In light of the increasing urgency of social isolation as a result of the COVID-19 pandemic, we are fielding a large number of questions as to how business insurance coverage would respond. This is a particularly challenging time for businesses that rely on in-person interaction with their customers (restaurants, bars, hotels, property managers, etc.). Many of these businesses are facing prolonged closures, or periods of significantly reduced capacity, for example in the case of restaurants closing their dining rooms and only offering delivery or carry-out. What follows is general guidance on how coverage might respond. Each insurance company will evaluate each individual claim on its own facts and merits, and this article should not be intended to affirm or deny coverage.
If I have to close my business or operate at a greatly reduced capacity for a period of weeks, does my business interruption insurance cover that?
The business interruption coverage is found in the property policy, which has to be triggered by a direct physical loss at your premises (fire, tornado, etc.). Closing or reducing capacity due to a pandemic would not qualify as direct physical damage, so it is unlikely to be covered. Additionally, property and liability policies often have Virus and Bacteria exclusions. Insurance companies typically exclude these types of things because they’re difficult to underwrite, viruses are commonplace in society, and difficult to control.
What if the government forces the shutdown of my business?
There is coverage in some business income policies for loss of income from being unable to access your premises as a result of action by a civil authority. There still needs to be property damage as the trigger; the civil authority (city government, fire department, police, etc.) has to restrict access to your premises due to a direct physical loss away from your premises. Example: power station transformer explodes, and all of the businesses within a one mile radius are not allowed to access their buildings. The governor banning gatherings of more than 10 people would likely not qualify as a loss under the policy language.
Are there endorsements for infectious diseases and pandemics?
While it’s true that traditional business interruption insurance policies may not extend to losses that arise from a health crisis or pandemic, specialized coverage forms have been developed by the Insurance Services Office (ISO), but we do not yet know if or when insurance companies will adopt them:
Communicable and infectious diseases coverage for hospitality and health care operations—Businesses in the hospitality or health care industry can secure dedicated coverage or endorsements for losses caused by communicable or infectious diseases. One benefit of this coverage is that a direct physical loss is generally not required for the policy to go into effect.
Pandemic-specific coverage—While past health crises, like the Ebola outbreak, led some insurers to exclude coverage for pandemics, others created specialized business interruption policies. These policies were created for operations like hospitals, hotels, airports, shopping centers, restaurants, theaters, gyms and other establishments that may have to close their doors as the result of a pandemic. While many of these policies were created specifically for Ebola, similar coverage may be available for COVID-19.
Availability of these forms of coverage will depend largely on the carrier and the insured. That said, it’s important to review your coverage with your insurance professional.
What if my employees get COVID-19?
From a worker’s compensation standpoint, it would have to be shown that getting sick from the virus arose from the course and scope of work and out of conditions specific to the work that you do. It would be difficult to prove that contracting the virus was specific to your work environment. Please read this blog for further information on worker’s compensation and COVID-19: https://www.hausmann-johnson.com/blog/covid-19-workers-compensation-how-does-that-work
What else can I do?
Keep detailed records of your loss of income and ongoing expenses. While it doesn’t appear there is any coverage for loss of income due to the coronavirus, this is a very fluid situation and government intervention or other factors may change this. We are not making any predictions, but keeping detailed records now will only help you later on. Follow CDC guidelines (https://www.cdc.gov/coronavirus/2019-nCoV/index.html) regarding preparedness in the outbreak. Speak to your insurance agent about possibly adjusting the exposures that your insurance premiums are rated on, such as payrolls and sales for potential premium savings to improve cash flow during this difficult time.
Keep up to date at our COVID-19 resource page here: https://www.hausmann-johnson.com/en/covid-19-resources-page