Insurance Considerations For Schools Harmed By COVID-19

November 20, 2020

Any parent attempting to balance the challenges of working remotely while managing their children’s distance learning experience can tell you that schools have been among the facets of our society that have been hit hardest by the COVID-19 pandemic.

Among other things, colleges and universities across the country had to grapple with shutting down schools at all levels in the spring, transitioning to remote learning, and then making the difficult decisions about whether to reopen for in-person learning in the fall.

Each of these acts creates the risk of lawsuits by students and other affected persons, questioning the school’s decision making and seeking liability for damages experienced by the aggrieved persons. As discussed below, when faced with such claims, schools should review their insurance policies to see if coverage for defense costs and indemnification exists.

In addition to potential lawsuits, schools, much like businesses in many other industries have suffered tremendous losses as a result of COVID-19. These losses include cancellation of athletic events, room and board fees, and expenses incurred in preparation of students’ return to campus. Again, as discussed below, schools should review their insurance policies to see if such losses are potentially recoverable.

This article will first focus on schools’ decisions to shut down and reopen, the potential liability associated with each decision, and the possible insurance implications. It will then turn attention to the other types of losses schools have experienced as a result of COVID-19. While the focus will be on institutions of higher education, many of these same issues will be ones faced by schools at all levels — from preschools to secondary schools.

Damned If You Do: The Decision to Shut Down Schools

On March 9, the University of Washington became the first large university in the U.S. to close its doors and switch to remote learning as a result of COVID-19.[1] In the weeks that followed, countless other schools followed suit and by the end of March, over 1,000 colleges and universities across the country had closed their doors and moved classes online.

Within a month of these first decisions, lawsuits began to trickle in where aggrieved students sought damages stemming from the school’s decision to shift to remote learning. Since those initial lawsuits were filed, hundreds more have been filed against schools.

Most of these lawsuits are seeking class certification, which would enable the aggregation of claims from individual students. By way of example, a lawsuit challenging the University of California and California State University systems, if certified, would incorporate more than 750,000 students combined.[2]

While not challenging the actual decision to shut down, at the heart of the lawsuits are allegations that online, remote learning is subpar to the in-person learning students expected when they enrolled at these institutions.

The lawsuits generally include a breach of contract claim alleging the school breached a contract with the students by failing to provide an agreed-upon service — in person learning — in exchange for the tuition paid by the students. The lawsuits typically include claims that the schools were unjustly enriched by retaining the tuition after the decision to shift to in-person learning.

The likelihood of these lawsuits succeeding may vary depending on the specific facts involved. For instance, in a recent lawsuit filed against the University of San Diego, the plaintiffs point to USD’s tuition structure which charges a higher amount for in-person instruction than for online learning.[3] Ultimately the success of these lawsuits may depend on the wording of the contracts between the schools and its students and whether it specified the type of learning that would be provided.

In the seven months since these lawsuits were first filed, several courts have issued decisions on motions to dismiss with mixed results for all involved.

For instance, on Oct. 1, the U.S. District Court for the District of Massachusetts largely dismissed claims against Northeastern University that primarily sought tuition refunds.[4] In Chong v. Northeastern University, the court’s granting of the motion to dismiss was largely based on its conclusion that the students’ agreement with the school did not include a right to in-person instruction.[5] The dismissal was without prejudice and the plaintiffs have attempted to replead their claims by including additional facts.

In contrast to the decision involving Northeastern University, in Salerno v. Florida Southern College, the U.S. District Court for the Middle District of Florida denied a motion to dismiss filed by Florida Southern College in a similar case where students sought damages that allegedly resulted from the college’s decision to move to online learning.[6]

The court rejected the college’s argument that the amended complaint did not identify contractual provisions supporting the notion that the college had an obligation to provide in-person instruction. Specifically, the court pointed towards publications by the college, including the course offering catalog and course syllabi, which implied that classes would be conducted in-person.

Accepting all allegations as true, which a court must do when deciding a motion to dismiss, the court found these documents were part of the contract and supported the students’ claims at this stage of the litigation.

