The COVID-19 coronavirus has wreaked havoc on businesses across the United States.
Many businesses expect to receive business interruption coverage with an insurance claim. Insurance companies, however, aren’t sure they are obligated to cover these claims.
Nobody knows what will happen with each specific claim filed. COVID-19 business interruption coverage is going to be a contentious issue. Each unique claim will likely be won or lost in court. Some cases could last years.
Insurers are in unfamiliar territory. They have never dealt with a global pandemic like this. Some insurance contracts have wording specific to global pandemics, while other contracts do not.
Business owners are also confused. They bought business interruption coverage for situations like this. An unexpected event has caused the closure of their business. They expect to receive compensation.
The issue is complicated. It’s also changing daily. We’ve summarized the most up-to-date information on COVID-19 and business interruption coverage below.
Does a Normal Business Insurance Policy Cover Coronavirus?
Does an ordinary policy cover the COVID-19 coronavirus or any other global pandemic?
It’s possible your insurance policy contract will cover coronavirus. It’s also very possible your insurer will argue against covering the claim.
The two most relevant business insurance policy coverages that could apply are Business Interruption and Event Cancellation coverage.
Business Interruption and COVID-19
Business interruption covers loss of profits and increased costs of working. Business interruption coverage is a part of property insurance coverage that can be added to business or commercial policies.
The COVID-19 coronavirus is causing a reduction of income and increase in costs for businesses. Businesses are struggling to cope with containment measures, supply chain disruption, and the mass absence of employees and customers.
However, these factors may not trigger business interruption coverage. Typically, business interruption coverage is triggered by a covered loss – like fire damage.
What Triggers Business Interruption Coverage?
A normal property insurance policy triggers business interruption coverage when covered property damage has occurred.
If your business burns down, for example, or sustains major water damage, then you would receive business interruption coverage while repairs are completed.
This trigger may not apply to today’s circumstances. Your business has not sustained any property damage.
Because of this restriction, policyholders need to examine any business interruption extensions available on their policy. They also need to check for standalone contingent business interruption coverage.
Some policies, for example, have specific infectious disease coverage as an extension, in which case you could be covered for business interruption caused by the COVID-19 coronavirus.
Other policies have extensions regarding suppliers and customers, denial of access, and loss of attraction. Based on the specific wording of these terms, you may or may not receive business interruption coverage for the COVID-19 coronavirus.
Infectious Disease Coverage Does Not Guarantee Coronavirus Coverage
Your business interruption policy might have wording for infectious diseases. However, that doesn’t necessarily mean you’re covered against the COVID-19 coronavirus.
Some policies provide cover for losses caused by any “notifiable” disease. This is an important distinction. Some jurisdictions have declared COVID-19 a notifiable disease, while others have not. The date on which the disease is declared a notifiable disease will also matter.
As pointed out by Fenchurch Law, we first saw the “notifiable” disease issue during the SARs pandemic:
“A decision of the Hong Kong Court of Appeal in the aftermath of the SARS pandemic established that such a clause had the result of reducing the amount of loss covered in two ways. First, losses suffered before the date on which the disease became notifiable were not covered. The decision of a competent authority to make the disease notifiable did not act retrospectively. Secondly, the starting point for establishing the amount of profit lost was the period after the advent of the disease, but before the disease became notifiable, not the period before the first incidence of the disease.”
In other words, your business insurance could cover any losses after the COVID-19 coronavirus became notifiable – but it won’t cover any losses before that date.
The Centers for Disease Control and Prevention (CDC) maintains the National Notifiable Diseases Surveillance System (NNDSS), which lists all notifiable conditions in the country. The list includes anthrax, botulism, cancer, and syphilis, among dozens of other notifiable diseases.
The list also includes severe acute respiratory syndrome-associated coronavirus disease (SARS), which was added to the list in 2003.
COVID-19 became notifiable in England on March 5, 2020. Most other countries declared it a notifiable condition in late February or March 2020.
As of April 12, 2020, the COVID-19 coronavirus is not specifically listed on the CDC’s National Notifiable Conditions database, which could make insurance claims complicated.
Some Policies Exclude Certain Diseases
Some policies have broad coverage for notifiable diseases but have exclusions for certain diseases.
It’s unlikely your insurance policy specifically excludes COVID-19 or coronavirus. However, your policy could include catch-all language like “any mutant variant thereof”.
Some policies have exclusions for “SARS or atypical pneumonia or any mutant variant thereof”, for example, which could mean that COVID-19 is excluded. Atypical pneumonia itself is a form of coronavirus.
Medical professionals could decide this exclusion. When medical professionals categorize or define the COVID-19 virus, they could play a significant role in COVID-19 insurance claims.
How a Hurricane Katrina Hotel Case Could Impact Coronavirus Business Interruption Claims
To fight back against COVID-19 insurance claims, some insurers could reference a business interruption precedent established in 2010.
After Hurricane Katrina in 2005, a hotel company in New Orleans called Orient Express sued its insurance company to recover lost profits via business interruption coverage (Orient-Express Hotels v. Generali).
The insurance company argued that there was “wide area damage” to the region. Because of this wide area damage, the insurer did not have to pay business interruption insurance.
