Like many businesses, colleges and universities across the country have had to dramatically alter their operations in response to the coronavirus pandemic. Most students completed the spring 2020 semester through online instruction after campuses closed in response to rising infection rates and government shutdown orders. According to the Chronicle of Higher Education, roughly one-quarter of institutions of higher education are providing instruction this fall semester either fully or primarily in person, one-quarter are using a hybrid model, and the remainder operating fully or primarily online.
These changes have resulted in significant economic damage to schools. Empty residence halls and dining facilities mean lost revenue, while enhanced cleaning protocols and upgrades in technology for online instruction have increased costs. In addition, hundreds of colleges and universities are facing class action claims by students seeking refunds for tuition, room and board, and activity fees. These are challenging times for higher education, causing many experts to predict permanent changes to the industry.
Faced with substantial losses and litigation, many schools naturally have turned to their insurance policies to see whether coverage is available. Though the answer depends on the specific policies a school has, several options may exist for the types of losses commonly experienced by institutions of higher education, including coverage for Communicable Disease, Civil Authority, and Business Interruption. As reported in prior posts, litigation over insurance coverage for losses due to COVID-19 is still in the early stages and courts have reached different conclusions on whether coverage may apply—often based on the specific policy language at issue, the strength of the pleadings and arguments, and the particular governing state law.
One particularly contentious issue has been whether an insured’s inability to use property due to the actual or threatened presence of COVID-19 constitutes “physical loss or damage to property,” which is a typical requirement to trigger coverage under many property policies. Despite the early and aggressive stance by insurance companies rejecting claims, some courts have issued early-stage rulings in support of potential coverage. For example, one court reasoned that “[t]he ordinary meaning of the phrase ‘direct physical loss’ includes the inability to utilize or possess something in the real, material, or bodily world, resulting from a given cause without the intervention of other conditions.” An insured’s “inability to utilize” its property due to a government decree was found to be “unambiguously a ‘direct physical loss,’ and the Policies afford coverage.”
In contrast, other courts have sided with insurers based on a close parsing of policy language. For example, a court in another COVID-19 case, T & E Chicago LLC, v. The Cincinnati Insurance Company, recently “agree[d] with the courts that have found that loss of use of property without any physical change to that property cannot constitute direct physical loss or damage to the property.” While the Court expressed sympathy for the Plaintiff, it found that “the policy’s phrasing requires the Court to find in Defendant’s favor.” Specifically, the Court drew a distinction between the policy language which covered a “direct ‘loss’ to property” (emphasis added), and plaintiffs’ loss of use of the property.
Another question that has arisen is whether the student class action refund claims should be covered by a school’s Directors and Officers (D&O) Liability policy. While almost all of the complaints include a breach of contract cause of action—which generally is not covered by D&O policies—many also plead unjust enrichment, conversion, and/or money had and received. These latter claims may be covered depending on the breadth of a policy’s contract exclusion provision, and the specifics of the claim (e.g., whether the Board or President are named defendants and what facts are alleged). Errors and Omissions (E&O) policies may also include applicable coverage. For now, at least some insurers are defending against the claims subject to a reservation of rights.
While no court decisions have been issued in coverage litigation involving losses sustained by colleges or universities in connection with COVID-19, many of the same issues that arise in the context of general commercial claims are applicable to institutions of higher education. As schools continue to sustain losses from COVID-19 (indeed, cases are surging and additional shutdown orders may be on the horizon), it is critical to conduct a careful review of specific policy language and remain current on the evolving caselaw in this area. Similarly, while it is unlikely there will be any judgments entered soon against colleges or universities in connection with the student refund claims, schools should review their D&O and E&O policies and applicable caselaw to determine what, if any, insurance coverage would be available in the event of a settlement or adverse judgment. There may be stronger arguments than the insurance companies would have one believe.