Colleges and universities facing such claims should look to their insurance policies to see if there is coverage for the defense and indemnity of such claims. First, educators legal liability policies typically provide broad coverage to schools. Similarly, commercial general liability policies may provide coverage.

Whether coverage exists will depend on the precise terms of the policy as well as the claims asserted in the lawsuit. For instance, commercial general liability policies often exclude coverage for breach of contract claims. However, if a lawsuit includes a breach of contract claim as well as other covered claims, coverage may still exist, especially for defense costs.

Damned If You Don’t: The Decision to Reopen Schools

While some colleges and universities made the decision to continue remote learning at the start of the 2020-2021 academic year, many other schools made the decision to welcome students back to campus at the start of the year for in-person instruction. A recent study shows that of nearly 3,000 colleges surveyed, approximately 44% of those institutions were primarily conducting in-person learning or were utilizing a hybrid model.[7]

The decision to welcome students back to campus is not without risk. Even if schools take precautions to limit the spread of the virus in classrooms, controlling students’ activities in dorms and off-campus is unquestionably a challenge. News coverage frequently reports COVID-19 clusters that are traced back to parties.[8] Recently, the president of the State University of New York at Oneonta resigned after 700 students tested positive for COVID-19.[9]

While we are not aware of any lawsuits that have been filed against colleges due to their decision to reopen schools, it seems inevitable that such lawsuits are on the horizon. It is not difficult to imagine litigation where students allege that they became ill while on campus due to the school’s failure to take adequate measures to protect students from the spread of COVID-19.

Such claims would likely be framed as negligence claims, alleging that the schools: (1) owed a duty of care to the students; (2) breached that duty by failing to exercise reasonable care; and (3) caused damage to the student.

Schools that find themselves facing these or similar claims related to their decision to reopen should again examine their insurance coverage options, particularly with regard to commercial general liability and educators legal liability policies. Especially as policies come up for renewal, we have seen insurers attempt to include COVID-19-related endorsements as part of the renewal process.

Other Potential Insurable Losses

In addition to the potential coverage related to defense and indemnity stemming from lawsuits involving the decision to open or close the schools, colleges should review their policies to see whether coverage exists for other types of losses they are likely suffering as a result of the pandemic.

Much has been written about the availability of business interruption costs under property policies and resulting lawsuits related to these coverage issues. The focus of these articles has been on the availability of coverage for restaurants, but the same principles at play potentially provide coverage to other types of businesses — including colleges and universities.

Property insurance policies typically provide coverage when there is loss or damage to insured property. If this threshold requirement can be met, other types of coverage are potentially available including business interruption costs (i.e., coverage for business losses for the premises where the threshold loss occurred) or extra expenses (i.e., coverage for costs associated with the insured’s attempt to mitigate any losses or interruption to its business).

Insurers will argue that coverage under property policies is unavailable because COVID-19 has not damaged the insured’s property. Specifically, they will argue that the lack of any structural damage to the property (e.g., that might occur if there was a fire or flood) renders coverage unavailable.

Numerous courts, however, have rejected this type of argument and have held that the damage requirement can be met when the insured can demonstrate a loss of access, use or functionality.[10] In the context of cases stemming from the COVID-19 pandemic, the caselaw is mixed so far.[11]

Schools should separately review their policies for virus exclusions, which could potentially serve as grounds for an insurer to deny coverage. Careful attention should be given to the language of the exclusion. These exclusions take a variety of forms and oftentimes insurers will falsely argue that a pollution exclusion or exclusion for mold is the equivalent of a virus exclusion.

Moreover, even if a virus exclusion is included in the policy, careful attention should be paid to the particular language used in the exclusion, as arguments may exist for why the exclusion does not bar coverage.

If schools can overcome this threshold issue, they can potentially recover significant lost revenue and expenses under the policy. Colleges and universities have undoubtedly lost significant amounts as a result of the pandemic.

These losses include: (1) lost tuition; (2) lost room and board fees; (3) lost revenue from college stores (e.g., bookstores, cafeterias, etc.); and (4) lost revenue from campus events, not the least of which is athletic events. Such losses are potentially recoverable under provisions of property insurance policies, including business interruption coverage provisions.