Here’s the idea behind wide area damage: Even if the hotel had been able to continue operating, it would have had no customers because of wide area damage.
Business interruption coronavirus cases will come down to causation. Did the business shutdown due to mandatory orders from a public authority? Would customers have visited the business if the business had stayed open? These questions need to be answered for future COVID-19 business interruption claims.
Event Cancellation Coverage and COVID-19
Some businesses may also make a COVID-19 claim through their event cancellation coverage. Business interruption coverage may be unavailable. Or, it may not be sufficient to cover losses.
In certain industries, it’s possible that event cancellation coverage could cover COVID-19 coronavirus losses.
Event cancellation coverage protects policyholders against losses caused by the cancellation of a specific event as a result of one of a long list of specified perils (or for any cause not specifically excluded).
If event cancellation coverage is triggered, then the insurer is required to compensate the business for any lost profits or increased costs as a result of the cancellation.
What Triggers Event Cancellation Coverage?
Insurance policies approach event cancellation coverage in two ways:
Everything Except Exclusions: The policy excludes certain things from triggering event cancellation coverage, but all other things are covered. This is referred to as All-Risk or Open Perils coverage.
Nothing Except Inclusions: The policy excludes everything except what is specifically listed. Your event cancellation policy is only triggered if a listed event occurs. This is referred to as Named Perils coverage.
Some event cancellation policies will contain specific wording – either an inclusion or exclusion – for cancellations caused by infectious diseases. Policies that contain infectious disease wording may extend coverage to an outbreak on the insured premises or within a specified radius. Some policies also specifically exclude (or include) pandemics.
Some event cancellation policies also refer to notifiable diseases. As mentioned above, your insurance policy may only cover damages after a disease becomes notifiable. Depending on your jurisdiction, the date that COVID-19 became notifiable will vary widely.
Mandatory Versus Voluntary Cancellation
If you file a claim through event cancellation coverage, then your insurer may check if your cancellation was voluntary or mandatory.
Insurers may argue that the cancellation of the event was not “necessary” or “unavoidable”, for example, because you were not specifically directed to cancel the event by a competent authority.
If you cancelled an event because of low ticket sales caused by COVID-19, for example, then you may not receive event cancellation coverage. However, if you cancelled an event because your city banned all gatherings over 10 people until June 30, then you may receive event cancellation coverage.
What Else Do I Need to Know About Business Insurance and COVID-19?
Many other factors could apply to your COVID-19 business insurance claim. Here are some things to consider.
Determining a Cause of Loss
Most business income and business property coverages depend on the cause of loss. A covered cause of loss typically means “direct physical loss” unless otherwise limited or excluded.
Scyld Anderson of Property Casualty 360 believes government-mandated closure is not considered direct physical loss:
“In my opinion, government-mandated closure is not direct physical loss. Furthermore, CP 10 30 excludes losses resulting from the enforcement of any ordinance or law regulating the “use” of any property. It also excludes damage resulting from “delay, loss of use and loss of market.”
However, businesses could argue that the virus has caused direct physical loss in the form of contamination. If the virus is actually present on the property, then there could be direct physical loss. The virus has physically contaminated the property, leading to direct physical loss.
Some policies exclude damages caused by “fungus”, “bacteria” and “wet rot”. These terms should not exclude the COVID-19 coronavirus. However, if the policy excludes “viruses”, then the policy could exclude COVID-19.
COVID-19 Liability Coverage
Many business owners are also concerned about liability coverage. Your liability insurance covers damages that the legally insured becomes obligated to pay as the result of an “occurrence”.
Occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same harmful condition”.
The Supreme Court of Ohio has held that an accident is “unexpected” and “unintended”. Insurers, meanwhile, are not required to pay damages resulting from normal, frequent, or predictable consequences of doing business, or events that businesses can control and manage.
It could be argued that coronavirus infections are the result of “continuous or repeated exposure”. This language was developed for situations like pollution or asbestos, where long-term exposure over time leads to health issues.
Could a grocery store be liable for an employee’s COVID-19 infection because the employee faced continuous or repeated exposure? These questions need to be answered.
Businesses could also face liability for negligent failure to disinfect. Someone might face bodily injury after receiving an infection from the business.
Some policies are endorsed with limitations for damage or injury caused by fungi or bacteria. Some policies have general exclusions for “biological pathogens”.
Other exclusions could also apply to liability cases. There could be exclusions for damage pertaining to impaired property, for example. Impaired property is tangible property that is not physically injured, but that is less useful because the insured failed to fulfill the terms of the contract or agreement.
Final Word: What to Expect from your COVID-19 Business Interruption Claim
Business interruption claims related to the COVID-19 coronavirus are going to get complicated.
Businesses are facing enormous losses from the COVID-19 coronavirus. Some business insurance policies will cover these losses – either through business interruption or event cancellation coverage. Other business insurance policies specifically exclude these losses.
Insurers will argue in favor of limiting their payouts. They will cite rulings from the SARS outbreak, Hurricane Katrina, and other widespread catastrophe situations.
Nobody knows what will happen with all the future COVID-19 coronavirus business interruption claims. Some businesses should receive full coverage, while other businesses may receive nothing.
If your insurer is pushing back against your COVID-19 coronavirus claim, then contacting an experienced insurance attorney might be your best option.