The enforceability of COVID-19 waivers remains an open question. Assuming such waivers are considered valid, or not rendered moot by proposed legislation, businesses must examine their states’ laws to determine whether their waivers meet their jurisdictions’ specific requirements. In addition, they should keep in mind potential recourse available under commercial general liability (CGL) policies in the event of a COVID-19 exposure claim. This will involve a careful analysis of policy language and applicable law.
Liability waivers
An exculpatory clause is an agreement provision where one contract party waives liability for certain conduct by the other, such as negligence. In general, a valid exculpatory clause in Pennsylvania must satisfy three elements: “First, the clause must not contravene public policy. Second, the contract must be between persons concerning their private affairs. Third, each party must be a free bargaining agent,” so that either party can choose whether or not to enter into the agreement. Tayar v. Camelback Ski Corp., 47 A.3d 1190, 1199 (Pa. 2012) (citation omitted).
To determine if an otherwise valid exculpatory clause may be enforced, a Pennsylvania court will look to the following guidelines: (1) “[T]he contract language must be strictly construed;” (2) the contract’s intent must be clear and stated with the “greatest particularity;” (3) if ambiguous, the contract must be construed against the party seeking immunity; and (4) the party invoking the clause’s protection has the burden of establishing immunity. Feleccia v. Lackawanna Coll., 215 A.3d 3, 17 (Pa. 2019) (citation omitted).
While Pennsylvania courts have generally upheld exculpatory clauses for dangerous recreational activities, they have invalidated clauses involving banks or common carriers and may distinguish between waivers for “essential” and “nonessential” activities. See McDonald v. Whitewater Challengers, Inc., 116 A.3d 99, 120 n.25 (Pa. Super. Ct. 2015) (citing Dilks v. Flohr Chevrolet, 192 A.2d 682, 687 n.9 (Pa. 1963)); Hinkal v. Pardoe, 133 A.3d 738, 747-48 (Pa. Super. Ct. 2016) (dissent noting various situations “where contracts against liability have been found inimical to public policy,” such as employer-employee relationships, public utilities, hospitals, or airports) (Lazarus, J. dissenting); Chepkevich v. Hidden Valley Resort, L.P., 2 A.3d 1174, 1190 n.18 (Pa. 2010) (noting that “we recognize an inherent policy-based distinction between ‘essential’ activities (such as signing a residential lease) and voluntary, non-essential ones (such as engaging in dangerous sports)”). For example, in Thomas v. First National Bank, the Supreme Court of Pennsylvania found that a bank’s agreement releasing its negligence was contrary to public policy, remarking that “[b]anks, like common carriers, utility companies, etc., perform an important public service” and analogizing a depositor to a common carrier passenger. 101 A.2d 910, 912 (Pa. 1954) (“This Court has consistently decided that it is against public policy to permit a common carrier to limit its liability for its own negligence.”).
Enforceable waivers will not necessarily shield businesses from liability for willful, reckless, or grossly negligent conduct, which will vary between states. See, e.g., Tayar, 47 A.3d at 1199-1203 (holding, in an issue of first impression, that recklessness could not be barred by a ski resort’s pre-injury release for snow tubing). Thus, businesses must remain vigilant in complying with local, state, and federal requirements and guidance.
A business should ensure its waivers are tailored to the risks being assumed by visitors while on its premises or engaging its services — notwithstanding any best practices it has implemented to mitigate exposure to infection. However, a business should also evaluate whether a waiver makes sense for its industry. Legally or practically, requiring a visitor or customer to complete a waiver before entering a building not normally open to the public, or engaging in a purely voluntary activity, may be regarded differently than requiring a waiver before one may access an “essential” service. Relatedly, commercial landlords should exercise caution before requiring executed waivers from anyone entering their buildings. This could introduce unintended disruptions in landlord-tenant relationships, particularly if such a requirement is not discussed with tenants beforehand. Landlords should review their leases for party rights that may be implicated by implementing waivers and should work with their tenants on ongoing exposure mitigation strategies.
