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Covid-19 and your Business Insurance

By March 15, 2020June 4th, 2020Business Insurance

Does my insurance policy provide coverage for the Corona Virus (covid-19)?

This is a dry, technical article.  I apologize in advance.

What most business owners really want to know is’ “Will my property policy provide Business Income coverage for covid-19 related losses?”.  Since that’s the elephant in the room, we’ll address that first, then move onto other lines.  Oh and and the end of the blog we address whether you should submit a claim or not.

Business Income

So, does my policy provide loss of income from Covid-19?

The short answer is no, probably not.  Keep reading.

Let’s start at the beginning of the property policy.  Business Income coverage is in fact a property coverage.

Section I – Property

A. Coverage

We will pay for direct physical loss or damage to Coverage Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.

There are 2 main hurdles I want to address.  The first issue is, “We will pay for direct physical loss of or damage to…”.

If we’re looking for Business Income coverage for a Corona Virus related loss, we need to first ask, “was there direct physical damage?”.  In most scenarios I can picture, that’s a no.

Let’s apply the direct physical damage test to a couple scenarios.

  1. Government ordered quarantine stops all sales at a hair salon.
  2. Customers are leery to leave their homes, so a restaurant’s sales suffer.

In both instances if we apply the direct physical damage test, we come up short.  No coverage provided.

The second problem I see in the policy language is, “caused by of resulting from a covered cause of loss”.

There will be differences in policy language.  For the purpose of this blog, I’m using an ISO BOP form with special perils.  That means unless a claim is specifically excluded, coverage will apply.  Here’s the main exclusion that I believe will cause coverage to be denied.  And this endorsement or its equivalent is attached to most property policies.

Exclusion of Loss Due to Virus of Bacteria

A. The exclusion set forth in Paragraph B. applies to all coverage under the Section I- Property in all forms and endorsements that comprise this Businessowners Policy, except as provided in Paragraph C.  This includes but is not limited to … forms or endorsements that cover business income, extra expense or action of civil authority.

B. We will not pay for loss or damage caused by or resulting from any virus, bacterium or other micro-organism…

Unfortunately, this language is pretty clear.  It excludes all property losses (including business income coverage) stemming from Covid-19.

There are other exclusions that may apply.  I’m trying to keep this under 10,000 words, so I’m just hitting some pertinent and interesting points (interesting is subjective).

Consequential Losses Exclusion

B. Exclusions

2. We will not pay for loss or damage caused directly or indirectly by any of the following:

b. Consequential Losses

Delay, loss of use or loss of market.

Truth be told, I’ve never given this exclusion a whole lot of consideration.  Our agency is in Pittsburgh and we’re fortunate to be largely insulated from disasters.

To explain Loss of Market, let’s use a hurricane as an example.  You may not be directly struck by a hurricane, but what if your customer base is?  Now you have no customers (market) to buy your product or use your service.  We’re in uncharted territory here, but I believe this exclusion may apply to Covid related losses.  This will be tested in court.  By the way, I’m not a lawyer so take my opinion with a grain of salt.

Civil Authority

When I started getting Corona calls, this is one provision in the policy I read right away.  This clause isn’t an exclusion, it adds coverage.

5. Additional Coverages

i. Civil Authority

We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss.

Before reading, I was hopeful that this would provide some coverage to my clients.  However, we run into the same issues described above.  There must be direct physical damage and it must be caused by a covered cause of loss.  So again, unfortunately I don’t believe this will provide any Business Income coverage.

Business Income from Dependent Properties

Let’s look at this a different way.  What if you aren’t dealing directly with the public?  In theory you can continue operations as normal.  We’ll use an auto parts manufacturer as an example.  Now let’s say your operations are interrupted because your steel supplier is shut down due to a government ordered quarantine.

m. Business Income From Dependent Properties

(1) We will pay for the actual loss of Business Income you sustain due to physical loss or damage at the premises of a dependent property caused or resulting from any Covered Cause of Loss.

You’ll start to see a pattern emerging.  Again, your supplier would need to sustain a direct physical loss and the loss would have to be from a covered peril. So once again, it doesn’t look like coverage would apply.

Believe me, I don’t like telling people that coverage doesn’t apply.

So, keep in mind this is BOP language.  Your policy language may differ slightly.  You may have coverage.  Also, the specific scenario that you’re in may have coverage afforded in a way I’m not addressing right now.  The only way to tell for certain is to turn in a claim and let the insurance company investigate.  That is their function.

Let’s talk about some other lines of business that may provide some coverage.

General Liability

The standard general liability language on a BOP is very broad.

A. Coverages

1.Business Liability

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury”, “property damage” or “personal and advertising injury” to which this insurance applies.  We will have the right and duty to defend the insured against any “suit” seeking those damages…

I think a practical example of a liability claim would be a restaurant worker unknowingly spreads covid-19 to patrons.  There may be some question as to how a claimant would prove they contracted the virus from your employee, but that’s for the courts to figure out.  The important thing to note is that the insurance company has the right and duty to defend.

I think most policies would end up paying this type of claim, but there will definitely be exclusions in some as well.  Read your policy carefully.

It’s important to note that general liability coverage will not apply to your employees.  Which brings us to:

Workers Compensation

If an employee contracts Corona at work, there is a good likelihood that coverage will apply.  But keep in mind, Covid must be contracted in the course and scope of work.

That means that simply being at work isn’t enough to trigger a claim. A nurse treating a patient would almost certainly be in the course of and scope of employment.

However, a delivery driver grabbing a bite to eat while on the clock and is exposed wasn’t ‘injured’ within the scope of their employment.

In either case, turn in the claim and let the insurance carrier figure it out.

Can I Buy Coverage Business Interruption Coverage for Covid-19?

We are unaware of any companies offering a product that specifically addresses business income coverage for epidemic or pandemic.

The bottom line is that the impact of Covid-19 is unprecedented in the US.  And we really don’t know where this is going.  Insurance carriers are unlikely to offer coverage for widescale financial disruption.  If coverage was provided by a standard policy, an event like this could disrupt or bankrupt the entire insurance system.

Should I Submit a Claim for Loss of Income?

And after all is said and done, we are not advising customers not to turn in a claim (double negative).  Again, there may be coverage hidden in the language.  Also even if your claim is denied, it may position you to receive government assistance for affected businesses

You have to read your policy.  I know it’s dry and difficult to understand, but it’s important.

Your policy may have language that provides coverage.  If after reading you feel that you have grounds for a claim, then by all means, submit a claim.

We’re in uncharted territory here.


Otherwise, wash your hands, take care of your family and hopefully in a few weeks we’ll all be able to look back and say, “that could have been worse”.


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