Does your insurance cover business losses due to Coronavirus? It’s complicated.
Update 3/20/2020—Business Interruption: Federal & State Activity
We have been hearing a great deal of frustration about the business interruption exclusion from viruses and communicable diseases. New Jersey legislators have proposed a law that would retroactively force insurers to cover Business Income loss for COVID-19 shut-downs. Even though the legislation made it through committee, it was tabled on the House floor and the Assembly then adjourned. We hear several other states are looking at similar measures.
Treasury Secretary Steven Mnuchin also recently characterized the upcoming $1 trillion stimulus package as a measure to compensate Americans and small businesses for “business interruption.” Full details of the package are still being negotiated, but we will continue to monitor this.
60 Day Grace Period - Insurance Commissioner Ricardo Lara issued a Notice yesterday requesting that all insurance companies provide their policyholders with at least a 60-day grace period to pay insurance premiums. The Commissioner made the request to ensure policies are not cancelled for nonpayment of premium due to the novel Coronavirus (COVID-19) public health emergency.
Please know we stand with you during these difficult and unprecedented times, and will do everything we can to be advocates for relief from the adverse impacts of this pandemic.
During these uncertain times, Wang Insurance is closely tracking the spread of the Coronavirus (COVID-19). We have been receiving a large volume of calls and emails from our clients about potential coverage. Governments are shutting down cities across the world to contain the outbreak. Workers are being urged to stay home to avoid contagion. These prophylactic and reactive governmental actions, as well as business decisions, are having a huge impact on businesses’ bottom lines.
Understanding your policy and coverage
The #1 question for our commercial clients now is — will business interruption insurance cover Coronavirus-related losses?
Broadly speaking*, business interruption insurance is part of a standard Business Owner’s Policy or Commercial Property policy. It covers loss of income suffered by a business as a result of disruption to their operations, so long as it is the direct result of a “covered cause of loss”. Most business interruption policies specifically require “physical damage,” such as fire or a windstorm. Coronavirus-related business losses are typically due to causes other than physical property damage – e.g., people are sheltering at home, which means they are often not producing goods or services or spending money. These causes of economic loss are not related to physical damage to insured property.
Why wouldn’t it be covered?
The insurance industry uses historical data to model and price coverage, and carriers decided they currently do not have enough information about pandemics to cover this risk. They exclude risks like pandemics when they determine it is too difficult to predict the probability and scope of damages. The cost of coverage for a pandemic would also likely be prohibitively expensive for most businesses.
In the interim, we strongly recommend mitigating your business risks. The CDC has provided Guidance for Businesses and Employers, which includes encouraging sick employees to stay home, emphasizing hand hygiene and respiratory etiquette, and performing routine environmental cleaning. California Governor Gavin Newsom has called for home isolation for all seniors, bars to close, and restaurants to limit capacity.~
Limited exceptions
Some courts have held that commercial property that becomes uninhabitable or unusable qualifies as having suffered the requisite physical loss, and depending on the specifics of the policy, could be covered.
Some policies provide coverage for interruptions resulting from a “civil authority” prohibiting access to the insured’s premises as a result of damage to other property caused by a covered loss. Seven Bay Area counties issued Shelter-In-Place orders and more governments are following suit. However, absent a direct physical loss or physical damage to the property, it’s unclear whether coverage would apply. In other words, an order issued to prevent the spread of a virus, and not due to actual physical loss or damage, may not trigger coverage.
Other policies contain endorsements for Food Contamination Business Interruption, which may provide business income coverage resulting from contamination by a virus where food has been contaminated by virus or bacteria transmitted through one or more of your employees.
Workers’ compensation claims continue to be reviewed individually by claims experts.
Reporting claims
If you feel impacted and think you may have a claim, we are here to help guide you through the process and partner with you to submit claims. Answers to questions about coverage related to the Coronavirus will be individualized to each policy, but we strongly recommend careful and thorough documentation of any losses you suffer. As in all cases of actual loss, coverage will be dependent on the specific facts and circumstances of the loss and the terms and conditions of your policy.
We will continue to monitor arguments from legal experts about how COVID-19 qualifies as physical damage or how some types of policy endorsements may apply.
We have a team handling emergency claims and service needs for our clients. You can continue to report claims to us through info@wangins.com or at 415-731-7062. We will continue to work with carriers to deliver the best possible response to our clients.
*Every commercial insurance policy has its own terms and conditions, and the contents of this blog should not be considered legal counsel.