As the COVID-19 virus outbreak spreads throughout the U.S. and the rest of the world, one question many businesses have is: Do we have any form of insurance that might help us weather this severe disruption/interruption to our business?
A little background
For more than 100 years, business interruption coverage has been an important component of most commercial coverage insurance programs for many companies. This specialized form of “first-party” insurance is designed to cover the loss of income arising from the inability to continue the normal operations and functions of a company due to a disaster. Traditionally, some type of physical damage to the company’s property was required to trigger business interruption coverage. The physical damage requirement was further limited to covered locations and covered perils. Intuitive covered perils that cause physical property damage include hurricanes, fires, explosions, etc.
Why it is important
Year after year, business interruption is identified as the insurable risk most concerning to the executives responsible for managing risk within their companies.
What is happening today
Today, among the growing problems surrounding COVID-19, is the ever-growing scope and length in time of disruptions to business activity and daily life. Supply chain disruptions, mandatory or voluntary quarantines, restricted travel, and “social distancing” measures are increasing every day in the United States and around the world.
These disruptions naturally lead to reduced, or even eliminated, revenues and profits. The disruptions will affect virtually every business from small neighborhood restaurants and bars to multi-location companies with world-wide operations. The impacts will be felt upstream and downstream as suppliers, vendors, contractors, service providers and customers / clients experience disruption and the inevitable financial losses.
As mentioned above, traditional business interruption coverage is triggered by some form of physical damage. In the context of COVID-19, the requirement for physical damage causes problems of proof for many policyholders.
A generic application of this concept would require that the COVID-19 virus physically damages or contaminates the property of the insured, or that of the insured’s customer or supplier in the case of Contingent Business Interruption coverage. If direct physical loss or damage is required to trigger coverage, insurance adjusters and the U.S. courts generally deny coverage if it is not visually or mechanically apparent.
There are always exceptions
For instance, what if your business location has had visitors or employees affected by COVID-19– has your property been damaged? That challenge has already been established when a New Orleans restaurant filed suit against its insurer claiming that losses caused by government-ordered closures due to the COVID-19 are covered losses.
Some insurance policies include coverage for losses arising from civil authority orders that restrict or prohibit access to property. These policies may or may not require a physical loss. Other specialized policies that are common in the health care or hospitality industries may include coverage for “communicable and infectious diseases” as a designated peril or trigger. Another trigger in some policies may include “loss of attraction,” In the case of COVID-19, a loss of attraction could be related to the discovery of contamination in a venue and ongoing anxiety from patrons as to whether it is safe to return.
COVID-19 will not trigger coverage for most insureds
The trigger for coverage in most policies is often limited to local government orders rather than a general announcement by the World Health Organization of a worldwide pandemic. Additionally, most businesses are suspending operations based on voluntary policies of social distancing and other mitigating efforts being made to contain or minimize the spread of the virus.
Finally, it should also be noted that many policies, and insurance forms, specifically exclude coverage for losses caused by quarantinable disease, or by “contaminants” defined with sufficient breadth to include viruses such as COVID-19.
What you should do
For most policyholders, the prospect of finding coverage to address losses caused due to the COVID-19 virus appears to be somewhat limited. However, the bottom line for all companies should be to:
- Obtain your policies
- Read them carefully
- Confirm that there are no specifically excluded perils
- Look for any coverages that may be applicable to financial losses caused by the COVID-19 outbreak
How Wipfli can help
No business is immune from disruptions, whether natural disasters, industrial catastrophes, or other business interruptions. Getting past the rebuilding and business reestablishment part is hard enough by itself. In addition, having to maneuver through the insurance claim preparation and settlement process to obtain your fair settlement can be a serious challenge.
Wipfli can help. We can assist insured parties in preparing business interruption, property damage, and fidelity claims. We can work solely on providing claim preparation advice. Or we can take you through the entire process, from identification of loss exposure through actual claim quantification and preparation and final settlement negotiations.
With Wipfli, you will benefit from the use of dedicated professionals in business insurance consulting. We are committed to providing the highest-quality service that only the experienced can offer.