Business Insurance and Coronavirus: Are You Covered for Lost Income, Employee Illness?

March 16, 2020

coronavirus and business insurance implicationsDoes my business insurance cover losses due to coronavirus?

If you don’t have time to read this entire article, we can tell you up front that the answer is, unfortunately, probably no. But we think it’s important people understand why this is currently the case. (NOTE: there may end up being coverage, as we are already seeing some insureds and Massachusetts lawmakers engage with insurance companies on this point. More on this below.) We also want to express our willingness to support you, regardless of any current obstacles.

Finally, we want to stress that this is a fluid situation, with many unknowns still yet to be addressed. For now, here’s what we can say about business insurance and the coronavirus…

Does business insurance cover loss of income due to coronavirus?

In this case, the first question to ask is: does your business carry business interruption coverage?

As you probably know, business insurance comes in a variety of categories. Often these different categories—commercial auto insurance, property insurance, general liability, workers comp—can be bundled together into one program.

Business Interruption Insurance—a.k.a. (Loss of) Business Income Coverage—is a specific category of protection that can be added, but it doesn’t always come “standard.” So, you may have this coverage on your policy or you may not.

Yes, I do have business interruption insurance. Does this coverage address coronavirus?

As of right now, the answer appears to be: probably not.

Business interruption coverage is very specific about the types of suspending events that qualify for a claim. In most cases, the business disruption must be caused by “direct physical loss of or damage to property at the described premises.” In other words, this coverage is designed to step in when a fire, hurricane, or tornado physically incapacitates your operations or your supply chain.

A virus—even one as devastating and widespread as COVID-19—is not overtly a physically destructive force. Furthermore, most business income policies contain an exclusion applicable to viruses.

This seems unfair. Can we file a business insurance claim for coronavirus anyway?

You can certainly try. And we’re glad to help you in the effort. (Incidentally, one of our carriers recently sent out a memo related to the outbreak. It stated: If an insured believes they may have a claim related to COVID-19, please report it as per the terms of the policy.) However, in our opinion, your carrier will likely deny the claim. Why?

Experts at the Massachusetts Association of Insurance Agents (MAIA) cite various court cases in which insurance carriers denied business interruption claims brought on by non-physical events, like carbon monoxide leaks. In these cases, people got sick, the businesses were unable to stay open and/or pay wages, but carriers denied the claims because there was no direct physical loss.

Can the government step in to help?

Government involvement is not out of the question. A government action could address these specific business interruption exclusions.

Right now, for example, lawmakers in Massachusetts, Ohio, and New Jersey on working on a coronavirus bill. According to the National Law Review, if enacted, the Massachusetts bill would require insurers to approve claims for business interruption insurance, notwithstanding (a) any virus exclusions or (b) policy requirements that there also be property damage accompanying the business interruption.

Similarly, a court decision in favor of a company like yours could set a precedent that changes coverage interpretations, statewide. At present we are aware of at least one lawsuit that has been filed by a New Orleans restaurant against its insurance company. As per Law360, “the restaurant’s petition demonstrates one way a policyholder may seek coverage. It also sheds light on coverage battles to come…”

We’re keeping a close eye on these developments, and will certainly update our clients as any new information emerges.

Can I buy business insurance specifically for coronavirus?

In the near future new endorsements will come into play, designed to address medical outbreaks. In fact, the Insurance Services Office (ISO) recently created two business income endorsements as a specific response to the coronavirus.

Unfortunately, just as you can’t buy flood insurance when a major hurricane is in the forecast, you cannot buy pandemic coverage amidst a pandemic crisis.

What if the government imposes a total lockdown? Aren’t we covered against civil authority actions?

Here again, the MAIA has a lengthy explanation on this point, including language pulled directly from business owner policy (BOP) language. Essentially, the language says that business interruption coverage will pay for “extra expenses caused by action of civil authority that prohibits access to [your] premises…”

However, the extra expense coverage only applies if the civil action is taken in response to “dangerous physical conditions…” As we noted earlier, the question comes back to whether or not there is a direct physical loss. And with a virus like COVID-19, no such loss exists.

What about workers’ comp claims? If my employee(s) get(s) sick, could that be considered an on-the-job injury or illness?

Even if an employee contracts coronavirus at work, that fact alone is not enough to warrant a compensable workers’ comp claim. This comes according to Chris Boggs, Executive Director, “Big I University” of the Independent Insurance Agents and Brokers of America. Why?

Boggs explains that coronavirus is not “peculiar to the work” of most employees, and is therefore not “occupational.” If it is not an occupational illness, it is not covered under workers’ comp.

What do we mean by peculiar to the work? We mean: is the condition exclusive to a particular field or job role? For example, silicosis (a condition caused by inhaling silica dust) is prevalent among those who work in mining, glass manufacturing, masonry and foundry work.

Healthcare workers who contract coronavirus, however, might have a claim in that they are necessarily exposed to sick people as part of their job.

So, what now?

We understand that many of you are already experiencing significant losses as a result of the coronavirus outbreak. And although we’ve tried to answer FAQs in a general sense, we should emphasize that the exact forms, exclusions, terms and conditions of each business insurance policy vary.  It can’t hurt to review yours with your account manager. We can say with certainty that we are here to support you, and go to bat for your business. If you have questions or concerns, please call 508.339.2951.