Insurance considerations
As businesses begin to reopen and attempt to minimize their exposure as discussed above, they may nevertheless anticipate claims from third parties who allegedly contract the virus while in or on the property or while interacting with company employees or independent contractors. Putting aside causation issues, CGL policies should provide coverage for such claims. Such policies provide coverage for sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” as a result of an “occurrence.” An “occurrence” is typically defined as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Whether harm resulting from an insured’s alleged failure to protect against exposure to COVID-19 is covered under a typical CGL policy will depend on the facts, policy language, and applicable law. Insurers may seek to deny coverage, arguing that any harm suffered by a third party was not caused by an accident because the insured foresaw the potential harm. But it may be difficult to succeed on these coverage defenses. Courts hold that the undefined term “accident” is susceptible to varying interpretations and should thus be construed liberally in favor of coverage. See, e.g., Koikos v. Travelers Ins. Co., 849 So. 2d 263 (Fla. 2003) (finding “accident” means an unexpected happening or event, which occurs by chance and usually suddenly, or injuries or damage neither expected nor intended from the standpoint of the insured).
Insureds should also pay attention to several exclusions that exist in the marketplace, such as (1) communicable disease exclusions, (2) organic pathogen/fungi/mold/mildew/yeast/microbe exclusions, and (3) pollution exclusions. Whether these bar coverage depends on the wording of the exclusions and the defined terms. For example, because viruses are not capable of living independently of their host, it could be argued that they do not fall within the ambit of a microorganism exclusion. Likewise, policyholders may take the position that pollution exclusions do not bar coverage because COVID-19 occurs in nature and is not the consequence of traditional environmental pollution. When analyzing pollution exclusions, it is important to pay attention to the policy language and applicable law.
Assuming a COVID-19 claim constitutes a covered loss under a CGL policy, a question may arise as to how many occurrences are presented by claims. The number of occurrences influences the applicable limits of liability and deductibles. While two tests have emerged — the “cause test” and the “effects test” — most jurisdictions adopt the cause test. The cause tests focuses on the underlying circumstances that resulted in the harm, as opposed to the effects test, which focuses on the resulting harm. This will be a fact-sensitive inquiry.
Conclusion
The legislative landscape continues to evolve rapidly as federal and state governments respond to the needs of individuals and businesses during the pandemic. Earlier in May, Pennsylvania Gov. Tom Wolf signed an executive order granting immunity from civil liability to healthcare workers for taking “good faith actions,” and Pennsylvania Republican lawmakers later proposed measures to extend immunity even further to cover businesses — which other states have so far done to varying degrees.
On July 27, Senate Republicans introduced the Safe to Work Act as part of their proposed COVID-19 relief package. As further discussed by Y. Peter Kang of Law360, this bill would offer businesses a safe harbor from virus exposure lawsuits, excepting acts of gross negligence or willful misconduct. A plaintiff would need to prove that, at the time of exposure, a business was not making “reasonable efforts” to comply with governmental requirements and guidance. Senate Majority Leader Mitch McConnell previously remarked that liability protection would be a “redline” issue in COVID-19 negotiations.
Businesses turning to COVID-19 waivers to bridge the gap between uncertain or pending governmental protections should be mindful of their states’ laws on waiver enforceability and their potential recourse under existing CGL policies. Reed Smith’s real estate and insurance attorneys can assist you in evaluating your state’s legislation with respect to liability waiver and insurance policy concerns. Please contact us to request a consultation and/or evaluation of the law in your state.
Our Reed Smith Coronavirus team includes multidisciplinary lawyers from Asia, EME and the United States who stand ready to advise you on the issues above or others you may face related to COVID-19.
For more information on the legal and business implications of COVID-19, visit the Reed Smith Coronavirus (COVID-19) Resource Center or contact us at COVID-19@reedsmith.com.
Client Alert 2020-476
