Coronavirus Business Interruption Losses – Do We Have Insurance For That?

March 16, 2020 Published Article

Regardless of what kind of business you operate - a restaurant, a dry cleaning business, a real estate development company, a staffing business, etc. - the COVID-19 virus and the reactions to it pose a substantial threat to your revenue and your bottom line. Between flight cancellations, shelter in place orders, customers isolating themselves, transportation issues, and the steps you and your vendors take to protect your employees, many businesses face declining revenues as a direct result.

Does your business have Coronavirus insurance protections?

Here’s a quick primer on insurance offerings:

  • Business interruption insurance. Many property insurance policies contain a business interruption component. After the financial impacts of other viral epidemics (particularly SARS back in the early 2000s), however, insurers clamped down on the extent to which they will provide coverage. Most policies now require there to be some form of “direct physical loss of or damage” to your commercial property; depending on your policy language, courts may be open to the argument that property rendered uninhabitable by viral contamination may qualify.

Your policy language is critical. A limited number of policies expressly provide coverage (usually with a sub-limit) for losses resulting from “communicable or infection diseases” even in the absence of physical damage to your property. Your odds of coverage may also increase if your business is affected by a government (“civil authority”) ordered shut-down of some kind. Some policies provide business interruption coverage where the problems are caused by a disruption to your key suppliers or even your customers. For example, if you run a restaurant but are unable to obtain necessary groceries due to a covered cause of loss impacting your supplier’s property, you may be able to recover.

  • Contingent business interruption coverage. This kind of coverage (CBI), if added to your existing policy or purchased on its own, could include loss of revenue you experience due to customer disruptions, the need to clean and sanitize, and other losses.
  • Riders for communicable disease coverage.  Infrequently, we see riders on policies that apply to losses due to communicable disease. These riders tend to have specific limitations in the form of specified trigger events and other limitations on the amount of recovery.
  • Pollution policies. If you have first party pollution policies, they are also worth a look. Many pollution policies have limitations on communicable diseases, but some do not and some may phrase the exclusions on “bacteria” instead of “virus.” First party pollution policies that provide business interruption coverage for “releases” and “exposures” to “toxics” may be susceptible to arguments in favor of coverage.

Ultimately, how the COVID-19 virus affects your business could take many forms. Third party claims could arise, whether bogus or otherwise, that could make your liability policies relevant, say if your business is a property management company and there are exposures on an apartment complex you run. On-the-job exposures could lead to workers’ compensation insurance issues.