COVID-19, better known as the Coronavirus, originated in Wuhan, China. According to the Centers for Disease Control (CDC), the Coronavirus is thought to be transmitted person-to-person through “respiratory droplets produced when an infected person coughs or sneezes … these droplets can land in the mouths or noses of people … or possibly be inhaled into the lungs.”
Major operations have slowed or even ceased operations, travel is at a bare minimum, and supply chains are severely disrupted in many industries. In reality, the ultimate global economic impact of this virus will remain unknown for many months after the danger and fear have passed.
ASZ continues to receive calls and emails nearly every day regarding the insurance implications of this virus, and the most common question relates to business income, specifically: “Is there business income coverage if a governmental authority (civil authority) requires businesses to close?”
Before business income responds there must be damage to property leading to the cessation of a business. This requirement applies to business income dependent property losses (supply chain) and civil authority losses covered by business income policies. Additionally, there is a specific property exclusion applicable to viruses that may (generally will) apply. This is true of “standard” business income forms; there may be some proprietary forms that respond, but these are rare.
In response to the Coronavirus, and because many, if not all policies contain a virus exclusion, the Insurance Services Office (ISO) created two business income endorsements as a specific response to the Coronavirus:
- Business Interruption: Limited Coverage For Certain Civil Authority Orders Relating To Coronavirus ─ Edition February, 2020; and
- Business Interruption: Limited Coverage For Certain Civil Authority Orders Relating To Coronavirus (Including Orders Restricting Some Modes Of Public Transportation) ─ Edition February, 2020
Coverage provided by both endorsements:
- Begins immediately upon suspension of the insured’s operations (there is no waiting period).
- Extends for the time period specified in the schedule.
- Is provided on an annual aggregate basis limited to the amount stated in the Schedule.
- Provide limited coverage when/if there is a suspension of operations due to closure or quarantine at the insured location ordered by a civil authority attempting to avoid or limit the spread of infection by a Coronavirus.
- Extend dependent property coverage (contingent business income) for named locations, if the policy includes dependent property coverage, when there is an interruption in the insured’s business due to closure or quarantine to avoid or limit the spread of infection by a Coronavirus ordered by a civil authority at the dependent property.
- Apply to income loss suffered by insureds operating from a vehicle or mobile equipment, if the policy is endorsed to recognize such vehicle-based operation.
Lastly, both endorsements specifically exclude:
- Intentional action by any person, group, organization or sovereign state to introduce or spread the virus;
- Costs to clean, disinfect, dispose of or replace any property;
- Costs to disinfect or dispose of any bodily fluids or waste materials;
- Costs of testing for or monitoring the presence or absence of the virus;
- Loss or expense due to fear of contagion, e.g., when customers, tenants or vendors avoid a part of the insured’s premises not under quarantine;
- Loss or expense related to absence of infected workers or those suspected of being infected; and
- Any fines or penalties.
Even BI policies with a pandemic endorsement(s) are being reviewed by carriers at this time due to other exclusions in those policies that may prohibit coverage for COVID-19. The mandated closure of businesses has not yet altered the coverage position set forth by these policies.
In order to put your business in the best possible position ahead of a decision about a BI claim, adhere to the following best practices.
Document and report claims immediately. Without ample notice and prompt filing, coverage will likely be denied. There is no downside to filing claims as soon as possible. Doing so ensures that your business will be in the right place when applicability of BI coverage claims are resolved.
Provide comprehensive details surrounding each claim. File each claim with as much detail as possible to ensure thorough review of your coverage and unique scenario by the carrier.
Record each individual claim by line of coverage. Doing so will make it easier to monitor carrier response internally and simultaneously provide your carrier with a simplified way to absorb multiple claims from your business.