Schools that chose to return to some form of in-person instruction this past fall likely incurred costs in order to make classrooms and other parts of the campus safe for students, staff and visitors. These costs might include installing plexiglass dividers in classrooms.

As an example, the University of Richmond installed modular units to be used for isolation/quarantine spaces for students who test positive for COVID-19.[12] Costs such as these, which were incurred so that the school could minimize its business interruption, are potentially recoverable as extra expenses under provisions typically found in property policies or under crisis management sublimits. Again, it is crucial for schools to review all of their policies to see what losses could be potentially recoverable.

Recently, Lindenwood University became one of the first schools to file suit against its property insurer seeking coverage for COVID-19-related losses.[13] The suit alleges that the presence of COVID-19 in and around the campus has led to the loss of access of the school’s property.

This loss of access, in turn, has led to significant losses covered by the policy, including refunds of room and board alone that exceed $5 million.[14] The suit is separately seeking certification of a class of all institutions of higher education that are covered by a policy issued by Zurich American Insurance Co.

In this case, the insurer has denied coverage based on arguments that: (1) the lack of structural damage means the insured cannot satisfy the threshold damage requirement; and (2) a contamination exclusion in the policy separately eliminates any potential coverage, despite the fact that the definition of “contaminant” was modified to remove virus as a type of contaminant.

Numerous cases, mostly involving insured plaintiffs in the restaurant industry have begun to make their way through the courts. The success of theses plaintiffs at the motion to dismiss stage has varied and has depended largely on the jurisdiction and the specific language of the policy. The success of similar lawsuits brought by educational institutions will likely be affected by these factors as well.

Conclusion

Like many other industries, institutions of higher education are likely to see lawsuits stemming from COVID-19-related issues and will experience significant losses as a result of the pandemic. When faced with such litigation and losses, schools should be sure to conduct an extensive review of their insurance policies to see if coverage for these losses exist.

Michael Rush is of counsel at Gilbert LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] https://www.cnbc.com/2020/03/26/how-coronavirus-changed-college-for-over-14-million-students.html.

[2] https://www.sandiegouniontribune.com/news/courts/story/2020-10-18/lawsuits-refunds-coronavirus-universities-san-diego.

[3] See Complaint in Martinez et al. v. University of San Diego, C.A. No. 20-CV-1946 (GPC WVG) at ¶4 (Oct. 1, 2020).

[4] The court permitted claims seeking repayment of a portion of campus recreation fees to survive. See Memorandum and Order on Defendant’s Motion to Dismiss, Chong, et al. v. Northeastern University, C.A. No. 20-cv-10844 (RGS) (Oct. 1, 2020).

[5] Id. at 6.

[6] See Order, Salerno, et al. v. Florida Southern College , C.A. No. 20-cv-01494 (JSM) (Sept. 16, 2020).

[7] https://www.chronicle.com/article/heres-a-list-of-colleges-plans-for-reopening-in-the-fall.

[8] See, e.g., https://www.democratandchronicle.com/story/news/2020/10/06/syracuse-university-covid-19-cluster-identified-after-off-campus-party/5898502002.

[9] https://www.nytimes.com/2020/10/15/nyregion/oneonta-college-coronavirus-president.html.

[10] See, e.g., Wakefern Food Corp. v. Liberty Mutual Fire Ins. Co. , 968 A.2d 724 (N.J. 2009) (finding damage element was met when power grid was knocked out, despite the fact there was no structural damage to the equipment).

[11] See https://www.law360.com/articles/1319456/insurer-friendly-covid-19-case-law-is-no-silver-bullet.

[12] https://www.richmond.edu/coronavirus/fall-2020/health-safety/isolation-quarantine.html#:~:text=In%20the%20event%20that%20any,the%20proper%20care%20and%20support.

[13] Complaint, Lindenwood Female College d/b/a Lindenwood University v. Zurich American Insurance Company, C.A. No. 20-cv-1503 (HEA) (Oct. 16, 2020).

[14] Id. at ¶24.
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