The most frequently asked question we’ve received over the last couple of weeks is- Will Business Interruption Insurance Cover Coronavirus?
As a small business owner myself, I completely understand this question. An unexpected closure would certainly create a hardship for our agency and the employees who depend on us for their livelihood.
Sadly, the answer to this question for most businesses is usually, “No”. However coverage will depend on your individual circumstances, as well as the contract language of your policy. Coverage and policy wording can vary dramatically, so it is important that you consult with our agency or your own insurance agent/broker to review.
What is Business Interruption Coverage?
Business Interruption Coverage (also known as Business Income) is a type of insurance that covers the loss of income that a business suffers after a covered loss.
Business Interruption is a type of “Property” coverage. Generally speaking, in order for this type of coverage to come into play there must be a “direct physical loss or damage” to covered property. Examples include a fire, tornado or other weather related events to name a few. The Coronavirus would not constitute physical damage to property, so it is unlikely that coverage will apply.
What about Civil Authority Coverage (The Government Is Mandating We Close)?
Civil Authority coverage is designed to protect businesses when the government orders a closure or restricts access to your premises as is the case with restaurants and bars in Ohio and other states who were ordered to close last night. Unfortunately, many policies still require that the government order stem from a “direct physical loss” or damage to property, so the issues discussed above apply here as well. There are cases where this can be customized to include communicable diseases, but it is rare and usually found through specialized carriers.
Are There Other Coverage Options?
Some carriers will include endorsements providing limited coverage for lost income from diseases that occur at your business location. For instance, restaurants can sometimes add endorsements for losses resulting from a communicable disease that was transmitted by you or your employees. Coverage can include costs to regain customers, as well as coverage for environmental clean-up and government fines. Whether or not this will cover the Coronavirus will be up to the interpretation of the carriers.
For larger businesses, there are standalone infectious disease policies available which offer broader coverage without requiring physical loss to property but we do not typically see these in our market.
And finally, some businesses may have Supply Chain Insurance which covers a loss in income from a disrupted supply chain. Unlike traditional Business Interruption, Supply Chain Insurance does not require any losses to physical property.
An Unprecedented Time
I’ve heard the word “unprecedented” more times than I can count this last week and it’s accurate. Issues related to the Coronavirus are unfolding every hour and it’s difficult to anticipate how insurance carriers will handle these claims. We are encouraging our clients to keep careful track of any lost business income and the impact the Coronavirus is having on your business.
We’re also watching very closely some legislation that has been introduced in New Jersey that may require insurance companies to pay these claims. For more information, https://www.assemblydems.com/coughlin-bramnick-announce-legislation-policy-initiatives-in-response-to-coronavirus-pandemic/
Disclaimer: This information is not intended to constitute legal or professional advice and should not be relied upon in lieu of consultation with your own insurance broker or attorney. Please do not hesitate to reach out to our office with any questions or a full policy review. While our offices are closed to foot traffic, we are conducting reviews via phone and video conference.