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Will Business Interruption Insurance Cover Coronavirus (COVID-19)?Hal Soden, Jr. March 5, 2020
As with any possible cause of loss, the answer definitely depends on the specific policy language in your policy. Before I get into this though, the first thing I would like to point out is that while insurance is a crucial part of any risk management program, it is generally the most expensive option to manage & finance risk. Before focusing on insurance in this case I would recommend first focusing on risk control and mitigation using planning & prevention techniques. For more on this please see Protecting Your Workers from Coronavirus (COVID-19).
Business Interruption Coverage
The most common coverage question I have received over the last couple weeks is, “Will Business Interruption insurance cover coronavirus?” It makes sense that Business Interruption is the first place most people would hope to have coverage, as a loss of income probably where businesses will be hit the hardest. Unfortunately, the answer to this question for most businesses is ‘probably not’. However, coverage will certainly depend on the specific circumstances, as well as the policy language of your policy. Coverage and policy wording can vary drastically, so it is important that you consult your insurance broker to discuss your specific policy.
Business Income/Interruption is a type of property coverage, and generally in order for this type of coverage to trigger there must be a “direct physical loss or damage” to covered property. The coronavirus would not constitute physical damage to property, so it is unlikely that coverage will apply.
If your business shuts down because your own business premises has been contaminated by a case of coronavirus, there may be an argument for “direct physical loss”, even if coverage is not intended. However, many policies contain communicable disease exclusions, and it is possible that some insurers may apply pollution exclusions. If your business shuts down either voluntarily or involuntarily, but has not been contaminated, it is almost certain that your insurers will argue that a direct physical loss does not exist.
Contingent Business Interruption Coverage
Contingent Business Interruption, also known as dependent properties coverage, is designed to protect businesses against economic loss caused by damage to property owned by others, including upstream suppliers and downstream customers. However, contingent business interruption coverage also requires direct physical damage to property of a customer or supplier – so the same problems discussed above exist.
Civil Authority Coverage
Civil Authority coverage is designed to protect businesses when civil authorities order the closure or restrict access to your premises. Again, many policies still require that governmental order stems from direct physical loss or damage to property, so the issues discussed above apply here as well. However, while it typically does not address communicable diseases, this coverage can be customized to provide coverage.
Supply Chain Insurance / Trade Disruption Insurance
Here is where we will discuss our first significant coverage possibility. Supply Chain Risk Insurance covers business interruption loss resulting from a disrupted supply chain. Unlike traditional Contingent Business Income coverage, Supply Chain Risk Insurance does not require any losses to physical property. With this coverage, if your supplier shut down due to a disease outbreak, your business could be covered for lost income, regardless of whether or not any property damage caused the disruption.
Other Coverage Possibilities
Some carriers currently include endorsements that can provide limited coverage for income loss associated with diseases that occur at (or sometimes in the vicinity of) your business location. There are even small business policies designed for restaurants and hospitality which include sub-limited endorsements for business income losses (and sometimes contingent business income losses) resulting from “communicable disease that was transmitted by you or one or more of your employees.” Coverage can include advertising costs to regain customers, as well as coverage for environmental clean-up and fines levied by the government.
For larger businesses, there are standalone infectious disease policies available which offer broader coverage without requiring physical loss to property. Finally, some insurance carriers can also create custom manuscript coverage and endorsements based on the needs of your business.
New ISO Endorsements
ISO is a company that creates standardized policy language for the use of insurance companies, in addition to many other services. As a result of Coronavirus, ISO has released two optional endorsements for use with commercial property forms to provide limited business interruption coverage for circumstances related to the coronavirus. These endorsements have not been filed, and I am not aware of any insurance companies using them as of yet.
Disclaimer: This information is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own insurance broker or legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to me.
Hal Soden, Jr. is a Commercial Insurance & Risk Management Advisor at the Oliver L.E. Soden Agency Corp with offices in Jamesburg & Shrewsbury, NJ. For additional info contact 732-521-0001.