Are Business Losses Arising From Coronavirus (COVID-19) Covered by Insurance?

The answer to this question is that it depends on your policy.  Commercial General Liability coverage would not typically cover the types of losses caused by an epidemic or a pandemic.  However, a business can insure against business losses by purchasing Business Interruption coverage, Contingent Business Interruption coverage or Civil Authority coverage.  Careful review of the policy, endorsements and exclusions will determine whether a claim for business loss due to Coronavirus is covered.  Some of the coverages in commercial policies that may compensate a business for its losses are as follows:

Business Interruption Coverage

Business Interruption coverage generally insures for interruption to your business as a result of direct property damage to the insured real property.  An example of a typical Business Interruption insuring provision is as follows:

This policy insures against loss resulting directly from necessary interruption of business caused by physical loss or damage by peril not otherwise excluded herein to insured property of the Insured, all subject to the terms and conditions of the policy.

This insuring provision requires the loss be caused by “physical loss or damage by peril”.  Although the triggering of Business Interruption coverage generally requires physical loss, this insuring provision is a good example of why a careful reading of the policy is necessary.  This particular insuring provision may also cover business interruption caused by damage by peril, which depending on definitions and exclusions may cover economic losses from a virus.

Contingent Business Interruption Coverage

Contingent Business Interruption coverage generally insures for losses incurred due a disruption in the supply chain.  Some insuring provisions require actual physical loss to property at the supplier’s premises and some do not.  Depending on the language of the policy, the inability of a supplier to provide product due to Coronavirus may result in a covered claim.

Civil Authority Coverage

Civil Authority coverage insures for losses suffered due to a state, county or municipality ordered closure.  This type of coverage is usually limited for a very short duration as most government closures are for a short period of time.  However, Italy ordered closures of all schools and universities for two weeks and recently ordered the closure of all museums. The US issued orders prohibiting travel for all military and civilians on US Bases in South Korea.  Generally, Civil Authority coverage requires the insured premises to be closed due to some order but the language of the insuring provision is critical.  Civil Authority coverage may cover business loss as well as other losses.  An example of a Civil Authority insuring provision is as follows:

Interruption by Civil Authority.  This policy is extended to include the actual loss as covered hereunder, during the period of time, not exceeding 2 consecutive weeks, when as a direct result of the peril(s) insured against, access to the premises described is prohibited by order of civil authority.

Exclusions

The Insurance Industry is always evaluating risk and continually revising coverages to ensure that it limits unintended risk by covering damages that were not initially foreseen.  As a result of the SARS epidemic and other events, many policies were revised to contain an exclusion intended to exclude damage caused by illness from coverage.  However, not all policies contain such an exclusion.  An example of a clause excluding coverage for illness is as follows:

The actual or suspected presence of any virus organism or like substance that is capable of inducing disease, illness, physical distress or death, whether  infectious or otherwise, including but not limited to any epidemic, pandemic, influenza, plague, SARS, or Avian Flu.

Non-Physical Damage Business Interruption Coverage

As insurance exclusions evolve, so do coverages.  The industry is promoting Non-physical damage business interruption (NDBI) coverage, which may or may not be available depending on industry and location.  This coverage is promoted as an additional endorsement to cover political risks, cyber-attacks, losses due to epidemic, economic losses due to acts of God and any other losses that may not be covered by Business Interruption, Contingent Business Interruption or Civil Authority Coverages.

All of the types of coverage listed above generally pay losses as incurred.  This means that if your business is interrupted for six months you generally wouldn’t have to wait until you reopen to receive your check for business loss.  Such payments are generally paid periodically and are usually estimated from records of prior revenue and/or profit.

Is Your Business Loss From Coronavirus (COVID-19) Covered?

In conclusion, insurance coverage can be complicated.  It is important to analyze your policy to determine what type of coverage your business has purchased and whether any of the coverages contained in your policy may cover business loss or payroll for the timeframe in which your business is not operational.  Commercial policies are often non-standard policies so the coverage purchased can vary significantly from one business to another.