of the policy. Insurers will have to understand the scope of these immunity laws in various jurisdictions and their applicability to each particular circumstance—not just when it comes to claims under existing policies, but also when it comes to underwriting and evaluating new risks.

With the state legislative season largely drawing to a close, it is unlikely that we will see much more in the way of state legislation. However, other state actions such as executive orders are still possible, and more states may take action to create new liability shields or expand existing ones as their economies begin to open up. And if Congress passes the SAFE TO WORK Act, it will be interesting to see how the legislation will work in conjunction (or not) with similar state measures, and whether these shields will make COVID coverage decisions easier for insurers, or far more complicated.

Insurers will be keeping a keen eye on both sides of the Atlantic… and seeking as much certainty as their customers.