Does Your Insurance Cover Business Losses Due to Coronavirus? It’s Complicated.
Update 3/20/2020—Business Interruption: Federal & State Activity
We've received numerous inquiries from business owners regarding the business interruption exclusion for viruses and communicable diseases. In New Jersey, legislators have proposed a law that would retroactively require insurers to cover business income losses related to COVID-19 shutdowns. Although the legislation passed through committee, it was tabled on the House floor before the Assembly adjourned. Other states are considering similar measures.
In addition, Treasury Secretary Steven Mnuchin recently described an upcoming $1 trillion stimulus package as a means to compensate Americans and small businesses for “business interruption.” While full details are still being negotiated, we’re continuing to monitor the developments.
60-Day Grace Period
Insurance Commissioner Ricardo Lara has issued a notice requesting that all insurance companies grant their policyholders at least a 60-day grace period to pay insurance premiums. This request aims to ensure that policies are not canceled for nonpayment due to the COVID-19 public health emergency.
During these challenging times, please know that we stand with you and are committed to advocating for relief from the impacts of this pandemic.
Understanding Your Coverage
As the Coronavirus (COVID-19) continues to affect businesses worldwide, many owners are reaching out to inquire about potential coverage for their losses. With cities shutting down and workers urged to stay home, the financial impact on businesses has been significant.
Will Business Interruption Insurance Cover COVID-19 Losses?
The primary question from our commercial clients is whether business interruption insurance will cover losses related to the Coronavirus. Generally speaking*, business interruption insurance is included in a standard Business Owner’s Policy or Commercial Property policy. This coverage is designed to compensate for income lost due to operational disruptions caused by a “covered cause of loss.”
However, most business interruption policies specifically require “physical damage” to trigger coverage, such as that caused by a fire or storm. COVID-19-related losses often stem from non-physical causes—like the reduction in consumer spending due to shelter-in-place orders—which do not qualify as physical damage to the insured property.
Why Might Coverage Be Denied?
The insurance industry relies on historical data to model and price coverage. Insurers have determined that they lack sufficient data to underwrite pandemic risks effectively. As a result, many exclude such risks from coverage, as predicting the likelihood and extent of damages is challenging. Additionally, offering pandemic coverage would likely lead to prohibitively high premiums for most businesses.
In the meantime, we recommend taking proactive steps to mitigate your business risks. The CDC provides guidance for businesses and employers, including encouraging sick employees to stay home, emphasizing hand hygiene, and performing routine cleaning.
Limited Exceptions
Some courts have found that commercial property rendered uninhabitable or unusable could qualify as having suffered physical loss, potentially making it eligible for coverage depending on the specifics of the policy.
Certain policies may also include coverage for interruptions caused by a “civil authority” order preventing access to the insured premises due to damage to other properties from a covered loss. With several Bay Area counties issuing shelter-in-place orders, it’s essential to note that unless there is direct physical loss or damage, coverage remains uncertain. In other words, an order aimed at virus prevention—not tied to actual property damage—may not activate coverage.
Some policies may contain endorsements for Food Contamination Business Interruption, which could provide coverage for income losses resulting from contamination by a virus linked to your employees.
Workers’ compensation claims are being assessed on a case-by-case basis by claims experts.
Reporting Claims
If you believe you are affected and may have a claim, we’re here to help you navigate the process and assist you in submitting claims. Coverage questions related to the Coronavirus will vary by policy, but we strongly advise thorough documentation of any losses incurred. As always, coverage will depend on the specific facts and circumstances of the loss as well as the terms of your policy.
We will continue to monitor discussions among legal experts regarding how COVID-19 may qualify as physical damage or how specific policy endorsements may apply.
Our team is dedicated to handling emergency claims and service needs for our clients. You can report claims to us at info@wangins.com or call us at 415-731-7062. We will work closely with carriers to ensure the best possible response for our clients.
*Please note that each commercial insurance policy has its own terms and conditions, and this blog should not be considered legal advice.