In light of the uncertainty surrounding the possible duration of the close of business as usual, we recommend all of our clients take this time to review any and all insurance policies they have in relation to their businesses. The issue almost every business is dealing with is whether business interruption coverage is afforded under the terms of your policy in light of the coronavirus pandemic.
Most business interruption coverage is provided via a Commercial Property Insurance policy and is typically tied to “physical damage” to property. As such, the first hurdle will be whether the virus has caused/is considered “physical damage.” A good faith argument may be made that the virus has indeed caused physical damage to real property (i.e., the virus is sustained for a considerable amount of time on surfaces).
The next hurdle under most policies is whether there is an applicable Exclusion to policy's coverage. Many policies contain virus exclusions which appear to prevent coverage for:
(1) Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.
But, even if such an exclusion is in the policy there may be additional coverage for viruses, such as:
We will pay for the actual extra expense you incur due to a “communicable disease event” occurring at your premises. The extra expense must be a result of a “communicable disease event” that has taken place at a covered location. … A covered “communicable disease event” does not create, nor will it invoke coverage for the loss of Business Income, …
This language may suggest that business income coverage and coverage for a communicable disease event is mutually exclusive. However, in a different policy the opposite can be found:
If the Declarations show you have Business Income with Extra Expense Coverage, we will pay for the actual loss of business income, rental value, or necessary extra expense or expediting expense that you sustain due to the necessary full or partial suspension of operations during the period of restoration. The suspension must be caused by direct physical loss or damage caused by or resulting from a covered communicable disease event at the premises described in the Declarations.
The issue of whether you have coverage for business interruption or coverage for losses due to communicable disease will depend on the exact language of your policy. Indeed, some clients may have coverage under a Crisis Management Coverage Extension Endorsement which covers losses caused by suspension of operations, as a result of a “covered crisis event,” which requires closure of the covered premises. Others may have a stand alone business interruption policy.
The take away is that every client should be exploring their insurance policies in light of the coronavirus.
Lisa Maher and Ralph Wall discuss issues to look for in determining whether policies provide business interruption coverage for Coronavirus-related losses.
These are uncertain times, seemingly changing by the minute. Our team is monitoring government and insurance developments and will continue to look for the best options for our clients. We stand ready to assist you in any way we can with your insurance assessments and claims or with any other business needs you may have.
Stay healthy; together, we will get through this.